28 October 2021

TOTAL 9M2021 Results

In brief

Total Petroleum Ghana (“TOTAL” or the “Group”) released its unaudited 9M2021 results yesterday. Overall, TOTAL posted great results with earnings broadly in line with our expectations as the bottom line benefited from increased consumption and upward price adjustments. However, while we were impressed by the effective curtailment of operating expense, we express worrying concerns over the cost of sales as it eroded ~90.0% of revenue and compressed margins.

Performance: High cost of sales drains margins

  • The Group’s bottom-line grew by 26.4% y/y to ~GHS 89.4m in 9M2021
  • Top-line was the key driver of growth as it increased by 32.9% y/y, mainly supported by an increase in fuel prices and consumption
  • TOTAL’s ex-pump prices for the period increased by ~39.8% y/y, occasioned by the global crude oil market price rise by ~88.6% y/y
  • Revenue for the period was also supported by a ~10.0% increase in retail fuel consumption
  • Despite the growth in revenue, gross profit margin decreased from 14.2% in 9M2020 to 10.5% in 9M2021, due to forex and inflationary losses as well as an increase in purchases for the period, evident from the 63.3% y/y increase in inventory
  • Meanwhile, Operating costs were adequately controlled, growing slightly by 4.0% y/y to ~GHS 150.1m
  • Consequently, operating margin and net profit margin contracted by 100bps to 5.1% and 20bps to 3.8% respectively

Outlook: A bit concerned

  • We are quite concerned about the compressed gross margins as it significantly impacts profitability and efforts to boost revenue
  • With the Group’s operating expense incredibly controlled, we believe that TOTAL’s plan of solarizing its service stations, implementing e-solutions within its network, and other cost-cutting strategies have begun to yield returns. We expect TOTAL to keep treading on this path and devise strategies to curb the rising cost of sales
  • We remain bullish on the Group’s revenue growth on the back of the general increase in economic activity and fuel consumption
  • We expect TOTAL’s partnership with CFAO Ghana to increase the Group’s other income as well as market share in the medium term
  • We believe the nationwide rollout of the COVID-19 vaccination program and the subdued number of new COVID-19 cases makes a further lockdown unlikely. However, a resurgence of COVID-19 cases and the consequent re-imposition of restrictions on movement will hurt the Group’s sales

Valuation: Under Review

  • We are in the process of re-initiating coverage on TOTAL and have therefore placed our recommendation under review
  • TOTAL is, however, trading at a P/E of 4.1x and EV/EBITDA of 4.2x