Conoil shares has been rising lately and it’s currently at its 9 years high!!! In fact it has risen 198% in the last 1year and 79% in the last 1 month alone. One might think it is on the back of their recently released results but certainly not, Nigerian stock exchange don’t rise that fast on fundamentals. Anyway, I tried to find out a logical explanation for this rise and this is what I found on Bloomberg;
Conoil Plc (CONOIL), which sells gasoline products in Nigeria, gained the most in nine years on speculation faster subsidy payments by the government will boost earnings. Forte Oil Plc also rallied. Conoil advanced 10 percent to 51.48 naira by the close in Lagos, the commercial capital, its biggest advance since Sept. 2004. Trading volume was 1.2 times the three-month daily average. Forte jumped 5 percent to 95.16 naira with volume 2.5 times the average.
According to another analyst interviewed;
“Payments to oil marketers have improved from what it used to be,” Oyekunle Omotayo-Benson, analyst at Asset & Resource Management Co., said by phone from Lagos. “The companies can push greater volume, cut down on borrowing and have a moderation in finance charges.”
What do I make of this?? Absolute bunkers. Conoil owes its current creditors about N51billion going by its recently released results. It is being owned N45billion and had cash of about N7.8billion as at the last 9 months results. So even if they decide to pay all their debts with the subsidy payments they will still need working capital to continue to be in operation before even thinking of increasing shareholder value. Their last dividend was N1 per share and a yield of 3% when the price was just N33, so I just don’t know what in this world is the justification for the huge hike in share price. Surely, interest cost has dropped already this year from 85% in 2012 to 36% 9 Months 2013. This has also been the trend all year long and may surely increase profitability. But ROE is still 13% YTD when the likes of Mobil are doing 36% for the same period.
Anyway, for the value investors who own this stock I am happy for you as I know you must have done your homework before purchasing the stock. Stay the course and don’t fall for sentiments.