Like other oil marketers, we expect recoveries in fuel demand and PMS price increases to drive Ardova’s Q3 fuel turnover to f448.3 billion (up 52% q/q, 33% y/y). We also expect Ardova’s lubricant operations to post a 14% q/q growth in revenue, as lubricant demand continues on a path to full recovery.
We believe the move by the government to deregulate PMS in September would bode well for the company, as we expect the company’s gross margin to advance to 7.9% (Q2’20: 7.3%, Q3’19: 6.3%). AS management continues its drive to tame operating expenses, we see company’s Q3 operating margin improving to 3.3%, up from 2.2% and 1.6% in Q2’20 and Q3’19 respectively. That said, we expect Q3 operating profit to come in at f41.7 billion (Q2’20: #t787 million, Q3’19: f4642 million).
Given the steep drop in Ardova’s debt portfolio from f48.3 billion as of Q3’19 to a Q2’20 balance of f46.5 billion, coupled with the low-yield environment, we project a 46% y/y decline in finance expenses to f4236 million in Q3. Our Q3 projections for Ardova culminate in a profit before tax and profit after tax of f41.6 billion and f41.1 billion respectively.
Vetiva Research
