Total Energies Marketing Plc witnessed a 1.22% decline in pre-tax profit in 2022, contrasting with its 5-year Compound Annual Growth Rate (CAGR) of +15.15%.
The share price also underperformed against the NGX All-Share Index (NGXASI), with a -13.02% year-to-date (YtD) return, while NGXASI grew by 19.98%.
Despite this, Total’s share price has surged by 99.5% YtD in 2023, ranking it 43rd among the best-performing stocks on the NGX in terms of YtD share price appreciation.
However, this rise in share price contrasts with a 13.47% decrease in earnings per share in the first nine months of 2023, raising questions about the sustainability of this growth.
The Nigerian economy’s changes, including naira devaluation and the removal of fuel subsidies, have significantly impacted businesses and sectors like oil and gas, where Total operates.
The oil and gas sector index, featuring companies like Conoil, Eterna, MRS Oil, Seplat, and Total Energies, has shown a remarkable YtD growth of 106.37%, outpacing the broader ASI’s growth of 37.78%.
Investors seem to be driving Total Energies’ share price growth, banking on the sector’s positive outlook despite the company’s earnings decline.
Total’s historical financial performance, with a consistent double-digit CAGR in profits, supports this optimism. In 2023’s first half, Total showed a 6% growth in pre-tax profit and a 3% increase in EPS, driven by 31.38% year-on-year revenue growth.
Its Q3 revenue reached a record of N147.974 billion, contributing to a 9-month revenue of N422.576 billion.
However, challenges like increased costs, foreign exchange losses, and rising interest expenses have impacted the bottom line.
Total incurred a N4.805 billion foreign exchange loss in Q3, and interest expenses related to imports and loans increased by 63.12% year-on-year. These factors led to a 11.51% decrease in pre-tax profit for the first nine months of 2023.
Despite this, Total’s Q4 2022 pre-tax profit was N6.006 billion, and it projects a conservative N2.311 billion for Q4 2023. The Q3 2023 pre-tax profit drop to N3.145 billion, compared to higher figures in Q1 and Q2, adds to the challenge of surpassing its full-year 2022 pre-tax profit.
Stock prices are sensitive to earnings. A shortfall in earnings compared to historical trends or market expectations could lead to a stock price decline.
Total’s consistent dividend payments and the sector’s highest dividend yield of 6.49% may not offset concerns about earnings sustainability, potentially leading to a sell-off by investors seeking stable dividends.
For the 2022 financial year, Total declared an interim dividend of N4. No interim dividend has been announced for 2023, reflecting caution or a response to financial challenges.
Despite these issues, Total’s sustained revenue growth and reduced cost of sales and operating expenses offer hope for future financial improvement.