Forte Oil profit meets estimates as cost cuts offset weak sales

…..Net income up 97.04 percent in Q1

 

Forte Oil Nigeria Plc’s profit matched analysts’ estimates as efficiency gains helped make up for weak sales.

The first quarter results of the downstream oil and gas giant showed the company maintained favorable gearing levels, strong margins, and a solid asset base amid a severe dollar shortage bedeviling firms in Africa’s second largest oil producer.  

For the first three months through March 2017, net income surged by 97.04 percent to N1.88 billion from N954.42 million a year earlier.Analysts had predicted N1.64 billion, based on the average of estimates compiled by BusinessDay. 

Sales however dropped by 7.30 percent to N33.0 billion in the period under as the company continues to intensify its balance sheet size to fund projects that will help bolster cash flows.

The growth in profit can be attributed to a 11.65 percent reduction on cost of sales to N27.20 billion and a 10 percent reduction in operating expenses to N2.82 billion, resulting in margin expansion.

Forte Oil’s return on capital employed (ROCE), a measure of efficiency, increased to 2.82 percent in the first quarter of the year from 1.73 percent the previous year.

Earnings Before Interest Taxation and Amortization (EBITA) spiked by 45.45 percent to N4.0 billion, which accentuate shows the positive impact of efficiency gains.

Forte Oil has a 51 percent stake in a 414 MW gas-fired independent power plant located in central Nigeria, selling power to the Nigerian power grid on a guaranteed basis.

It Owns a 10,000 barrels per annum mud plant located in eastern Nigeria; providing supply, laboratory and engineering support services to indigenous and international Exploration & Production companies.

Despite the stellar performance by Forte Oil, analysts see downstream oil and gas firms in Africa’s most populous nation go through a tough 2017 on the back of  a weak naira and higher landing costs.

“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 Management Limited.

“However, since the liberalization in May, oil prices have risen whilst the naira has depreciated – the combinations of these give 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,” said Yinkere.

Forte Oil’s made foreign exchange gains of N499.87 million in the period under review

“This represents transactional gains of foreign exchange on sale earned from sale of dollars,” said the company in notes to the financial statement.

The company manages its capital to achieve efficiency, maximize flexibility and give the appropriate level of access to debt market at attractive cost level.

Forte Oil’s gearing ratio remains flat at 69 percent while times operating profit is three times interest expense.

The company’s share price closed at N44.0 as of Friday, valuing it at N57.30 billion.

 

BALA AUGIE