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CONOIL consolidates success despite industry worries 

CONOIL’s topline expansion surged further in Q3:2019; 9M:2019 revenue printed at NGN112.72 billion.

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NSE lifts suspension on Conoil's shares, Otedola backtracks, says Adenuga has redeemed N1 billion pledge to the CACOVID fund

White products maintain topline expansion 

CONOIL’s topline expansion surged further in Q3:2019; 9M:2019 revenue printed at NGN112.72 billion (vs. NGN75.84 billion in 9M:2018; +48.64%), driven by a 10.72% uptick in Q3. Q3:2019 revenue of NGN40.53bn (+89.65% Y-o-Y), is the highest recorded so far this year and was highlighted by an impressive 91.98% Y-o-Y growth in white products (PMS, AGO, ATK, LPFO and DPK). Year-to-Date, the segment has contributed 95.30% to topline which is commendable, given the mounting competition to push volumes in a difficult market. CONOIL is clearly leveraging its ubiquitous retail presence in Nigeria (395 dealers concentrated in areas of robust vehicular traffic and commercial activities) and goodwill amongst commercial vehicle operators to edge its peers in terms of sales growth. Lubricant Sales for the first 9 months is also up by 34.72% (NGN5.30 billion), albeit suffering a 5.61% Q-o-Q contraction in Q3, to settle at NGN1.79 billion (vs. NGN1.90 billion in Q2).

This is possibly a consequence of other industry operators also ramping up Lube marketing and sales, to improve depressed margins in a worsening cost environment. The LPG segment remains dormant since management took a strategic decision to shut it down temporarily in 2017 and made a commitment to restart at the earliest possible time. We think it is imperative that the reopening of this segment is expedited, for the company to participate in Nigeria’s budding transition towards LPG (for cooking) and capture further value, given its strong presence and appeal. We now expect topline growth at 26.91% in 2019FY to reach NGN155.10 billion.

Slight moderation in direct costs provide succour for margins

In contrast to most of its downstream peers, CONOIL’s Cost-to-Sales (CtS) narrowed slightly to 89.22% in Q3:2019 (Q3:2018: 90.23%). Direct costs pitched in at NGN36.14bn for the quarter (vs. NGN28.26 billion last year and NGN32.85 billion in Q2:2019), on the back of a slim improvement in White product costs. Industry players have been distressed by elevated landing costs this year (currently c.NGN225.00 per litre), with consequently pressured margins, but CONOIL has managed to keep CtS at 90.19%. Even then, costs are growing faster than revenues. (55.57%, Y-  o-Y). Currently, only TOTAL (88.69%) boasts of a better performance than the company in the management of direct costs. OPEX-to-Sales for 9M:2019 also printed lower at 6.09% (vs. 9.08% in 9M:2018), with OPEX at NGN6.86 billion.

CONOIL consolidates success despite industry worries 

Interestingly, the company’s depreciation expense ticked up by 34.29% (NGN0.40bn) despite a steady decline in the value of tangible non-current assets. Administrative expenses also increased by 20.91%, due to higher staff-related costs in the quarter. EBITDA was at NGN5.19bn, from NGN4.65bn a year ago, while operating profit also advanced by 14.25% to reach NGN4.29bn.

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Pre-tax and Post-tax profits were however dragged by a 22.87% increase in overdrafts (necessitated by delays in payment of outstanding subsidy claims), as finance costs ticked up by 23.53%. After-tax earnings to date is NGN1.70 billion, implying a net margin of 1.51% (vs. NGN1.59 billion and 2.09% in 9M: 2018). 2019FY earnings is now expected at NGN2.45 billion.

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Balance sheet management can unlock superior shareholder value

In the year to date, CONOIL has improved the management of its working capital – inventories are down 8.03% y-o-y (NGN8.41 billion), receivables also declined by 25.10% (NGN22.69 billion), while defraying NGN14.89 billion (42.45%) of its payables from last year. However, the rising debts (+22.87% Q-o-Q; NGN11.95 billion) continue to pressure bottom-line. Given the sizeable cash hoard of NGN17.24 billion, we believe CONOIL can do better at managing its growing interest expenses by taking on cheaper debt to free up funds for expansion initiatives or for distribution to shareholders.

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Outlook and recommendation  

With these 9M:2019 results, CONOIL has consolidated its status as the best performer in the downstream segment, even though this is currently not mirrored by stock price performance due to concerns about the company’s corporate governance. At the minimum, we envisage a dividend yield of c. 13.00% this year, and with earnings growth expected at 36.35% (NGN2.45 billion by 2019FY), implies a forward EPS of NGN3.53. Our target PE of 8.20x suggests a 2019FY Target Price of NGN28.94, with a BUY recommendation.

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Fidelity Bank Plc must cover the chink in its curtains to keep rising 

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years.

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Fidelity Bank Plc

The Nigerian banking sector has consistently been one of the most profitable sectors in the Nigeria Stock Exchange market. However, in 2020, Deposit Money Banks (DMBs) have faced a flurry of impediments, which may have affected their solidity.

With reduced income from fee and commission implemented at the start of the year by the Central Bank of Nigeria, the paucity of foreign currency for international transactions, the resulting economic contraction from dire effects of the coronavirus pandemic, and the consequent operational constraints of keeping employees safe, 2020 is obviously fraught with numerous disorders for banking institutions.

