Oil marketing companies have had a turbulent 2012. From the subsidy strikes to the house of rep public hearing to the partial removal of subsidy. So don’t be surprised when you see quoted companies in the sector report declining revenues and profits. Mobil Oil Pls released its 2012 audited accounts with revenues rising 30% year on year to N80.8billion. However, cost of sales increased sharply thus reducing Gross Profit year on year by 19% to N8.2billion. Pre-tax profit at the end of the period was N4billion (2011: N5.99billion).
So what’s with the result?
Oil marketing companies typically have very low profit margins as most of they incur very high direct cost of sale. Therefore, when margins shrink despite increase in revenues, the worrying signs are that products are just getting too expensive to secure. Mobil oil apparently spend N90 of every N100 in revenues on paying making products available for sale. On a flip side, this actually makes the increase in revenue a whole lot important because if it were just 10% lower the company may have been starring at losses. The rise in revenue can be seen in their ability to turnover inventory 13 times annually a figure that is higher than industry average.
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Stock Worth Buying?
Mobil Oil is currently priced at N123 and has declined in value by 12% over the past one year. Their 52% drop in earnings per share surely hurts their market value more even more. At N123 the price is 15x its earnings making expensive in my opinion. It’s current and future outlook for increased profitability does not justify this high premium on its earnings. Profit decline began in 2011 after their PAT dropped 3% when compared to the prior year and this year it has gone worse dropping nearly 30%. But its Mobil and lets hope a turn around will emerge this year. For now I await first quarter earnings report to decide whether to buy.
Mobil Oil Plc result was posted on the website of the NSE