Conoil Stock Rated Neutral, Analysts Estimate ₦17.2 Price Target

Conoil Stock Rated Neutral, Analysts Estimate ₦17.2 Price Target

Afrinvest has forecasted a 12-month target price of ₦17.2, which represents a 1.9% upside potential from the current market price of ₦21.00.

The investment firm however advised investors to maintain a neutral position on Conoil within the period.

But as at yesterday, Conoil share price was traded at ₦16.90 though it 52-week high record was ₦21. It has also hit the bottom at ₦13.50.

In the first half of 2020, Conoil posted a significant decrease in revenue, down 20.4% year on year to ₦57.5 billion.

However, Afrinvest has projected Conoil revenue to drop further in 2020, attributing the lower expectation on the impact outbreak of coronavirus pandemic.

Weak Economic Activities Drag Performance:

Revenue for H1:2020 was ₦57.5 billion, a fall from the ₦72.2 billion achieved in H1:2019 due to weaker sale in Q2:2020.

Analysts explained that the performance reflects the negative impact of the imposed lockdown by the government in an attempt to curb the spread of the coronavirus in the second quarter.

Furthermore, cost of sales fell 19.6% year on year to ₦52.7 billion from ₦65.5 billion in H1:2019, driven by a 21.4% decline in the purchasing cost for white products.

Consequently, gross profit printed lower by 28.6% to ₦4.8 billion compared to the ₦6.7 billion achieved in H1:2019.

Nevertheless, gross margin improved to 9.3% in H1:2020 from 8.3% in H1:2019, reflecting a faster drop in cost to sales.

The company however reported a 6.2% decline in operating expenses to ₦3.8 billion in H1:2020 from ₦4.1 billion in H1:2020 while other income improved 174.1% in H1:2020 to ₦169.4m.

Exhibiting a strong underlie economic pressure, Conoil’s operating profit plunged 34.7% to ₦804.9m in H1:2020.

Furthermore, there was a 45.7% y/y decline in Conoil finance costs to ₦635.5m in H1:2020 from ₦1.2 billion in H1:2019.

Comparably, the company sustained a positive momentum in its topline in 2019 as revenue climbed 14.0% year to ₦139.8 billion from ₦122.2 billion achieved in 2018.

The increase was buoyed by a 14.0% expansion in white product sale to ₦132.6 billion and 26.0% year on year increase in lubricant turnover to ₦7.2 billion.

Though Afrinvest mentioned downward adjustment in pump price for petrol and expected lower demand in 2020 as a result of COVID-19 measures, as among the reason for 30.0% revenue shrink to ₦97.8 billion, pump price has increased.

MarketForces analysts believe that Conoil may not deliver 2019 results exactly, but financial year 2020 sales may not be much affected because of rising global prices of oil.

“Over our forecast period, we expect revenue to expand at a CAGR of 6.6% to ₦126.3 billion in 2024”, Afrinvest explained.

Analysts recalled that in 2019, Conoil cost of sales advance 15% year on year to ₦126.0 billion, driven by the increase in costs associated with white products sales, which rose 15.2% y/y to ₦121.4 billion.

Meanwhile, cost of sales for lubricant also trended northward by 12.3% to ₦ of sales to print lower by 31.0%, reflecting the new PPPRA pricing adjustment.

Read Also: Conoil Stock Rated “Neutral, Analysts Estimate ₦17.2 Price Target

Furthermore, the company reported an increase in gross profit by 5.2% y/y to ₦13.4 billion in 2019 from ₦12.8 billion in 2018.

Nevertheless, gross margin moderated to 9.6% in 2019 from the 10.4% reported in 2018, reflecting a faster sales in growth compare to company’s gross profit.

“We expect gross profit to weaken by 23.9% to ₦10.2 billion in 2020 partly due to the weak demand for petroleum products”, Afrinvest stated.

Also, analysts noted that Conoil reported an increase in its operating expenses by 9.9% year on year to ₦9.7 billion.

This was buoyed by respective 10.0% and 5.0% year on year growth in depreciation and administrative expenses.

However, OPEX margin fell marginally to 6.9% in 2019, down from 7.2% in 2018 amidst cost saving efforts of the management.

Despite that, operating profit decreased by 5.0% to ₦3.8 billion from ₦4.0 billion in 2018, resulting in a weaker operating profit margin of 2.7% from 3.2% in 2018.

Likewise, Conoil reported a 3.2% year on year miss around earnings before interest and tax (EBIT) which slipped to ₦3.9 billion as the 8.7% increase in other income was insufficient to offset the shortfall in operating profit.

Analysts state that hence, reported EBIT margin moderated to 2.8% in 2019 from 3.3% in 2018.

The company’s profit before tax rose 10.4% to ₦2.8 billion in 2019 from ₦2.6 billion in 2018 due to a 26.2% decline in finance cost to ₦1.1 billion.

Nevertheless, as analysts noted, PBT margin moderated to 2.0% in 2019, down from 2.1% in 2018.

Although tax burden rose 11.6% year on year to ₦860.1 million, PAT advanced 9.8%y/y to ₦2.0 billion.

Overall, Conoil achieved a return on average equity (ROAE) of 10.4% from 9.9% in 2018 and EPS of ₦2.8 from ₦2.6 in 2018, while return on average asset (ROAA) also improved slightly to 3.1% from 2.9% in 2018.

The company sustained a negative operating cash flow position at -₦9.8 billion in 2019 from -₦5.6 billion in 2018.

Also, capital expenditure (CAPEX) declined 75.6% to ₦369.3 million in 2019 compared to ₦1.5 billion in 2018

However, PBT fell 67.2% to ₦498.1 million, a decrease from ₦1.5 billion in H1:2019. Similarly, tax expense fell 67.2% to ₦159.4 million in H1:2020.

Consequently, PAT dropped to ₦338.7 million in H1:2020 from the ₦1.0 billion achieved in H1:2019.

Conoil Stock Rated Neutral, Analysts Estimate ₦17.2 Price Target

VIABamike Oluwashina
SOURCEMarketForces Africa
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