Performance: Margins are shrinking

• TOTAL’s bottom-line decreased marginally by 3.2% y/y to GHS 108.7m
• The company’s revenue increased by 34.8% y/y to GHS 3.2b, mainly supported by increases in fuel prices and consumption
• TOTAL’s ex-pump prices for the period increased by ~31.0% y/y and by an average of 1.2% bi-weekly, owing mainly to a 58.7% y/y increase in global crude oil market price
• Revenue growth for the period was also supported by an 8.7% increase in retail fuel consumption
• Despite the growth in revenue, gross profit margin decreased from 14.6% in FY2020 to 10.1% in FY2021. We believe TOTAL’s margins are shrinking as a result of customers switching to alternative OMCs with lower fuel prices. Our thesis is supported by the 0.15pp decline in TOTAL’s market share to 8.26% in 10M2021
• Cost of sales increased by 41.9% y/y to GHS 2.9b, on the back of the increase in global crude oil prices and inflationary pressures
• Furthermore, operating costs rose by 10.6% y/y to GHS 209.1m, reducing operating margin by 2.1ppts to 4.6% and consequently contracted net profit margin by 1.3ppts to settle at 3.4% in FY2021

Outlook: Room for improvement

• We remain bullish on the Group’s revenue growth on the back of the general increase in economic activity and fuel consumption
• Moreover, we expect TOTAL’s partnership with CFAO Ghana to increase the Group’s other income as well as market share in the medium term
• In 4Q2021, TOTAL debuted a new can container for all its lubricants. We believe TOTAL’s strategy here is to differentiate its lubricant brands from the competition in order to provide a better customer experience and drive sales
• Our on-the-ground research revealed that TOTAL is one of the first OMC’s to adjust its prices higher to align with global crude oil pricing. We believe that TOTAL’s strategy is to rely on its brand and customer loyalty to drive sales amid rising fuel prices. We are of the view that there is more room for TOTAL to improve its competitive edge and regain market share
• TOTAL’s investment in solarizing its service stations, implementing e-solutions within its network, and other cost-cutting strategies are yielding positive results with operating costs under control
• We are of the view that further lockdowns are unlikely. However, the emergence of new highly transmissible COVID-19 variants continues to remain a key downside risk

Valuation: Under Review 

• We are in the process of re-initiating coverage on TOTAL and have therefore placed our recommendation under review
• TOTAL is trading at a P/E of 5.0x and EV/EBITDA of 3.3x