Mobil Oil Nigeria Plc is the marketing arm of the oil giant selling products such as lubricants, fuel etc. At a balance sheet size of about N36b it ranks as one of the biggest downstream oil companies quoted on the floor of the Nigerian Stock Exchange. Its 9 months to September unaudited account shoed revenues topped N61b this period, a 36% rise compared to same period last year. A 36% rise in revenue for a company in an industry that has been plagued by subsidies, controversies, intense competition and erratic oil prices. Without this their 22% dip in gross profit year on year may have been worse. Even the cost of trading oil lubricants require some friction failing which it will just slip past revenue.
Just as revenue may have seemed impressive every other profitability metric either fell short or performed woefully this period. Operating profit margin dropped 59% to N4.4 of every N100 in revenues and profit margin even dropped more (62%) to N2.7 for every N100 of revenues. The cause of their problems this year have all to do with direct cost and operating expenses as indicated above. Both increased 48.7% and 5.2% respectively a pointer to a dip in profits at year end. Optimists will point to cash flow from operations of N1b (which also dipped 56% year on year) and the fact that they invested N4.3 in capex as a sign that it is still able to compete and remain viable. Truth of the matter is that the company has in the last 9months used all the cash in generated from operations to pay dividends and had to borrow all the money it spent on capex. Only time will tell, if cash generations will remain in the 9 figures range.
Cash they say is fungible and provided it remains available most don’t worry much making bottom line seemingly insignificant. That’s at your peril and ironically even the market knows this. Earnings per share has dropped by more than half since the end of the last financial year to N5.07. Just seven months ago share price was about 13x trailing earnings per share. Today it’s 10x trailing earnings and 22x current earnings per share indicative of a continued share price correction. So, do I see share price stabilizing or dropping even further? The latter should suffice, a N50 share price is just apt.
Mobil Oil Plc’s 2012 9 months unaudited accounts is posted on the website of the NSE