Rating: Hold
Current Market Price: N20.00

Current Dividend: N1.50
Year High: N21.00
Year Low: N17.00
Fair Value: N22.34
Equity Analyst: Tunde Segun Jeariogbe

Key Investment Ratios

• This report observed the numbers released by Conoil Plc management for the first quarter ended 31^st March 2021. We compared the figures with similar numbers released at the end of the 2020 first quarter to establish a likely pattern and make appropriate comparisons.
• In the course of this research work, we also compared the full-year numbers for few years to generate valuation metrics, make necessary projections and place an intrinsic value on each unit of Conoil Plc.
• In our full-year analysis, we projected dividend returns for at least three financial years. Due to the growth achieved in its profit line at the end of the first quarter, the growth rate is automatically upgraded and impacts slightly on our intrinsic value for the stock.
• Nevertheless, we registered that the growth observed in the period under review is not replicated in the Turnover and other profitability ratios. In our opinion, growing sales along with profit give an assurance of a better tomorrow.
• We also expect better performance from this company, if must bank on the improved price of crude oil in the international space. But due to several local challenges faced by operators in this sector, the effects of the improved crude prices may not be immediately feasible at the moment.
• Thus, we believe that our fair value for the stock is conservative and more reliable for investors.
• See below for a careful comparison of the numbers with comparable numbers as released in 2020.

Company figures

• Turnover reported for the period stood at 13.24%, below that of the corresponding quarter at N33.09 billion, from N38.14 billion in the 2020 first quarter.
• Cost of Sales is estimated at N30.73 billion, compared to N32.29 billion in its previous first-quarter result.
• Thus, Operating Profit stood at N678.62 million, a 12.04% drop below the N771.60 million achieved in the similar period of 2020.
• Operating Expenses in the same trend adjusted down by 20.53% at the current estimate of N1.72 billion, as against N2.16 billion in the comparable period of last year.
• Finance Cost through the first three months significantly dropped to N55.24 million compared to the previously reported N388.68 million.
• Profit before Tax, Tax Expense, and Profit for the year, all grew at the same rate against the similar quarter in 2020.
• Profit before Tax is currently estimated at N623.42 million, as against N382.91 million in 2020Q1.
• Tax expense for the three months stood at N199.49 million, versus N122.53 million, following which Profit for the period is estimated at N423.93 million, same as 62.81% over the N260.38 million in 2020 first quarter.

• Current Assets is valued at N48.40 billion, the same as 8.66% below the N52.98 billion estimated at the end of the first three months of 2020.
• Non-Current Assets is currently valued at N4.65 billion, as against N5.77 billion in the 2020 first quarter.
• Current-Liabilities stood at N32.14 billion, the same as 14.83% below the N37.73 billion stated in its 2020 first-quarter result.
• Non-Current Liabilities equally dropped by 25.48% to N964.79 million, as against N1.29 billion in the corresponding quarter.
• Net Assets posted for the period, therefore, stood at N19.94 billion, from N19.72billion.
• Retained Earnings inched up by 1.39% at N15.77 billion, versus N15.55 billion in the 2020 first quarter.

Financial Strength/Solvency Ratios

• The Debt Ratio is currently estimated at 62.41% a marginal drop from the 66.43% estimated from its 2020 first-quarter numbers. This shows a slight improvement in its asset strength within the compared periods.
• Total Debt to Equity was equally estimated at 166.00%, as against 197.85% estimated in the comparable quarter. Implying that, more debt was used to service the company’s assets through the quarter compared to equity.
• It was also estimated that Total Equity is the same as 37.59% of the Total Assets of the company, a growth of 11.97% in equity’s strength through the quarter.

Profitability Ratios

• EBITDA margin estimated for the period stood at 2.05%, same as 1.38% above the 2.02% estimated from the corresponding quarters’ numbers, in our opinion, this is on the low side, and could be linked to the high direct cost involved in running the business.
• Pre-Tax Margin grew by 87.67% to 1.88%, as against the 1.00% estimated at the end of 2020 first quarter.
• Effective Tax Rate was stable within the two periods compared in this report.
• As noted above, Conoil operates at a high cost, which is why it currently posted Cost of Sales of 92.88% of its reported Turnover Figure, this is only 0.37% above the 92.53% estimated from its 2020 first-quarter numbers, this further confirmed that stability of the cost over time.
• Return on Equity stood at 2.13% against 1.32% of 2020

Efficiency Ratios

• Operating Expenses to Turnover value is the same as 5.20%, this is 8.40% drop from the 5.68% estimated from 2020 first-quarter financials.
• Turnover to Total Assets Ratios stood at 62.38% against 64.91%,  this is the same as 3.91% drop in management efficiency over the comparable period of 2020
• Working Capital Ratio a ratio that  indicates a company’s effectiveness in using its working capital was estimated at 2.04x an 18.62% drop from the 2.50x estimated in the similar period of 2020
• Further testing the company efficiency, we looked at the Working Capital Ratio, which confirmed that Current Assets is higher than current liabilities, although a marginal improvement in this efficiency ratio from the previous quarter was noticed. It moved from 1.40x to 1.51x

Investment/Valuation Ratios

• At the end of the first three months of 2020, the management of Conoil achieved earnings per share improvement of 62.81% over the comparable period. Thus, Earnings per share is currently estimated at N0.61 as against N0.38 in the immediate comparable quarter
• P/E-Ratio slipped by 45.31% to 30.61x from 55.97x. Note that the high P/E-Ratio is an indication of positive investor sentiments in the shares of the equity. And the drop in P/E-Ratio had brought near the investment recouping time
• The said Earnings per Share is a 3.27% yield of the current market price of Conoil Plc’s shares on the exchange as of the time the result was made available to investors.
• The Book Value of Conoil is currently estimated at N28.74 per share, which is better than the market value on the exchange.
• Confirming the under-priced status of Conoil is the Price to Book Value which stood below unity (0.65x)

Valuation

As noted above, we have carefully selected our valuation models to fit in completely to the present state of Conoil Plc, especially the very sensitive area where it operates. Thus we have fairly priced each unit of Conoil at N22.34, this is the same as 11.7% above the current market price as at the time the result was made available to the investing public. Thus, considering the closeness in the market price and our estimated intrinsic value, we rated Conoil a Hold.