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Our analysis this week is centred on the major players operating in the downstream oil and gas industry.
Investors that crave for stocks that magnify their income should pay attention to this short and lucid analysis.
Firms are operating in a volatile and unpredictable macroeconomic environment. For instance, the partial removal of subsidy by government deal a blow on earnings as many oil marketers couldn’t adjust to the new template of the regulator.
What’s more, the delay in subsidy payment by federal government resulted in accumulated debt in the balance sheet of firms that borrowed money from banks to finance the importation of petroleum products.
Total and Forte record strongest profit margins
Forte Oil Nigeria Plc’s gross profit margin of 18.64 percent recorded in December 2017, which is higher than the 13.85 percent recorded the previous year, beats industry average of 15.74 percent, according to Market and Intelligence’s calculations.
The indigenous oil and gas giant’s pretax and after tax margin of 8.20 percent and 8.89 percent are more than the industry average of 3.36 percent and 3.15 percent respectively.
Forte is the only firm in the entire industry that has succeeded in utilizing shareholders’ resources in generating higher profit. In other words, return on equity (ROE) increased to 22 percent in December 2017 against 7 percent as at December 2016.
The improvement in profit margins amid cap on price petroleum products by the regulator shows Forte’s corporate strengths and power brands as it continues to curtail costs.
11 plc (formerly known as Mobil Nigeria plc has a gross profit margin of 12.19 percent in as at December 2017 beat industry average of 10.50 percent, according to Market and Intelligence’s Calculations.
Pretax profit margin of 8.89 percent and after tax margin of 6.15 percent are well above the industry average of 3.36 percent and 3.15 percent respectively.
Mobil has zero debt in its capital structure, which means it gives the leeway to borrow to fund future expansion plans.
The company announced last week that it was reopening its Liquefied Petroleum Gas (LPG) business. The company last operated in this segment 20 years ago. The strategic plan could help add impetus to earnings.
Conoil Nigeria Plc’s, MRS Nigeria Plc’s, and Eterna Oil Nigeria after tax margins of 0.69 percent, 0.78 percent, and 0.59 percent are lower than the 3.36 percent industry average.
Share price and Valuation
Forte Oil is trading at 3.11 times book value, while its share price hit an all-time high of N47.70 in February of 2016, only to touch down at N52.62 percent as at the last trading day on June 14, 2018.
Total has a price to book (P/B) ratio OF 2.19 times, as share price hit an all-time high of N329 in October 2016, but closed at N202.90 at June 14 2018.
Mobil is trading at 2.19 times book value, while share price hit an all-time high of N360 in April 2017, but traded at N183 as at last trading day.
Conoil’s PB ratio is trading at 1.2 times, while share price appreciated the most in November 2013 when it touched at N76. However it is trading at N32 as at Thursday June, 2018.
Eterna has a PB ratio of 0.66 times, while its share price hit an all-time high of N6.93 as at May 11 2018. It closed at N6.30 on the last trading day of the week.
Investors and market participants do not attach value to MRS’ equity relative to its book value of equity as the firm’s has zero PB ratio.
MRS’s share price hit an all-time high of 70 in July 2014, while it closed at N34.25 on the last closing day before the festive period .It is the most beleaguered among its peer as it continues to grapple with high gearing ratio, weak sales, tepid operating performance.
The company was unable to pay cash dividend but gave its owners bonus shares or scrip issue.
