Nigeria’s oil and gas company, Forte Oil hit a 5 year low on Wednesday as the stock closed N26 down 10% from its opening share price. Forte Oil also topped the losers chart on the day.
Forte Oil share price has been tumbling since February 2016 when it hit a peak of N342 per share. It has lost about 47% in the last one year and another 40% this year alone making it one of the worst performing stocks of 2017 and 2018 (so far).
The good old days
Since acquiring this stock over 5 years ago, the company has undergone massive transformation by the majority shareholder and Chairman, Femi Otedola. The company has since returned to profits and wiped out the accumulated losses it had reported since when it was called Agip.
Following the long drawn transaction between the majority shareholder and AMCON the shares recorded exponential appreciation between 2014 and 2016 making it a toast of the retail investors seeking higher returns.
In late 2013, Forte Oil also became the first integrated energy company on the exchange after it partnered with Amperion to acquire a power plant through the privatisation process of the Federal Government.
Source: Bloomberg
The beginning of the end
Forte Oil shares appeared to have run into a cul-de-sac in February 2016 and started spiraling downwards since then. It started with the general bearish trend in the stock market at the time as investors fleed to safety following the recession and the global oil price crash.
Nearly all stocks were negatively affected by the sell-offs and lack of demand. For stocks like Forte Oil that was assigned high valuation, the share price faced south.
As the share price fell to multi-year lows in 2016 it had no respite in 2017 failing to get back to above N100 for the first time since like 2014. The fall in price continued through 2017 and crashed further in 2018.
Recently, the company announced it was spinning off its investment in the Power sector complaining that its foray into the power sector had indeed failed to work. This is likely to have spooked investors more leading to the massive drop in price we are currently experiencing.
Is there an end in sight?
At a price-earnings ratio of 14x and earnings per share already projected to drop compared to the prior period, there seems to be no end in sight for the share price depreciation.
The Chairman of the company, Fola Otedola has been focused lately on philanthropy and rumours suggest he may be going into politics soon. This further takes the rails off any hope that the drop in share price might stage a mega resurgence.
The Management of the company has done a lot of good work over the years but it appears they might be a sense of relief as the pressure to defend a share price based on a flawed business model dies off.
