Total Energies’ Soaring Stock: Is the Surge Backed by Strong Earnings

Infostride News reported a 1.22% dip in pre-tax profit for Total Energies Marketing Plc in 2022, marking a stark contrast to its impressive 5-year Compound Annual Growth Rate (CAGR) of +15.15%. The company’s share price, reflecting a -13.02% year-to-date (YtD) return, failed to keep pace with the NGX All-Share Index (NGXASI), which saw a robust 19.98% growth during the same period.

However, a noteworthy shift occurred in 2023, as Total’s share price experienced a remarkable surge of 99.5% YtD, propelling it to the 43rd position among the best-performing stocks on the NGX in terms of YtD share price appreciation.

This surge, however, stands in stark contrast to a 13.47% decline in earnings per share during the first nine months of 2023, raising concerns about the sustainability of this rapid growth.

The Nigerian economic landscape has undergone significant changes, including naira devaluation and the removal of fuel subsidies, affecting businesses across various sectors, including oil and gas, where Total operates.

The oil and gas sector index, featuring companies like Conoil, Eterna, MRS Oil, Seplat, and Total Energies, has demonstrated an impressive YtD growth of 106.37%, outpacing the broader ASI’s growth of 37.78%.

Investors appear to be the driving force behind Total Energies’ share price growth, expressing confidence in the positive outlook of the sector despite the company’s decline in earnings.

Total’s historical financial performance, characterized by consistent double-digit CAGR in profits, lends support to this optimism. In the first half of 2023, Total reported a 6% growth in pre-tax profit and a 3% increase in EPS, fueled by a substantial 31.38% year-on-year revenue growth.

The company’s Q3 revenue reached a record N147.974 billion, contributing to a 9-month revenue of N422.576 billion. However, challenges such as increased costs, foreign exchange losses, and rising interest expenses have impacted the bottom line.

During Q3, Total incurred a foreign exchange loss of N4.805 billion, and interest expenses related to imports and loans surged by 63.12% year-on-year. These factors collectively led to an 11.51% decrease in pre-tax profit for the first nine months of 2023.

Despite these challenges, Total reported a Q4 2022 pre-tax profit of N6.006 billion and 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 inherently sensitive to earnings fluctuations. Any shortfall in earnings compared to historical trends or market expectations could potentially result in a decline in Total’s stock price.

While Total has been consistent in dividend payments and boasts the sector’s highest dividend yield of 6.49%, concerns about the sustainability of earnings may offset these positives. This could lead to a sell-off by investors seeking more stable dividends.

For the 2022 financial year, Total declared an interim dividend of N4. However, as of 2023, no interim dividend has been announced, possibly reflecting caution or a strategic response to ongoing financial challenges.

Despite these challenges, Total’s sustained revenue growth and efforts to reduce the cost of sales and operating expenses offer hope for future financial improvement. The company’s ability to navigate the evolving economic landscape and address the issues impacting its profitability will play a crucial role in shaping its financial trajectory in the coming years.