Total Energies Marketing Nigeria Plc, a prominent player in Nigeria’s downstream oil and gas sector, has entered 2025 on an unsteady footing. Despite ending 2024 with a historic pre-tax profit of ₦42 billion and a net income of ₦27.5 billion—its highest performance in half a decade—the company’s first-quarter 2025 financials paint a dramatically different picture.

Pre-tax profit nosedived by 93% to ₦1.12 billion, while the firm posted a net loss of ₦120 million. This sharp reversal from a post-tax profit of ₦11.4 billion in Q1 2024 points to deeper challenges beyond surface-level market trends.

Falling Revenues Despite Lower Costs: A Troubling Sign

While Total Energies succeeded in lowering its cost of sales, it failed to protect its bottom line. The company’s Q1 revenue fell by 18% year-over-year to ₦221.62 billion. The primary culprit was a steep 28.9% plunge in sales of white products—Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), and Aviation Turbine Kerosene (ATK). These products typically account for over 70% of the company’s revenue base.

This contraction, in large part, can be linked to Nigeria’s changing energy landscape, shaped by pricing irregularities and increased domestic refining output from new players such as the Dangote Refinery. These structural shifts have redefined competition and altered supply dynamics.

However, the poor revenue showing becomes even more concerning when viewed against the backdrop of competitor performance. For instance, MRS Oil Nigeria recorded a staggering 211% increase in Q1 revenue to ₦246.53 billion, while Eterna Plc also notched an 8% rise to ₦73 billion. This divergence suggests that the problem may not be macroeconomic alone, but also rooted in company-specific execution issues—ranging from market share erosion to a potential lack of pricing competitiveness.

Profit Margins Shrink as Expenses Climb

Total Energies’ gross profit shrank 30% to ₦24.51 billion in Q1 2025, and its gross margin narrowed to just 11%. These figures point to intense pressure on profitability, especially given the simultaneous 34% surge in operating expenses.

The company’s financing costs also ballooned, mainly due to a 270% spike in interest payments on bank drafts. This pushed its total finance costs nearly twice as high as the same period last year. The impact was severe: Total Energies’ interest coverage ratio—a key metric for measuring its ability to meet debt obligations—collapsed from 10.22 times to just 1.03 times. This means the company is now barely generating enough operating income to cover its interest expenses.

Liquidity and Cash Flow Under Strain

Beyond profit erosion, signs of liquidity stress are emerging. Total Energies’ inventory levels declined by 24%, suggesting a leaner stock pipeline, possibly in reaction to falling demand. However, trade and other receivables rose 9.4%, hinting at slower customer payments or increased credit sales.

The biggest red flag is the company’s operating cash flow, which plunged by 76% to ₦6.1 billion. This dramatic fall raises concerns about the company’s ability to convert its earnings into actual cash—critical for covering expenses, servicing debt, and paying dividends.

A Glimmer of Positivity: Lubricants Show Promise

Amid the broader gloom, one segment stood out—lubricants. Sales of lubricants surged by 29% to ₦66.1 billion in Q1, raising their share of the company’s total revenue from 19% to 30%. This development indicates a deliberate strategic pivot toward higher-margin products. Lubricants delivered a gross margin of 17.77%, in sharp contrast to the white products’ much thinner margin of 4.33%.

While this shift reflects smart portfolio realignment, it remains insufficient in scale to counterbalance the sharp decline in the company’s core fuel business. Until lubricants can carry a larger portion of Total Energies’ overall revenue and profit, the company will remain exposed to volatility in the white product segment.

Market Reaction and Valuation Disconnect

Despite the headwinds, Total Energies’ stock price has remained relatively stable, gaining just 1% so far in 2025. This is a far cry from the 81% price rally investors enjoyed in 2024. Nonetheless, the stock trades at a price-to-earnings (P/E) ratio of 15x, which is still higher than the industry average of 11x.

This valuation premium may have been justified by the company’s historical earnings performance and reliable dividend payouts, including a healthy 6.68% dividend yield. However, with profitability deteriorating and cash flow tightening, that premium now appears at risk of eroding.

Hold Recommendation: What Investors Should Monitor

In light of the Q1 performance, maintaining a HOLD position on Total Energies appears prudent. While the company is clearly making efforts to shift toward more profitable segments like lubricants, the speed and scale of this pivot are currently inadequate to offset weaknesses in its primary fuel business.

Investors should closely watch for:

• Recovery in core fuel sales: Evidence of stabilization or growth in white product volumes could indicate that market share losses were temporary rather than structural.

• Stricter cost controls: Management must demonstrate discipline in trimming operational and finance-related expenses to protect margins and restore profitability.

• Stronger cash conversion: Improved cash flow from operations will be crucial, especially in a high-interest-rate environment. Enhanced collections and reduced credit sales could alleviate liquidity pressure.

Until Total Energies demonstrates meaningful progress in these areas, its lofty valuation may prove difficult to sustain. While its dividend yield may offer some cushion, weak earnings quality and diminishing investor confidence may cap upside potential in the near term.

Conclusion

Total Energies Nigeria finds itself at a critical juncture. The sharp reversal in its Q1 2025 performance reveals not just macroeconomic challenges, but also underlying operational weaknesses. While its push into lubricants is a step in the right direction, the company’s dependence on its faltering white product segment remains a major vulnerability.

For now, investors would be wise to stay cautious, closely tracking the company’s strategic execution and financial health in subsequent quarters. Only a decisive turnaround in earnings quality and core business strength can reignite optimism and support its current market valuation.