READ: Another Fidelity Bank Non-Executive Director purchases 1 million shares worth N2.75million

For most, it hasn’t exactly been a year for growth at all, more like a walk in the woods, where improvements to bottom-line is almost unexpected. This period, many banks seem content with simply surviving and fundamentally matching their previous feats.

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years. The bank generated a 2020 9M PAT of N20.4billion, rising 7.08% from the corresponding figures last year, but drilling solely into its results in Q3’2020 and its exact comparative period in 2019, the bank suffered reduced interest revenue, reduced fees and commission, reduced profit before tax, and reduced after-tax profit.

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READ: STANBIC IBTC posts Profit After Tax of N45.2 billion in H1 2020

Fidelity Bank Plc concluded Q3 with a profit position of N9.1billion, 13.7% decline compared to its position in 2019 y/y. PBT reduced by 12.9% from N10.8billion in 2019 to N9.4billion this year. Gross earning in Q3 was only N49billion as against N57billion in 2019 – plummeting 14%.

The Group Chief Executive Officer of the bank, Mr. Nnamdi Okonkwo, commenting on the result said: “Our 9 months results reflect our resilient business model, particularly in a very challenging operating environment. We worked closely with our customers to gradually recover from the economic impact of the pandemic and the attendant effect of the lockdown. The drop in gross earnings was due to the decline in interest and similar income, caused by lower yields and drop in fee income.”

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READ: Sterling Bank Plc records 3.28% decline in 2020 9M gross earnings

True cause of the reduction in earnings

DMBs generate gross earnings under three primary subheads: Interests earned, Fees and commission, and Other operating income. Fidelity Bank Plc generated a combined total of N150.8billion for the period ended September 2020 from these three categories, compared to the N158.5billion in the corresponding period last year.

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Deeper analysis reveals that this rising tier-2 bank has seen more deficit in revenue from fee and commission compared to the other aforementioned gross-earnings’ generating-sources within this period. Interest earned dropped by a difference of N4.3billion, while revenue from fee and commission saw a decline of N4.8billion from N14.5billion in 2019 to N19.3billion YoY.

Fee and commission as a component of gross earnings

Card maintenance fees, account maintenance fees, commission on remittances, collect fees, telex fees, electronic transfer fees, amongst others, represent the plethora of channels that makes up income from fee and commission.

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READ: Strong performance from Stanbic IBTC, despite weak retail banking position

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The real insight this particular component of gross earnings provides is that a spike in revenue generated indicates increasing/increased customer account activity. The more a customer maximizes the usage of an account’s product and facilities, the more the revenue earned from this segment. Thus, earnings from fees and commissions are so overriding due to their apparent controllability.

For example, a bank could make the decision to purely pursue and aggressively drive the usage of its ATM debit card and promptly see the revenue from commission rise. Furthermore, an increased rate of card production and collection necessitates usage and consequently means more money is earned as card maintenance fees.

READ: Unity Bank Plc posts gross earnings of N11.04 billion in Q3 2020

The fact that gross earnings reduced mostly from fees and commissions should be a telling concern for the Management of Fidelity Bank Plc. Post covid-19 would birth the dawn of a new era for business processes. The management must guarantee the usability of its electronic banking channels, promotion of its cards, and with urgency, implement improved service delivery mechanisms to ensure that it is the first port of call to customers for general payments and remittances.

These measures are of grave significance in the bid to bridge its widened fee and commission income gap.

READ: Central Bank says monetary policy not to blame for rising food cost

Other indices

Holistically, in the 9 months ended September, it is worthy of note that the bank made certain advancements. Customer Deposits, Net Loans and Total Assets all grew in double digits. Customer Deposits grew by 22.3% from N1.2billion to N1.5billion, Total Assets also rose by 21% from N2.1billion in 2019 to N2.5billion, and Net Loans rose by 12.9% to N1.3billion from N1.1billion.

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Airtel is paying up its debts

Airtel’s annual report revealed that the company has a repayment of $890 million due in May, as well as, an installment of $505 million due in March 2023.

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Top payday loans, Airtel is paying up its debts

Airtel’s presence in 14 countries from East Africa to Central and West Africa would have been impossible without relevant financial investments. But, while the funds have been key to its growth in the past few years, many of its financial obligations are starting to mature quickly.

The Covid-19 pandemic has had negative economic effects on different sectors of the economy; however, the resilience of the telecom sector is evident in an increase in Airtel’s income. The overall performance of Airtel increased with a revenue growth in constant currency of 19.6% in Q2 compared to 16.4% recorded in Q1, while revenue on reported basis increased by 10.7% to $1.82 billion, with Q2 revenue growth of 14.3%.


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Unilever Nigeria Plc: Change in management has had mixed impact

9 months into the change of management, Unilever Nigeria Plc’s performance in Nigeria has been largely underwhelming.

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Unilever Overseas increases stake in Unilever Nigeria Plc

Change in the management of a company is never a walk in the park. Transitions usually take time to yield the desired results. Organizations can look to past successful managerial transitions for inspiration, but not for instruction because there is no defined playbook. The decision to replace Mr Yaw Nsarkoh, who served as the Managing Director of Unilever Nigeria Plc until the end of 2019 was plausible, but adjustments were never going to be an easy task.

Mr Nsarkoh had served as Managing Director of the company for 5 years and steered the course of its proceedings with remarkable skill up until the financial performance disaster which culminated in his resignation on November 28th, 2019.


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