TotalEnergies: Analysts Ask Investors to Bet on Premium Marketer
Following a strong earning outturn in the first quarter of the financial year 2022, equity analysts have asked investors to take a bet on TotalEnergies, a premium marketer of petroleum products.
In an equity report, Cordros Capital analysts said TotalEnergies (Ticker: TOTAL) Q1-2022 result reflects the company’s sustained dominance in the downstream oil and gas space despite the challenges brought by the fuel crisis experienced during the quarter.
“We like that TOTAL was able to substantially grow its revenue from the higher-margin lubricant segment, effectively reducing its reliance on petroleum products -particularly PMS- as the primary revenue driver”, the investment firm told clients via an email.
Analysts said they remain optimistic about TOTAL’s capability to deliver impressive earnings despite the plethora of challenges in the operating landscape, given its market leadership status, robust storage and distribution network and strong balance sheet management.
Nonetheless, Cordros Capital analysts highlighted that the price cap on PMS and surge in crude oil prices will continue to inhibit margin expansion. Consequently, TotalEnergies share was upgraded to buy rating following the investment firm’s forecasts revisions.
“We have raised our price target to N344.06 per share from N227.88 and upgraded the stock to a Buy”, Cordros Capital analysts said in the equity report. READ: TotalEnergies Moves to Sell Stake in SPDC
The firm added that the substantial upward review in its target price echoes optimism about its earnings and highlights that the stock remains below its fair value despite the 61.7% price gain over the past twelve months”.
Nonetheless, TOTAL still trades at earnings before interest tax depreciation and amortisation (EBITDA) multiple of 1.2x, a significant discount to peers’ average of 8.9x.
TOTAL carried into 2022 its stellar top-line outturn from 2021 as revenue grew by 46.3% year on year in Q1-2022, driven by the impressive growth across Lubricants & others, up 91.3% year on year and Petroleum products inched higher 34.1%.
Analysts said revenue contribution from the Lubricants & others line increased to about 31.0% from 24% in the first quarter of 2021- its highest level on record – highlighting management’s strategy of maximizing its lubes sales.
Accordingly, revenue across its business segments inched upward. Network jumped 10.8%, and the line accounted for 53.0% of revenue.
Also, General Trade spiked 125.6% year on year, now accounting for 37.0% of revenue and Aviation grew 168.3%; accounting for 11.0% of revenue.
Analysts said notwithstanding a dip in margins due to the surge in crude oil prices, TOTAL reported earnings per share (EPS) of N12.86, rising steeply from NGN8.75 in Q1-2021 translating to a growth of 47.0% year on year.
Lube sales to support 2022 performance, Cordros Capital analysts projected, saying they expect TOTAL’s dominant market share across the white products portfolio coupled with higher lube sales to support top-line expansion.
On the latter, analysts are expecting a favourable price/volume mix to influence the higher sales outturn. They forecast that revenue will grow by 14.9% year on year in 2022 and model an average annual revenue growth of 9.8% over the medium term, from 2023 to 2026.
“We model a 72 basis points year on year decline in the 2022 gross margin to 15.4%, reflecting cost pressures influenced by the spike in crude oil prices”. Analysts expect operating expenses to grow by 13.2% year on year; forecast a 140 basis points decline in EBITDA margin to 8.2% in 2022.
With a 72.0% projected decline in net finance costs, analysts see a 5.6% increase in earnings per share to N52.45 in 2022, up 717.2% year on year in 2021. Cordros Capital analysts forecast EPS to grow at an average annual rate of 9.1% between 2023 and 2026, noting that the estimated 2022 EPS of N52.45 aligns with Bloomberg’s consensus estimate of N52.64.
In its valuation, analysts raised the price target to N344.06 from N227.88 per share, implying a 46.7% upside and a total return of 56.7% after factoring dividend yield of 10.0%. #TotalEnergies: Analysts Ask Investors to Bet on Premium Marketer
