MRS Oil Nigeria Plc. (9 months ended September 2014)
- MRS Oil Nigeria Plc (MRS) released 9M 14 unaudited results, wherein revenue was flat (+0.4%) YoY at N69.2 billion. However, largely reflecting softer input costs, PBT and PAT increased 9 and 6 folds to N1.2 million and N577 million, respectively.
Revenue contracts on lower gasoline throughput
- Q3 14 sales fell 4.6% YoY to N22.1 billion (4.5% shy of our forecast) on account of lower gasoline volumes as prolonged rain falls—particularly in the Southern region which houses most of MRS’ retail outlets—likely dampened motorway mileage during the period.
Gross margin expands to 3 year high…
- Q3 14 COGS declined (-6.8% YoY) quicker than revenues to N20.2 billion, driving gross profit 39% YoY to N1.8 billion. Accordingly, gross margin expanded 420bps YoY to a 3 year high of 8.4% relative to our expectation of 6.2%. We believe expansion in GM was buoyed by tilt in product mix in favour of non-regulated products after gasoline volumes fell.
… swinging operations into profit
- The expansion in gross margins amidst 14% YoY moderation in operating expenses to N1.3 billion swung core operating performance to positive (N596 million) from negative (N502 million) in Q3 13. Further aided by the jump in other operating income, which tripled YoY to N646 million, EBIT came in at N1.2 billion (Q3 13: – N312), with related margins hitting record highs of 5.6% relative to 5 year average of 2%.
- Although average debt levels tripled YoY to N10.3 billion in Q3, finance charges, which softened 13% YoY to N305 million, suggests that loan repayment of ~N8 billion occurred earlier in the period. Accordingly, PBT and PAT came in at N784 million and N258 million, (Q3 13PBT: – N627 PAT: – N601), with respective margins of 3.6% and 1.2%.
Soft oil prices to sustain performance in the near-term
- MRS’ Q3 result marks an improvement from prior quarters, largely aided by efficient product mix which boosted gross margins. On this front, lower oil prices which should translate into softer input cost for deregulated products should support gross margins over the rest of the year. MRS has recorded negative normalised earnings over trailing 4 quarters but trades at P/B of 0.72x compared to peer average of 4.7x. Although the stock has declined 5% since our Q2 14 update, at N56.00, it remains at a sizeable premium to our fair value estimate N39.64. We reiterate our SELL rating on the stock.
Source: ARM Research
