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The Nigerian Stock Exchange currently has about 76 companies trading at their year lows. A stock’s year low is the lowest price the stock is trading at in a 12 months period. To put this into perspective, the All share index has a total of about 173 active stocks meaning that about 44% of equities are trading at their lows. This is even more surprising when you include the fact that the stock market is still at a two-year high (the August correction nonetheless).
Despite this situation, the stock market is unmoved as this phenomenon is nothing new. The Nigerian Stock market is very shallow with only about 30 stocks determining its direction daily. Most of the stocks trading at their year lows are doing so because quite frankly there is nowhere else to go for them. They are stocks stuck at a share price of 50 kobo and have remained at that level for months if not years. However, every now and then there are exceptions.
A notable exception, from last week, is Mobil Nigeria Plc (now 11 Plc). Mobil share price closed Friday at a share price of N165, its lowest in a year. In fact, the last time Mobil traded at N165 was coincidentally last August, right before news filtered in that it was getting acquired by NIPCO Plc.
Why the nosedive
Mobil share price began plummeting in June 2017 after the new owners announced that its mandatory offer share price of N417 will only be paid to shareholders who were in the register as at April 10, 2017. The share price was at a peak of N360 at the time and soon fell once shareholders new there was no value in keeping the shares if they did not qualify for the MTO.
Buy sell or hold?
At N165 Mobil is now trading at a price earnings multiple of 9x. Compare that to its peer, Total Plc which is trading at 7.9x earnings and one can argue that maybe there is still room for a further drop in Mobil share price.
In terms of fundamentals, Mobil’s reported a 45% drop in profits, triggered mainly by an exceptional item. The company incurred losses after it booked an actuarial loss of N2.2 billion on its defined benefit scheme which it migrated to a defined contribution scheme. Exceptional items are not expected to occur again so one can adjust for this loss to see how well the company performed.
Adjusting for the exceptional items and focusing on the businesses operating profit also reveals its core business of oil marketing is not growing. For example, we stripped the N3.5 billion and N2.3 billion in gains from its property department for the year half-year 2016 and 2015 respectively. Strip it off and operating profit for the first half of 2017 was N2.1 billion compared to N4.1 billion in the same period in 2016. These are signs of a business struggling to contain margins.
With new majority owners on board, investors will still need to be wary of what direction they intend to steer the company to in the short to medium term. The risk for retail investors are clear and as such owning Mobil stock is probably not desirable.
Mobil is a sell in our opinion.
