Conoil 2018Q4: High Sales Cost, Sliding Revenue, Robust Liquid Assets

Company: Conoil Plc
Rating: Hold
Current Market Price: N19.95
Current Dividend: N2.00
Year High: N23.80
Year Low: N18.45
Fair Value: N21.04
Equity Analyst: Tunde Segun Jeariogbe

Key Investment Ratios
• Although the management of Conoil released both the full-year financial statistics for the year ended 31st December 2018 and first quarter ended 31st March 2019 simultaneously, this report fully observed the first-quarter result, while exploring the full-yearindices in its valuation models.
• Please note that the most recent dividend proposal was the N2.00 cash dividend following which the company’s books are scheduled to be closed between 5thand 9th August 2019. In other words, the dividend qualification date is Friday, 2nd August 2019.
• Our valuation model was carefully selected to consider a possible static/dropping dividend returns. We also observed the possible future returns at least for the next three years considering the sensitivity of the oil sector, especially when it comes to government policies.
• Thus, we believe that our fair value is conservative and more reliable for investors.
• It is necessary to state that Conoil currently holds more liquid Assets and Liabilities, which in our opinion makes diversification an easy task.
• Also noteworthy is the very high Cost of Sales reported by the company, which seems to have remained constant over the years.
• The management of Conoil Plc maintained a high YoY pay out ratio. For example, the dividend payout ratio for the just concluded year has been estimated at 77.28%, a drop from 88.93% in 2017.
• We have therefore rated Conoil management’s efficiency high, considering its effective control of sales/operating expenses QoQ.

Company Figures
• The turnover figure reported for the period stood at 13.79%at N35.73 billion, which is above the corresponding quarter’s N31.31 billion in the 2018 first quarter.
• Cost of Sales is estimated at N32.67 billion, compared to N28.25 billion stated in its previous first quarter.
• Thus, Operating Profit stood at N984.72 million, 17.69% above the N836.72 million achieved in the similar period of 2018
• Operating Expenses on the other hand adjusted down by 13.55% at the current estimate of N2.00 billion against N2.32 billion
• Finance Cost through the first three months marginally dropped to N506.52 million compared to the previously reported N525.99 million
• Profit before Tax, Tax Expense and Profit for the year all grew at the same rate against the similar quarter in 2018
• Profit before Tax is currently estimated at N478.20 million against N310.73 million
• Tax expense for the three months is valued at N153.02 million versus N99.43 million.
• While Profit for the period is estimated at N325.17 million, same as 53.90% over the N211.29 million in 2018 first quarter.

• Current Assets is currently valued at N61.23 billion, same as 4.92% above the N58.36 billion estimated at the end of the first three months of 2018.
• Non-Current Assets held by the oil firm is valued at N5.57 billion as against N5.23 billion in 2018 first quarter
• Current-Liabilities stood at N47.28 billion the same as 6.08% above the N44.57 billion stated in its 2018 first-quarter result
• Non-Current Liabilities builds by marginal 4.15% to stand at N953.97 million as against N915.99 million
• Net Assets posted for the period, therefore, stood at N18.56 billion as against N18.10 billion
• Retained Earnings equally inched up by 3.32% to stand at N14.39 billion versus N13.93 billion in 2018 first quarter.

Financial Strength/Solvency Ratios
• Debt Ratio is estimated at 0.72x same as 2018 estimate. This implies that, Total Liabilities is same as 72% of Total Assets. Kindly recall that Current Liabilities dominated Conoil liabilities profile
• Total Debt to Equity was equally estimated at 2.60x as against 2.52x estimated in the comparable quarter
• It was also estimated that Total Equity is same as 28% of the Total Assets of the company, this is about same as previous quarter’s estimate.

Profitability Ratios
• EBITDA margin estimated for the period stood at 2.76%, 3.43% above the 2.67% estimated from the corresponding quarters’ numbers, in our opinion, this is on the low side
• Pre-Tax Margin grew by 35.25% to 1.34% against the 0.99% estimated at the end of 2018 first quarter
• Effective Tax Rate was stable within the two periods compared in this report
• As noted above, Conoil operates at a higher cost as it currently posted Cost of Sales of 91.70% of the Turnover Figure, this is only 1.63% above the 90.23% of 2018 first quarter, this further confirmed that stability of the cost over time
• Return on Equity stood at 1.75% against 1.17% of 2018.

Efficiency Ratios
• Operating Expenses to Turnover value is same as 5.63%, this is 24.03% drop from the 7.41% estimated from 2018 first-quarter financials
• Turnover to Total Assets Ratios stood at 53.34% against 49.24%, representing 8.32% improvement in efficiency over the comparable period of 2018
• Working Capital Ratio a ratio that indicates a company’s effectiveness in using its working capital was estimated at 2.56x a 12.51% growth from the 2.27x estimated in the corresponding period of 2018.

Investment/Valuation Ratios
• At the end of the first three months of 2019, the management achieved earnings per share improvement to the tune of 53.90% from the previously estimated N0.30 to N0.47
• P/E-Ratio slipped by 62.51% having moved to 42.57x from 113.57x, please understand that the high P/E-Ratio is an indication of positive investors’ sentiments in the shares of the equity
• The said Earnings per Share is a 2.35% yield of the current market price of ConoilPls’s shares on the floor of the exchange as at the time the result was made available to the investing public
• The Book Value of Conoil is currently estimated at N26.76 this is above the market value of the Coy on the floor of the exchange
• Confirming and under-priced status of Conoil is the Price to Book Value which stood below unity (0.75x).

As noted above, we have carefully selected our valuation models to fit in completely to the present state of ConoilPlc, especially the very sensitive area where it operates. Thus we have fairly priced each unit of Conoil shares at N21.04, this is same as 5.46% above the current market price as at the time the result was made available to the investing public. Hence, we rated Conoil a Hold.