Mobil Oil Nigeria Plc. (9 months ended September 2014)
- Mobil Oil Nigeria Plc “Mobil” reported a 3.4% YoY rise in 9M 2014 revenues to N60.7 billion, with PBT and PAT more than doublingYoY to N7.9 billion and N5.9 billion, respectively, though still reflecting inflow from sale of property (N2.8 billion) during the first quarter of 2014.
Revenue weakness steepens on lower gasoline volumes
- After recording flat (+0.8%) YoY topline in Q2 14 on the heels 17% YoY jump in Q1 14, Mobil revenues fell ~7% YoY in Q3 14 (-6% QoQ) still underpinned by lower PMS throughput in our view. Sales which fell 12% short of our estimates, suggests Mobil remains conservative on pushing gasoline volumes which management attributed to thin imposed by regulation.
Input cost gains percolate to earnings
- Reflecting declines in gasoline throughput, COGS fell a quicker 10% YoY to N15.7 billion, pushing gross profit ~12% higher YoY to N2.8 billion, though 14% short of our estimate. Accordingly, gross margins expanded 260bps YoY to 15.4% (vs. 13.1% implied in our forecast) the highest since Q2 2011.
- Sizeable gross margin gains coupled with 19% YoY decline in operating expenses to N1.6 billion negated the impact of lower “other operating income” (-26% YoY to N592 million) and drove EBIT 33% higher YoY to N1.8 billion, with related margins of 9.7% (+2.9pps YoY) the highest in the last 12 quarters. Although breakdowns were not provided, we believe lower operating expenses reflects lower selling and distribution expenses, after moderation in gasoline sales, but more importantly, was flattered by a high base in Q3 13 were one-off cost raised opex. In our views, YoY moderation in ‘other operating income’, largely dominated by rental income, suggests Mobil is yet to receive inflow from the renovated Mobil court house.
- Overall, despite net finance charges tripling YoY to N54 million, gross margin gains and softer operating expenses caused PBT and PAT both up 31% to N1.7 billion and N1.2 billion to deviate from our forecast (+12%).Respective PBT and PAT margins expanded 270 bps and 190 bps YoY to 9.4% and 6.4%, also the highest since Q2 2011, compared to 7.6% and 5% implied in our forecast
Depressed oil prices could sustain margin expansion in the near-term
- Mobil’s financial performance, particularly with respect to margins, is a reminiscent of 2010 and 2011 results. Whilst favourable product mix—given lower gasoline sales—played some part, we remain cautious on the sustainability of this performance over the rest of 2014 with average base oil prices 3% higher YoY over Q3 14. Farther out, however, recent moderation in base oil prices (-4.5% QTD) onthe back of softer crude oil prices increases scope for margin expansion and in turn earnings growth. Furthermore, we expect earnings to be bolstered by increased rental income from the renovated Mobil Court House over the coming quarters.
- Mobil trades at a current normalized P/E of 15x and P/B of 6.5x relative to peer domestic peer average of 17x and 3.5x respectively. The stock has rallied another 6.8% since our Q2 14 update which results in last trading price being at a 58% premium to our FVEN108.10. We retain our SELL rating on Mobil.
Source: ARM Research