29 April 2022

TOTAL 1Q2022 Results: Rising Costs Squeeze Margins

In brief

Total Petroleum Ghana (“TOTAL”) released its unaudited 1Q2022 financial results yesterday, reporting a significant increase in revenue due to fuel price increases in 1Q2022. Despite the strong improvement in revenue, margins were dragged down by higher cost of sales, resulting in a drop in earnings compared to 1Q2021. With inflation rising from 10.9% in March 2021 to 19.4% in March 2022 and the Cedi depreciating by 20.5% against the Dollar in 1Q2022, TOTAL’s OPEX came in higher than expected.

Performance: Margins continue to shrink

  • TOTAL’s bottom-line decreased marginally by 2.0% y/y to GHS 27.2m
  • The company’s revenue increased by 45.0% y/y to GHS 1.0b, owing primarily to increases in fuel prices and consumption
  • TOTAL’s ex-pump prices increased by 50.5% in 1Q2022, mainly driven by a 36.6% increase in global crude oil market price in 1Q2022
  • The rise in global crude oil prices was exacerbated by the Russia-Ukraine conflict, as Russia is the world’s second-largest exporter of crude oil
  • Despite the growth in revenue, gross profit margin decreased by 2.4pp to 8.6% in 1Q2022 as cost of sales outpaced revenue growth by 3.8pp
  • Cost of sales increased by 48.8% y/y to GHS 0.9b, owing to the rise in global crude oil prices and inflationary pressures
  • Furthermore, operating costs increased by 14.0% y/y to GHS 52.2m, dragging the operating margin down by 1.8pp to 3.8%
  •  Consequently, the net profit margin contracted by 1.3pp to settle at 2.7% in 1Q2022

Outlook: Sustainable revenue growth

  • We remain bullish on TOTAL’s revenue growth on the back of the general increase in economic activity and fuel consumption
  • We are also of the view that TOTAL will continue to adjust its prices higher to align with global crude oil pricing and rely on its brand and customer loyalty to drive sales amid soaring fuel prices
  • We believe TOTAL’s introduction of new can containers for all its lubricants will effectively differentiate its lubricant brands from competitors and help drive sales
  • We remain optimistic about TOTAL’s investment in cost-cutting strategies, despite the double-digit increase in OPEX which is primarily due to local inflationary pressures which emerged in 1Q2022

Valuation: Under Review 

  • TOTAL is currently trading at a P/E of 20.7x and EV/EBITDA of 12.8x
  • We intend to re-initiate coverage in 2Q2022