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