Listed companies in Nigeria’s downstream petroleum sector outperformed the Nigeria Stock Exchange (NSE) in 2013 even as the sector had been enmeshed in a series of probes relating to fuel subsidy payments.
This consequently led to the delay in disbursements of payments by the ministry of finance, and slowing the growth potential of the sector.
However, the subsequent payments of subsidy arrears after thorough reconciliation by the finance ministry enabled some of the companies pay back loans owed to banks thus reducing finance cost and boosting operational performance as can be seen from the results of five firms in the downstream sector namely: Forte oil Plc, Conoil Nigeria Plc, Oando Nigeria Plc, Total Nigeria Plc, and Mobil Nigeria Plc.
Forte Oil has a superb 12M13FY result as it recorded double digit growth in revenue of 40.7 percent y/y to N128.02 billion from N90.98 billion 12M12FY ,while pre-tax profits surged by 467percent to N6.52 billion year end 2013.
The company recorded higher returns to the owners as return on Asset (ROA) jumped to 5 percent 2013FY from 2 percent 2012FY, while Return on Equity ( ROE) remained flat at12 percent 2013FY from13 percent 2012FY.
Conoil Plc also had an impressive performance in the review period as its revenue grew by 6 percent to N121.81 billion as against N114.77 billion-this is still lower than the double digit growth rate, while pretax profits jumped by 341 percent to N3.08 billion.
We attribute the spurt in profits to judicious management of debt as finance cost dropped by 42 percent.
Further, Return on Assets (ROA) increased to 2.85 percent 9M13 from 0.58 percent last year, while ROE jumped to 11.7 percent from 3.12 percent.
Oando’s 9M13 Q3 results based on our analysis showed turnover shrinking by 20.8 percent y/y to N386.25 billion from N487.76 billion 2012FY, while pre-tax profit reduced by 46 percent to N9.76 billion.
The company has a debt ratio of 162 percent in its capital structure which was as a result of expansion drive by the company last year.
We see Oando having stellar performance in 2014 with the acquisition of Conoco Philips Plc. This will expand operation and boost growth of the company.
Oando raised around N85.9bn (US$539m) from a rights issue (N55.2bn) and special placement (N30.7bn) as well as financing commitments worth US$815m from local and foreign banks in 2013.
The East Horizon Gas Company (a midstream subsidiary of the Oando) was also sold in Q4 2012 to Seven Energy in a deal worth US$250m.
Total’s lagged in the third quarter 2013 as gross revenues dropped by 5 percent to N174.33 billion as against N166.38 2012FY.while pre-tax profits were down 9 percent to N5.67 billion.
Huge finance cost which had risen by 48 percent and recurring operational expenses slowed efficiency and affected its profitability.
Mobil’s gross revenue for the period Q3 2013 declined by 4 percent y/y to N58.73 percent from N61.3 last 9M12, while Pre-tax profits increased by 53 percent to N2.45 billion.
Drastic reduction in operational expenses during the period and declining finance cost by 71 percent y/y to N67.08 million are responsible for the improved efficiency.
Despite the fact that performances vary from one company to another, we see a better 2014 with the passage of the PIB bill. We also see a possible removal of subsidy; post 2015 elections which will increasingly bring about more competition and reposition firms in the downstream oil and gas sector.
By: PATRICK ATUANYA & BALA AUGIE
