Forte Oil Plc First Glance: Power Revenues Spur Impressive Q1-18 Results


Update: Forte Oil Plc (“FO”) recently released Q1-2018 results, reporting group revenue of NGN39.81 billion (+20.63% vs. Q1-2017) and PAT of NGN2.96 billion (+57.23% vs Q1-2017).

Improvement in revenue was majorly driven by the Power Generation segment which recorded revenue growth of 54.18% y/y, benefitting from improved pricing and increased capacity. However, power generation revenue was down 9.74% q/q predicated upon (1) non-remittance of payments by power distribution companies for electricity sold to them and (2) gas supply constraints. Revenue from the Fuels segment increased by 13.54% y/y and 43.59% q/q, attributable to an amelioration in the sourcing/importation challenges within the downstream sub-sector, with the NNPC increasing the availability of petroleum products to major marketers. Increased revenues from the Lubricants and Greases (6.66% y/y) segment and the newly added Solar System segment (NGN51.26 million) also boosted total revenue.

Cost of sales (+21.35% y/y) increased, weighed by a 44.33% y/y increase in the cost of sales from the Power Generation segment (a depreciation charge of
N996.155 million for the turbines used for power generation is included in the cost of sales).

However, gross margin came in higher, and across most segments (save for the Fuels business, wherein margin contracted by 433 bps). Notably, in the Power Generation segment, gross margin increased from 36.26% to 40.33%, with contribution from the segment to total revenue increasing from 19.79% to 25.30%. Lubricants and Greases margin increased from 18.31% to 19.96%, and accounted for 8.67% of revenue, from 9.81% in the previous year. OPEX moderated by 3.69% y/y and 27.20% q/q during the review period, spurred predominantly by an 8% decrease in administrative costs. Thus, a lower OPEX margin of 6.83% was recorded, in contrast to 8.56% in Q1-2017 and 11.48% in Q4-2017.

Net finance cost was down by 23% y/y due to a 23% decrease in interest expense on bank loans and overdrafts (charges paid on trade finance, loans and overdraft facilities utilised during the year). Outstanding debt stood at NGN37.06 billion during the period compared to NGN49.40 billion as at Q1-2017 and NGN35.76 billion at 2017FY.

FO’s latest result is impressive in our view, and we expect positive investor reaction to follow suit. NOT RATED. Ongoing initiation.