Earnings Analysis 2012 FY: Huge Finance Cost Lead Conoil Plc To Declare 76% Drop In PAT

[upme_private]Conoil Plc released its 2012 FY audited accounts showing a 4.8% drop in revenues to N149.9billion (2012 FY: N157.5billion). Gross Profit however rose 7.6% to N16.1billion (2012 FY: N15billion) as cost of sales was lower by 6.1% in the period under review. The gains from a reduction in cost of sales was however marred by a 21% rise in operating expenses ensuring Operating profit will tank 14% to N4.8billion (2012 FY: N5.6billion). Profit after tax at the end of the financial year was N715million a massive 76% drop from the N2.9billion posted a year earlier.

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• The drop in revenue is the lowest since 2009 when it revenues declined 21%. Last year (2011) revenue rose 53% compared to 2010. The strike of January 2012 surely will have a role to play in this as well as the cut to subsidy during the year. Nevertheless, all other Oil marketing majors except Forte Oil all saw revenue increases.
• Cost of sales was lowered by 6% when compared to the same period last year. This helped boost gross profit margins by 13% when compared to the same period last year.
• The Achilles heel for this years operating profit was the 21% rise in operating expenses compared to the same period last year. Operating expenses sliced off 70% of Gross profits compared to 62% the year before. This drove down operating profit by 14%.
• Finance cost however was the major contributor to the lower than expected result. The company’s debt soared by 148% ensuring finance cost will rise to N4.1billion compared to the N1.5billion paid a year earlier. 
• For this result to be considered a blip, the company will have to increase its revenue sources this year and also demonstrate its willingness to cut down on its debt.
• Share price is N33 and trades at an earnings multiple of 7.7x. The company also proposed dividends of N1 per share which currently presents a dividend yield of 3%. The dividend is also  lower than the N2.5 or N1.7billion paid out in 2011
• The proposed dividends represents a total pay out of 97% of the company’s earnings this year alone.
• The company is yet to release any result for the current operating period. Its 2013 Q1 and 2013 H1 results is still outstanding. I recommend one sees this result before taking an investment decision. 

Conoil Plc released its 2012 FY results in the website of the NSE[/upme_private]