Recently, 11 Plc (MOBIL) released its 9M-19 results, sustaining a 5-year increase in its Revenue (+13.2y/y). The positive effect of the introduction of LPG volumes into its product basket was seen, coupled with larger revenues from its other products. However, Cost of Sales grew at a faster rate, offsetting an uptick in Revenue. With lower-income from rent and other sources, Profit before Tax declined -19.3y/y, as the negative effects of the rising cost of goods sold (COGS) trickled further down into final performance. Further details of performance are explained in this report.
Sustained Revenue Growth capped by increased sales costs
For the period under review, MOBIL recorded a 13.2%y/y growth in Revenue, riding on increased sales across all product segments. Its major drivers recorded double-digit growth, as Fuels moved +11.8%y/y to N114.0bn and Lubes by 14.9%y/y to N26.5bn. We also saw sustained momentum in sales of its new product line, LPG, by a whopping 59.2%q/q to N967.2mn, likely to touch N1.0bn by FY: 2019. Despite efforts at driving revenue, evident by a 5-yr CAGR of 25.4%, high costs remained problematic, as growth in Cost of Sales (+15.8y/y) caused a -10.2%y/y decline in Gross Profit to N11.5bn.
Elsewhere, benefits from MOBIL’s property business weakened, on the back of lower rental income, as Other Income declined 7.6%y/y to N6.0bn. Thus, lower OPEX (-1.1%y/y) was unable to support profitability. As such, Operating Profit decreased by 15.2%y/y to N9.5bn. In all, with lower realized income from investment property and marginal Net Finance costs (N133.4mn), Profit before Tax fell by 19.3%y/y to N9.4bn, with Profit after Tax the following suit to N6.3bn.
Stronger Cash balances in 9M-19
Similar to H1-19’s performance, MOBIL retained its cash-generating ability, with larger cash flows generated from operations (3.6x to N15.9bn). With room to fund investments in CAPEX, which was N3.1bn for the period and reduced outflows from trade creditors, Cash & cash equivalents were robust, growing by 2.3x to N10.9bn. Additionally, liquidity remains above average, as our estimates of MOBIL’s current ratio of 1.6x, is well above the industry average of 1.1x. Notably, no borrowings were recorded during the period, with a completely deleveraged capital structure.
MOBIL rated a BUY at current price:
In spite of the current tepid dynamics of the downstream segment, we are comfortable with MOBIL’s business operations. In the near term, we might see continued growth in sales, with LPG volumes likely to gain traction. Additionally, incomes from investment properties could continue to downplay volatilities associated with petroleum products marketing and shoring up overall profitability. Hence, we maintain our BUY rating on the stock, with a year-end target price of N197.6, implying a 33.6% upside from its current price of N147.9/share.
