Conoil returns to profitability, reports N173.45 million profit in Q1

Conoil Nigeria Plc, a major player in the downstream oil and gas industry, has turned the corner as it returned to the path of profitability in the first quarter of 20.

For the first three months through March 2017, the company posted a profit after tax of N173.45 million from a loss position of N943.76 billion it recorded in the corresponding period of last year.

Sales increased by 29 per cent to N24.47 billion within the period, from N19.04 billion the previous year.

Experts say the decision of the Nigerian government to deregulate the downstream sector of the oil industry, which saw pump price of petrol move to N145, has bolstered the revenue of firms operating in the sector and paved the way for investment opportunities.

“The industry dynamics are changing and investors consider a liberated and deregulated downstream sector to be an attractive investment opportunity,” said Dolapo Oni, head of Energy research at Ecobank.

For the first three months through March 2017, the cumulative sales of four downstream oil firms including Total, Mobil, Forte Oil and Eterna Oil increased by 32.57 per cent to N228.17 billion from N172.11 billion the previous year.

Conoil operates in a tough and unpredictable environment as devaluation of the currency and delay in subsidy money continues to undermine growth.

The refusal of the Central Bank of Nigeria (CBN) to pay subsidy arrears and foreign exchange differential of $1.2 billion has hindered the firms from honouring obligations to banks.

In spite of the huge debt bevelling the operators in the sector, Conoil’s earnings can cover interest payment with coverage ratio of 1.50 times at par with global average.

Conoil’s finance costs fell by 10.54 per cent to N445 million while the proportion of debt in the capital structure of the company has increased to 60.54 per cent in March 2017 from 48.70 per cent the previous year.

Analysts are of the view that downstream oil and gas performance will be weak in 2017 as a combination of a weak naira and a possible rise in the price of oil will hurt sales.

“Downstream performances in 2017 will be weaker than last year. In 2016, some downstream companies reported record profits due to the liberalization of the PMS pricing which allowed them to increase margins,” said Pabina Yinkere, head of research at Vetiva Capital Limited in a mailed response to questions.

“However, since the liberalization in May, oil prices have risen whilst the naira has depreciated – the combination of these gives higher landing cost and since prices have remained fixed, margins have shrunk. Plus, many companies stopped importing from Q4’16 as these developments happened and now only source products from the NNPC. It is unlikely they will report near the profit levels seen last year,” Yinkere said.

Further analysis of the financial statement of Conoil shows earnings before interest (EBIT) increased by 61.83 per cent to N670 million in March 2017 from N414 million in March 2016.

The Nigerian oil company is efficient as EBIT margin increased to 4.62 per cent in the period under review as against 2.17 per cent the previous year. Gross profit margins moved to 13.52 per cent in March 2017 from 10.34 per cent the previous year.

Conoil’s share price closed at N46.78 at the NSE on Friday, taking market capitalization to N30.92 billion.

 

BALA AUGIE