Total Energies Nigeria Plc, a major player in the downstream oil sector, has set its financial outlook for the remaining quarters of 2024.
On September 10, 2024, the company released its Q4 forecast, projecting a pre-tax profit of N8.61 billion, following an earlier Q3 forecast of N6.270 billion. This brings the company’s total second-half pre-tax profit projection to N14.891 billion.
In terms of revenue, Total Energies forecast its Q4 revenue to reach N237.916 billion, marking the highest quarterly forecast of the year.
The second half’s total revenue is projected to be N450.278 billion, which is about 15% lower than the first half.
Nevertheless, the company expects to achieve a 54% year-on-year (YoY) growth in revenue, bringing its full-year total to N980.219 billion.
Strong Areas in the Forecast
Improved gross profit margins: One of the stronger takeaways from the forecast is the projected 12.49% gross profit margin for the second half of 2024, which would represent an improvement from the first half.
The company aims to lower its cost of sales to N394.060 billion, down from N465.525 billion in the first half. This forecast signals more efficient operations in the latter part of the year and could improve the company’s profitability if successfully executed.
Revenue growth despite decline in the second half: While second-half revenue is projected to decline by 15% compared to the first half, the full-year revenue is expected to grow significantly by 54% year-on-year.
The company’s ability to sustain such growth, despite the seasonal and market challenges in the second half of the year, will be key metric investors will watch closely. If the company can drive strong sales in Q4, particularly in its petroleum segment, it may even exceed these projections.
Controlled overhead expenses: Another key takeaway is the company’s plan to control operating expenses, forecasting a reduction in overheads to N34.592 billion in the second half, down from N36.362 billion in the first half. This cost management strategy indicates that Total Energies is taking proactive measures to maintain profitability, even as it anticipates rising finance costs.
Weak Areas and Risks
Rising Finance Costs: One concerning aspect of the forecast is the significant rise in finance costs, which are projected to increase by N11.970 billion; 53% higher than the first half of the 2024 figure.
The total finance cost for 2024 is expected to reach N14.249 billion, which is 23% higher than in 2023. This could weigh heavily on the company’s net profit margins, particularly if interest rates or borrowing costs increase further.
Petroleum Price Volatility: Total Energies’ reliance on petroleum products for over 80% of its revenue presents both a strong point and vulnerability. With N449.534 billion tied to the net changes in the inventory of lubricants, greases, and refined products out of its total cost of sales of N465.525 billion, the company is deeply tied to fluctuating oil prices.
Any volatility in global oil prices or changes in local fuel policy could lead to unexpected cost increases, which could hurt the bottom line.
The oil and gas sector has shown remarkable resilience in 2024, maintaining a bullish trend. As of the close of trading in August, the sector’s index posted a 78.4% gain, making it the second best-performing index on the Nigerian Exchange (NGX), outperforming even the broader All-Share Index (ASI).
Total Energies, a key player in this sector, has experienced a 75% year-to-date (YtD) gain in its stock price, building on the 98% gain it achieved last year.
Given the company’s solid share price performance, Total Energies’ ability to either beat or miss its financial forecast for Q3 and Q4 2024 will play a significant role in shaping investor sentiment moving forward.
Should the company exceed its projected revenue of N450.278 billion and pre-tax profit of N14.891 billion for the second half of the year, the momentum behind its stock price could continue to accelerate.
Beating forecasts in previous quarters, as seen in Q2 where the company posted N13.73 billion in pre-tax profit more than 114% above its forecast, might have instilled confidence in investors.
Achieving a similar outperformance in the second half would likely maintain or further boost Total’s share price, which is paramount for investors and shareholders.
On the other hand, missing these forecasts could dampen investor confidence and slow the stock’s upward trajectory.
This could lead to a short-term pullback in the stock, particularly in a sector where volatility in global oil prices and domestic fuel policies can quickly sway investor sentiment.
Ultimately, Total Energies’ ability to navigate these external market factors while maintaining profitability will determine whether its impressive share price growth can be sustained.
Investors will be closely watching the company’s Q3 and Q4 results to gauge whether it can continue outperforming, as the overall oil and gas sector remains a bright spot in the Nigerian market.
If Total Energies can balance these factors effectively, it may continue to outperform, as it did in Q2, but the margin for error remains narrow as the year progresses.