Increased material costs may lead to a decline in Eterna Plc’s profit, and a flat dividend payment for the 2018 financial year. Eterna Oil is our stock pick for the week.
About Eterna Plc
Eterna Oil was incorporated in 1989 as a private company and became a public company in 1997. The company was listed on the Nigerian Stock Exchange (NSE) in August 1998.
The principal activities of the company are: manufacturing and marketing of lubricating oils and petrochemicals, importation and sale of fuel through its retail outlets, and the trading of gas and crude oil.
Recent results
Results for the third quarter ended September 30, 2018, show that revenue fell from N45.8 billion in 2017 to N32.3 billion in 2018. Profit before tax fell sharply from N1.4 billion in 2017 to N309 million in 2018. Profit after tax also dropped from N973 million in 2017 to N210 million in 2018.
Pricing
Current Share Price: N5.45
Year High: N7.26
Year Low: N4.26
Year to Date: 34.24%
One Year Return: 39.48%
Valuation
Eterna is trading at 3.54 times earnings, lower than other firms in the sector. Industry leader, Total Nigeria, is trading at 6.9 times earnings, while Mobil Oil Nigeria is trading at 5 times earnings.
Price Outlook
Possibilities of a rapid increase in price are highly unlikely, due to bearish market sentiments, and the company’s poor Q3 2018 results.
Outlook
Eterna is unlikely to reach its FY 2017 performance. Q3 2018 earnings per share of N0.90, is far lower than the N1.55 made in the corresponding period of 2017.
The firm may be unwilling to increase dividend payments following the poor results. Eterna paid a dividend of N0.40 for the 2017 financial year.
While the listed major marketers like Total and Mobil have had upticks in results, smaller operators unable to maximise economies of scale and income from other avenues have done poorly.
In October, Eterna had signified its intentions to raise N10 billion through a commercial paper issuance. If this pulls through, the company’s expenses should decline.
Investors keen on the stock, would be better of waiting for a further drop in price before taking a position. Eterna is currently trading at 27.9% above its year low of N4.26.
