Forte Oil, late last week released its financial statements for the 9 months ended 2017, making it the first oil and gas company on the exchange to release its latest quarterly result. The results had mixed fortunes: While top and bottom line profits dropped, revenues from its power generation unit surged.
Revenues dropped from N121 billion in 2016 to N96 billion in 2017. Operating profit however increased from N7.8 billion in 2016 to N9.7 billion in 2017. While profit before tax dipped marginally by 1.7% from N5.6 billion in 2016 to N5.5 billion in 2017, profit after tax jumped up 85% from N2.7 billion in 2016 to N5.0 billion in 2017, due to a drop in income tax expense which fell from N2.8 billion in 2016 to N500 million in 2017. Despite the increase in profit, Earnings Per Share fell massively by 85% from N2.27 in 2016 to N0.50 kobo in 2017.
Revenues from Power generation are a key driver
Profits in the production chemicals and power segment increased, while lubricants and fuels declined. Gross profit from fuels dropped 38% from N10 billion in 2016 to N6.2 billion in 2017. Lubricants and greases profit fell 40% from N2.2 billion in 2016 to N1.3 billion in 2017. Gross profit from production chemicals increased 54% from N438 million in 2016 to N676 million in 2016. The power segment had the greatest chunk of profits as profits increased 248% from N2.5 billion in 2016 to N8.7 billion in 2017.
Forte Oil shares are currently trading at a Price Earnings ratio of 11 times Earnings. The shares closed at N44.25 in yesterday’s trading session on the Nigerian Stock Exchange, down 47% year to date.
We rate Forte Oil a HOLD, as the thin free float means the shares are unlikely to witness significant further downside. The company issued a notice last month, hinting at a corporate restructuring which would be of immense benefit to shareholders, and suspending a planned equity raise. A proposed N700 billion support to Nigeria’s power sector by the World Bank and the government’s willing buyer willing seller policy for generating companies, are areas the company stands to gain from.
Forte Oil Plc was incorporated on 11 December 1964 as British Petroleum. It became African Petroleum through the nationalisation policy of the Federal Government of Nigeria in 1979. The Company changed its name to Forte Oil Plc in December 2010 upon restructuring and rebranding. The Company and its subsidiaries are primarily engaged in the marketing of petroleum products which is divided into fuels, production chemicals, lubricants, greases and power generation
The above write up should not be considered investment advice but the opinion of the writer. Please consult your stockbroker or investment adviser before making a decision.