Rating: Hold
Current Market Price: N16.00

Latest Dividend: N
Year High: N20.60
Year Low: N9.55
Fair Value: N11.12
Equity Analyst: Tunde Segun Jeariogbe

Key Investment Ratios

• In this report, the financial performance indices for the period ended 31^st March, 2020 of Ardova Plc is observed and compared to similar numbers released by the company in the comparative period of 2019 before the name change from Forte Oil.
• The projection for valuation was quite tasking, since, the new management is yet to establish a trend. In other words, the valuation of the share price has compared two different managements.
• Making the valuation more tasking was its zero-dividend status and very low earnings, compared to those of comparable year’s earnings. Thus, this report explores a non-dividend paying valuation method. Note that the valuation will be re-visited when a better trend is established by the new management team.
• It is noteworthy at this point to mention here that the 2019Q1 income was boosted by the N3.03bn gain on the disposal of the company’s subsidiary.

In other words, by removing this item, the current result will only have a marginal difference for that of the comparable year.

Company figures

• A turnover of N52.05 billion was reported during the period, the same as 22.31% above the N42.55 billion reported in the corresponding quarter.
• In the same trend, Cost of Sales improved over comparable period by 24.74% at N49.26 billion, compared to N39.49 billion in 2019Q1.
• Operating Profit is currently estimated at N735.71 million, far below the N3.78 billion stated in the corresponding quarter’s report.
• Operating Expenses improved by 12.22% to N2.59 billion, from N2.31 billion in the similar quarter of 2019.
• Finance Cost used through the period dropped 76.15% below that of prior Q1. As shown in the below table, it is currently valued at N263.41 million, versus N849.69 million in 2019.
• Profit before Tax is estimated at N580.30 million, far below the N3.12 billion achieved in the corresponding period. As noted above, the 2019 profit was impacted significantly by the profit from disposal of a subsidiary.

• At the end of the first three months of 2020, Ardova’s Current Assets is valued at N42.35 billion, the same as 13.31% below the N48.85 billion valued in the 2019 first quarter.
• Non-Current Assets, on the other hand, improved by 28.52% to N14.14 billion, as against N11.00 billion in the corresponding period.
• Current Liabilities is valued for N35.87 billion, a marginal rise over the N35.58 billion in the similar quarter of 2019.
• Non-Current Liabilities dropped impressively to N3.95 billion from the previously stated N7.19 billion.
• Net Assets is thus valued at N16.66 billion, compared to N17.07 billion achieved at the end of 2019 first-quarter business session.
• Retained Earnings equally dropped by marginal 4.26% to N9.32 billion from N9.74 billion.
• See the above table for details

Financial Strength/Solvency Ratios

• The amount stated as Total Liabilities at the end of the period have been estimated at 70.51% of the Total Assets Valuation at the end of the period, whch is slightly below the 71.48% in the corresponding period. In other words, there is no serious improvement in its gearing status till date
• Total Debt stated at the end of the 2020 first quarter is same as 239.08% of the Equity Value; this is a weak position for the equity holders. To boost investors’ position, the management must make judicious use of the high debt to generate more profit in the remaining quarter of the year.
• Meanwhile, equity have been measured as 29.49% of the company’s assets, which is almost same as the corresponding period where it was measured as 28.52% of Asset

Nevertheless, we can conclude that Ardova Plc’s shares are not liquid, given its estimated beta value at below unity.

Profitability Ratios

• EBITDA margin estimated at the end of the quarter stood at 1.41%, far below the 8.88% estimated from 2019 first-quarter numbers
• Profit before Tax achieved for the three months is the same as 1.11% of the Turnover figure, below the 7.35% achieved in 2019.
• Cost of Sales is 94.64% of the turnover, just 1.99% above the 92.80% estimated in 2019, confirming management’s effort at controlling direct cost. It is important to understand that this also confirms the high direct cost of running the business, which is expected to hamper its profitability.
• Return on Equity stood at 2.99% against 19.47% achieved in 2019, a further confirmation of the above status.

Efficiency Ratios

• Operating Expenses to Turnover value is the same as 4.99%, which is 8.25% improvement in management’s efficiency from the 5.44% estimated in the 2019 first-quarter financial indices.
• Turnover to Total Assets Ratios stood at 92.14%, as against the previous 71.10%. This is a 29.59% improvement in efficiency over the comparable quarter.
• Working Capital Ratio, which measures a company’s effectiveness in using working capital, was estimated at 8.04x a 150.43% growth from the 3.21x estimated in 2019.
• Further testing the management’s efficiency, we tested the Working Capital Ratio, which confirmed that Current Assets is higher than the current liabilities at the end of the period.

Investment/Valuation Ratios

• At the end of the 2020 three-month business cycle, the earnings per share of Ardova Plc dropped by 85.04% from the previously estimated N2.55 to N0.38.
• Our three-month adjusted P/E-Ratio soared to 41.89x from 13.69x, the high P/E ratio is better explained as a longer period of recouping rather than investors’ preference.
• The said earnings above yielded only 2.39% of the share price of Ardova Plc on the floor of the exchange as at the time the result was released to the investing public.
• Going by the stated Net Assets of Ardova Plc for the first quarter and the current share outstanding, each unit of Ardova Plc is worth N12.79 in its book, preference, patents and staff quality excluded
• Confirming the over-priced status of Ardover Plc shares on the exchange is the Price-to-Book Value which stood above unity (1.25x).

Valuation

As noted earlier, several factors worked against the valuation of Ardova Plc, especially the heavy drop in the earnings against the comparable year. Nevertheless, we have valued each unit of its shares at N11.12and rated it a Hold.