Firms operating in the downstream oil and gas industry have seen debt to equity ratio reduce as higher margins gave them the leeway to pay off debt.
There has also been record improvement in return on common equity (ROCE), which means these firms have used shareholders’ investment in generating higher profit.
Total Nigeria Plc’s has reduced the proportion of debts in its capital structure as debt to equity (D/E) ratio improved to 42.90 percent in June 2018, from 58.90 percent recorded the previous year, according to data gathered from Bloomberg Terminal.
The D/E ratio is however lower than the Oil and gas Index 38.72 percent, data from the Bloomberg Terminal shows is.
Total Nigeria’s gross margin increased to 16.02 percent as at June 2018, the higher than the 11.17 percent recorded in the first quarter of 2017, according to data gathered from the Bloomberg Terminal.
The downstream oil and gas giant’s return on common equity (ROCE) stood at 33.06 percent in the period under review, higher than the 25 percent recorded in the first quarter of 2017.
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Mobil Nigeria Plc has a gearless balance sheet, because it has no debt in its capital structure. Little wonder its ROCE increased to 40.18 percent in June 2018 as against 31.82 percent it recorded in the first quarter of 2017.
Conoil Nigeria Plc’s ROCE however fell to 37.25 percent in June 2018 as against 42.35 percent as at June 2017.
Eternal Oil Nigeria Plc’s debt to equity ratio fell to 50.48 percent in the period under review from 49.07 percent the previous year. Its ROCE moved to 15.76 percent in June 2018, this compared to 14.99 percent recorded in the fourth quarter of 2017.
Eternal has an attractive valuation compared to peers.
The stock is currently trading at 4.06 times earnings, much lower than the average of 4.16 times earnings of the Oil and Gas Index.
The stock has a year to date of 53.92 percent, outperforming NSE ASI Of 14.36 percent.
Forte Oil’s debt to equity ratio fell to 37.69 percent in the period under review, a remarkable improvement from 109.93 percent figure of the first quarter of 2017.
Interestingly, the company’s ROCE grew to 29.37 percent as at June 2018, from 26.15 percent as at first quarter of 2017 and 6.43 percent as at the third quarter of 2017.
Analysts attribute the improvement in margins and reduction in debt to the decision of Federal Government (FG) to allow the Nigerian National Petroleum Corporation (NNPC) to be the sole importer of petroleum products.
The move to the current model has allowed the downstream oil and gas firm leverage on their brand and wide service stations to distribute product while at the same time increasing volumes and growing profit.
“Since the change of template, NNPC dictates your margins, and the only way to make money is to increase your volume,” said Jubril Kareem – Acting Head of Energy Research – Ecobank
“These two firms have high number of service stations pushing out volumes,” said Kareem.
BALA AUGIE
