Total beats estimate as profit soars on product price

…FY EBITDA surges 163.78 percent

Total Nigeria Plc’s full year profit jumped as product price increased on the back of the hike in petroleum prices announced by the Federal Government mid last year.
For the year ended December 2016, Total’s net profit surged by 265.60 percent to N14.79 billion, the Lagos based company said on the website of the Nigerian Stock Exchange (NSE).
That compared to N4.04 billion in the same period a year earlier, when petroleum fuel marketers’ earnings crater amid a collapse oil price and delay in the payment in subsidy monies owed to them by the federal government.
The result beat the N13.86 billion average estimate among seven analysts surveyed by BusinessDay. The company’s stock rose 3.86 percent to close at N285.
The sharp improvement in earnings was underpinned by a 39.90 percent rise in sales to N290.10 billion as the Nigerian oil and gas giant benefited from a hike in petroleum pump price in mid-2016.
“In terms of the results, which were largely in line with our call,” said analysts at ARM Securities Limited in an emailed note to clients.
“Total’s FY 16 performance was bolstered by gross margin expansion to 16.9% (FY 15: 12.2%) on the back of the 67% petrol price increase in May 2016 as well as modest volume growth (+1.2% YoY to 2.1 billion litres,’’ said analysts at ARM Securities Limited.
the Federal Government announced last year that petrol stations could charge as much as N145 a litre gasoline, up from N86.5 before, a move that will help the government save money it had been spending on huge subsidy payment.
The minister said last year that if not for the subsidy removal, the country would be losing N16.40 billion monthly as payment to fuel importers.
Experts say money saved from the subsidy removal could be used to fund capital projects such as the construction of roads, hospitals and bridges.
Analysts are of the view that a complete removal of such payment would boost the top lines (sales) and bottom lines (profit) of firms.
Such a growth trajectory will enable firms retain more money for future expansion while contemporaneously resulting in increased dividend to shareholders.
While Total Nigeria recorded stellar earnings amid a severe macroeconomic environment, its dividend payments to shareholders were behind analysts’ expectations.
The company’s payout ratio fell to 39.51 percent in the period under review as against 117.10 percent as at December 2015; the worst in two decade, according to Uwadiae Osadiaye with FBNQuest Limited.
This means it has paid less from earnings to shareholders.
The board of Total Nigeria declared a final dividend of N17 on every N0.50 ordinary shares held, higher than N14 declared last year. This translates to a yield of 2.55 percent.
Analysts say the disappointing dividend announcement amid solid earnings is expected to spark bearish sentiments in the near term.
Total’s Earnings before interest and tax (EBITDA) spiked by 163.78 percent to N25.06 billion, thanks to margin expansion, operating efficiency, and strong sales and reduced finance costs.
EBIT margins increased to 10.30 percent in December 2016 from 3.0 percent the previous year. Net margin, a measure of profitability and efficiency, moved to 5.10 percent in December 2016 from 1.90 percent last year.
The Nigerian oil and gas giant has utilized the resources of its owner in generating a higher profit as return on equity (ROE) increased to 62.74 percent December 2016 from 24.70 percent as at December 2015.