Conoil Plc Still Holds Value Despite Plunged Profit

Must Read

FG offers free business registration for 250,000 MSMEs

The Federal Government says it has offered free business registration for 250,000 Micro, Small and  Medium Enterprises (MSMEs) nationwide...

The Legal Side of Doing Business in Nigeria: Compliance Checklist You Need as a Small Business Owner

Setting up a business in Nigeria is one of the roads to financial independence. As most persons who have...

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...
- Advertisement -

Conoil Plc churned out weaker operating performance in H1 2020 as its revenue was hard hit amid strict restrictions on movements, particularly at the inception of Q2 2020, due to COVID-19 pandemic fears. Hence, its profit after tax (PAT) plummeted year-on-year by 67.20% to N0.34 billion – as both white products and lubricants were impacted.

We observed that performance across players in the sub-sector was also weak due to the pandemic.

Meanwhile, activity in the industry was relatively volatile in H1 2020, as FG began partial implementation of market-based pricing regime amid declining crude oil prices. Also, oil marketers are now allowed to import Premium Motor Spirit.

Going forward, we expect revenue in H2 2020 to be better than that of H1 2020 given the two-time increase in pump price to around N148.70 in August, from N123.00 in April. Amid the challenges in the sector, Conoil’s performance amongst other players was above industry average based on financial ratio analysis, hence our ‘A’ rating.

… Liquidity Challenge, Weak Performance Should be Short-lived.

In addition to the weak profitability, Conoil Plc appeared to be grappling with liquidity issues given the dwindling cash & cash equivalent assets and the rapid rise in non-trade creditors.

- Advertisement -

However, we observed that Conoil Plc is efficiently managing its liquidity challenge as it strategically exposed itself to non-interest-bearing liabilities to reduce its relatively high interest-bearing borrowings (cost of debt stood at 15.75% in H1 2020).

Borrowings and finance costs fell y-o-y by 65.36% and 62.80% to N3 billion and N0.25 billion respectively. Despite Conoil’s liquidity issues, declining revenue and possible lower profit which may lead to a cut in dividend payout in FY 2020, we recommend a ‘HOLD’ position in the expectation that the challenges should be short-lived.

We expect Conoil’s profit and liquidity to improve as the pump price rises in tandem with the rising crude oil prices and as fuel consumption grows.

Given the current partial deregulation of the Nigerian downstream sector and removal of subsidies, we note the possibility that significantly higher fuel prices could reduce the purchasing power/effective demand of the consumer.

- Advertisement -

Hence, we expect competition among oil marketers for the consumer’s wallet to also thin their profit margins in the medium to long run during which we expect players to increase their current capacity.

Read Also:  Conoil Records N2.8bn Profit, to Pay N2.2bn Dividend

Our HOLD recommendation is hinged on two main factors – expected rise in pump price and sustained operating efficiency.

… As the Global Economy Continues to Improve.

Against the backdrop of improved global demand for oil amid the continued resumption of economic activities especially in China, the world’s second-largest consumer of crude oil (after the United States) which returned to growth in Q2 2020, Brent crude spiked by 134.71% to USD45.37 a barrel as at August 19, 2020, from a year low of USD19.33 a barrel as at April 21, 2020, around when the pandemic triggered an oil demand shock.

As countries continue to ease lockdown and as we expect demand for transportation fuels (for commuting, international flights and shipping) to rise.

- Advertisement -

In the August edition of its Monthly Oil Market Report, Opec forecast OECD demand for crude at 45.77mbpd in Q4 2020, higher than 44.13mbpd forecast for Q3 2020.

Read Also:  Stock market rebounds as investors gain N130.3bn

…And Operating Efficiency is Sustained

As already pointed out, Conoil has consistently been an efficient player in the rather low-margin Nigerian retail space and so naturally, we believe the company should record increased profitability with an increase in pump price.

Over the span of nine years (from 2011 – 2019), the downstream player, on average, outclassed its competitors (listed on the Nigerian Stock Exchange) in terms of gross profit margin (11.5% vs industry average of 9.4%) and operating profit margin (4.5% vs industry average of 4.4%).

However, the return on equity was lower at 11.6% compared to an industry average of 18.7%. This was essentially due to higher interest expenses as a significant borrower – its average debt to capital was 40.4%, higher than the industry average of 34.8%.

However, given recent efforts to lower its cost of debt (borrowings plunged year-on-year by 67% to N3.2 billion in H1 2020), and the opportunity to refinance its borrowings at the lower interest rate, we expect ensuing savings to boost its bottom line.

Conoil Plc Still Holds Value Despite Plunged Profit
Source: Company Financial Reports, Cowry Research

Cowry Research

- Advertisement -
Conoil Plc Still Holds Value Despite Plunged Profit - Brand SpurConoil Plc Still Holds Value Despite Plunged Profit - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Conoil Plc Still Holds Value Despite Plunged Profit - Brand SpurConoil Plc Still Holds Value Despite Plunged Profit - Brand Spur

Latest News

The Clifford Clinic Expands to Provide Cosmetic Surgery

SINGAPORE - Media OutReach - 21 October 2020 - The Clifford Clinic is announcing a new expansion to broaden the range of cosmetic...

More Consumer Education and Collaboration Needed, Argues New Economist Intelligence Unit Study on the Impact of Covid-19 on Illicit Trade

There will be at least five lasting effects from the pandemic, including rising demand for certain categories of illicit goods and an exacerbation of the e-commerce problem....

Aberdeen’s green stone coating expands into USA

TAIPEI, TAIWAN - Media OutReach - 20 October 2020 - The faux stone coating for buildings, a green product developed and manufactured by Aberdeen, has built a solid...

Ireland’s Leading Property Developer Bartra Offers Immigration Consultancy Service in Hong Kong

HONG KONG, CHINA - Media OutReach - 20 October 2020 - Bartra Wealth Advisors ('Bartra'), a subsidiary of Ireland's market leading real estate developer Bartra Capital...

Azbil to Exhibit Online the Latest Automation Technologies and Solutions at Industrial Transformation ASIA-PACIFIC (ITAP)

TOKYO, JAPAN - Media OutReach - 20 October 2020 - Azbil Corporation (Tokyo Stock Exchange Code: 6845) announced that it will participate as an exhibitor for the third consecutive...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Conoil Plc Still Holds Value Despite Plunged Profit - Brand SpurConoil Plc Still Holds Value Despite Plunged Profit - Brand Spur