Share analysis: Total Petroleum Ghana – distribution

The Company

Total Petroleum Ghana was incorporated in Ghana on December 31, 1951 as Socony-Vacuum Oil Company (Gold Coast Limited). It was at that point a wholly-owned subsidiary of Socony-Vacuum Oil of the US. The name of the Ghanaian subsidiary was changed from Mobil Oil Gold Coast to Mobil Oil Ghana.

On September 6, 2006 the shareholders of the company approved that the company’s name be changed again to Total Petroleum Ghana. The firm is primarily engaged in the marketing of petroleum products and services.

Total was provisionally listed on the Ghana Stock Exchange on July 19, 1991 and later had its official listing on September 18, 2006. It has a total of 50m authorized shares and 13.9m of these have been issued. Total Petroleum Ghana currently has stated capital of GHS682.4m ($189.4m). The company operates within three main segments which are respectively named network, commercial sales and other. The segments are based on the group’s management and internal reporting structure. A segment is defined as a distinguishable component of the group that is engaged either in providing products or services with a certain market (business segments), or in providing products or services within a particular economic environment (geographical segments), which is subject to risks and rewards that are different from those of other segments. The company mainly operates in the following sectors: aviation, retail, mining and exploration, marine, fleet and transport.

The company expects to continue its investment programme, which is directed at upgrading existing filling and service stations and the opening of new stations. This strategy also includes plans to embark upon a cost-management programme to control the fixed costs of the company by reviewing the assets portfolio to identify non-performing assets that may be disposed of; it is expected that these procedures will contribute to developing a positive cash position. This strategy is planned to continue into 2015 and beyond.

The revenue of the company has increased by 23% in FY14 to GHS1.66bn ($460.7m) from GHS1.34bn ($371.9m) and gross margins also grew by 15.7% to GHS117m ($32.5) in FY14. However, net income decreased by 10%. Total assets were enhanced by 13% to GHS383m ($106.3m).

Development Strategy

The company will continue its investment programme, which is a strategy directed at upgrading existing filling and service stations and opening new stations. This plan will be carried out through the implementation of dynamic business diversification concepts in the company’s existing boutiques and restaurants to enhance the accessibility of the products and services that are available to customers nationwide. New sales promotions will be introduced to boost lubricant sales and to maintain the company as the market leader in Ghana. The company will continue its strategy of expansion. The shareholders of the company have also passed a special resolution to enable it to engage in the production and distribution of solar energy technology and also invest in other forms of renewable energy.

Forecast

Despite the challenges of the economy of Ghana, we estimate the company’s revenue to increase and remain stable at 24.9% in FY15, as compared to the FY14 figure of 23.9%. This is expected to boost earnings since the strategy is to embark on a cost-management program to control fixed costs by reviewing the asset portfolio to identify non-performing assets as this will contribute positively to growth and also focus on customer satisfaction. Expected EBITDA is estimated to increase 22.0% in 2015 and net income is also estimated to improve by 5.6% in the same period.