NIGERIAN STOCK MARKET ANALYSIS

TRW DAILY FUNDAMENTAL AND TECHNICAL ANALYSIS OF THE NIGERIAN STOCK MARKET

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Does Conoil need a makeover?

Posted by TRW STOCKBROKERS LTD on June 20, 2018
Posted in: NIGERIA STOCK MARKET ANALYSIS.

Business day Newspaper

One of Nigeria’s oldest company, Conoil Plc is looking like a company in need of a game changer as its lubricants sector seems to be playing second fiddle in a closely contested battle among companies in the downstream sector.

The company which was incorporated in 1960 converted to a public limited company on the 29th of August, 1991 is gradually being squeezed out of the downstream sector in what seems to be a tight race in 2018.

At first glance, Conoil’s 2017 financial performance looks good, revenue increased by 35percent from N85 billion in 2016 to N115 billion in 2017; the company also announced it is rewarding shareholders with N1.40 billion (N2.00 on every 50 kobo ordinary share), beating analysts’ expectation as they had envisioned that federal government protracted delay in the payment of subsidy monies could undermine petroleum oil marketers’ financial potency.

However comparison with major marketers such as TOTAL, Forte oil, 11plc, Eternal and MRS listed on the Nigerian Stock Exchange (NSE) shows that the company may be lagging.

A  further investigation into the 2017 financial books of Conoil Nigeria showed its Lubricants subsidiary contributes just 4 percent or N5 billion while its white products contributes N110 billion its total revenue of  N115 billion.

Earnings from lubricants subsidiary for TOTAL increased from N38.8 billion in 2016 to N47.5 billion in 2017 contributing 16 percent to the total revenue of N288 billion. Closely on its trail was Forte Oil with a revenue increase in its lubricant subsidiary from N11.4 billion to N12.1 billion in 2017 contributing 9.58 percent to the total revenue of N129.4, while Mobil Oil did not provide a breakdown of white product (regular petroleum products) and lubricant revenue.

“The other competitors are doing something right in terms of advertising, investments and value added Services which Conoil is obviously not doing,” Luqman Agboola, head of energy and infrastructure at Sofidam Capital Limited  said.

Ayodeji Ebo, managing director of Afri-invest securities limited said the downstream industry is very competitive and everybody is coming with new products to expand profits while Conoil has refused to act. “They need to expand their retail products and also improve branding as most of their filling stations are not properly branded,” Ebo added.

Other firms playing second fiddle are MRS and Eternal oil; MRS lubricants subsidiary contributed 3.7 percent or N4 billion to its N107 billion revenue in full year 2017 while Eternal oil lubricants subsidiary contributes 3.4 percent or N5.9 billion to full year revenue of N173 billion.

According to Johnson Chukwu, managing director of Crowry assets management limited there are many reasons for setting up a Subsidiary which include diversifying its means of revenue, to produce intermediate products and provide product that are complementary.

“However, when a subsidiary is not doing too well you can sell it off, invest more Capex in it or change the management depending on the primary motive for setting it up,” Chukwu told BusinessDay.

Conoil net margins was the lowest in the sector, declining to just one percent in 2017 compared to 3 percent in 2016, an indication that the company is not doing too well at keeping a cap on other costs.

In a difficult operating environment where inflation has been rising consistently until the last three months, analysts are beginning to ask questions if Conoil should be taking a second look at its conglomerate model most especially its Lubricants.

Forte oil had the highest net margin of 9percent in 2017 compared to the 2 percent recorded in 2016. 11 plc formally known as Mobile PLc had a net margin of 6 percent compared to 9 percent in 2016 while in 2017, Total had a net margin of 3 percent compared to 5 percent in 2016.

Despite its lubricant and LPG lapses, shareholders and investors of Conoil need not fret as the firm is on the path of growth as it trimmed debt with a view to bolstering cash flow.

Also, Conoil’s net debt to equity ratio decreased to 0.29 percent in December 2017 from 0.49 percent as at December 2016, Debt to assets ratio reduced slightly to 0.71 percent in 2017 from 0.73 percent the previous year. Total debt in the balance sheet fell by 42.4 percent to N5.17 billion in 2017 from N8.99billion the previous year.

In a statement, the Company attributed the performance to its sustained culture of financial discipline, prudent and efficient execution of projects and plans, aggressive product development and marketing, supported by cutting-edge customer service delivery.

While assuring that its promise to its shareholders remains maximum value, it reiterated delivery of excellent service and products to its customers.

Conoil had a 1 year return of -7.9 percent while its price to book ratio was 1.2 times, however TOTAL had a -23 percent 1 year return and a trades at 2.1 times book value, while Forte Oil trades at a Price to Book ratio of 3.1x with a  – 30pecent 1 year return. Eterna has a PB ratio of 0.66 times and a one year return of 85.60 percent.

Should Conoil not restrategize, it may be left behind in what promises to be a fiercely contested battle

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