11 PLC FY’19 – Lower Margins Weaken FY’19 Earnings

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11 PLC FY'19 - Lower Margins Weaken FY’19 Earnings11 PLC FY'19 - Lower Margins Weaken FY’19 Earnings
  • Revenue advances 16% y/y
  • FY’19 rental income dips 7% y/y
  • Records a PAT of ₦8.9 billion (-5% y/y)
  • Target price revised to ₦283.15 (previous: ₦282.03)

Turnover climbs 16% y/y

In its recently released unaudited FY’19 results, MOBIL grew its turnover 16% y/y to ₦192 billion, while its after-tax earnings declined 5% y/y to ₦9 billion. Despite the impressive growth in FY’19 turnover, gross profit came in flat at ₦16.6 billion, as gross margin worsened to 9% (FY’18: 10%)— highlighting the lean margins in the downstream space. Meanwhile, rental income from the company’s real estate property dropped 7% y/y to ₦8.0 billion, bringing FY’19 operating profit to ₦13.1 billion (down 1% y/y). That said, operating margin came in lower at 7% (FY’18: 8%). Overall, MOBIL registered an after-tax profit of ₦8.9 billion (down 5% y/y), resulting in an ROAE of 24% (FY’18: 31%).

Improved margins support Q4 earnings

In Q4’19, revenue advanced 3% q/q to ₦50.2 billion, in line with our estimate. Although revenue breakdown has not been released by the firm, we presume that the growth in revenue was driven by the lubricants business, as the border closure might have weighed on fuel sales during the quarter. Furthermore, Q4’19 gross margin moved higher to 10% (Q3’19: 8%), taking gross profit for the quarter to ₦5.2 billion (up 31% q/q). The improvement in gross margin trickled down the income statement, resulting in a 14% q/q increase in operating profit to ₦3.6 billion (Vetiva estimate: ₦3.3 billion)— this was despite a 3% q/q drop in rental income, which contributes 55% of operating profit. Overall, profit before tax came in at ₦3.7 billion (+16% q/q).

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Return on equity to stay flat at 24%

Given our base expectation that the borders will remain closed for most of H1’20, we are somewhat conservative about MOBIL’s revenue performance in 2020. As such, we project modest revenue growth of 2% for 2020. Meanwhile, we expect gross margin to improve to 10% (FY’19: 9%), stemming from our expectation of higher lubricants contribution alongside anticipated lower landing costs. On this basis, we expect gross profit to advance 14% y/y to ₦19.0 billion. While we expect operating expenses to come in at ₦11.8 billion (up 2% y/y), we envisage that rental income will remain flat at ₦8.1 billion, taking operating profit to ₦15.4 billion (FY’19: ₦13.1 billion). Overall, we project a 15% y/y growth in profit after tax to ₦10.2 billion, translating to an ROAE of 24% (flat y/y). Our 12-month target price has been revised slightly to ₦283.15 (previous: ₦282.03). We maintain our BUY rating on the stock. However, this rating is subject to change upon release of the company’s audited financial statements. Additionally, while no corporate action has been announced by the company, we expect FY’19 dividend per share to come in flat at ₦8.25, translating to a payout ratio of 34% (FY’18: 32%).

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VETIVA RESEARCH

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