What to know before Ardova buys out other shareholders

Ardova Plc, an indigenous integrated energy company which engages in the marketing of petroleum products has no doubt failed to impress its shareholders this year.

At N16.90 as at week ended Friday, February 17, the share price has yielded negative return of 8.2percent year-to-date (YtD) thereby underperforming the market which rose same period by 4.98percent.

Recently, Ardova Plc released its unaudited result and accounts for the year ended December 31, 2022 which despite growing revenue by 19.5 percent year-on-year (YoY) reported N7.61billion loss (N3.85billion: 2021), the company’s worst performance since the takeover of new management about 5 years ago (2018).

In 2021, Ardova Plc acquired Enyo Retail and Supply Limited and has a nationwide network of more than 450 retail outlets (making it one of the largest petroleum marketing companies in the country).

“On completion, this acquisition will lead to a stronger downstream energy group that benefits from the increased customer reach and service delivery excellence of both companies, with the combination expected to produce stronger financial results,” Olumide Adeosun, Chief Executive Officer, Ardova Plc had told the investing public in a June 14, 2021 notice at the Nigerian Exchange Limited (NGX) while confirming the acquisition of 100percent stake in Enyo.

On November 16, 2021, Ardova established its N60billion bond issuance programme (the Programme) and successful issued N11.444billion 7-year 13.3percent fixed rate bonds and N13.856billion 10-year 13.65percent fixed rate bonds being tranches A and B respectively of the series 1 bonds under the Programme. The bonds were duly registered with the Securities and Exchange Commission.

Ardova which is also involved in the manufacturing and distribution of lubricants (including branded Shell lubricant) and provision of renewable energy solutions and haulage and transportation services had on February 6, Ardova Plc released a cautionary announcement regarding Ignite Investments & Commodities Limited’s offer to acquire shares held by other shareholders of Ardova Plc.

The company told the Nigerian Exchange Limited (NGX) and the investing public that Ignite approached the Board of Directors of the Company with an intention to acquire the shares held by other shareholders of the Company at an offer price of N17.38 per share, “and subsequently delist the Company from NGX (the Proposed Transaction).”

Listed on the Petroleum and Petroleum Products subsector of the NGX Oil & Gas sector, Ardova Plc has shares outstanding of 1.302billion on the Main Board of the Exchange valued at N22.011billion. Deleting these shares will deplete the Nigerian equities market value by about N22.011billion.

The group announced N7.14billion loss before tax (LBT) in 2022 from N2.9 billion loss before tax (LBT) in 2021 which was attributed to increased cost of sales, total operating expenses, and finance costs.

The buy-out offer price of N17.38 represents a premium of 22.44 percent and 24.38 percent to the 30-day and 60-day volume weighted average share price of N14.19 and N13.97 respectively on November 30, 2022 (being the last trading day prior to the Offer).

“It is intended that the Proposed Transaction will be implemented under a Scheme of Arrangement in line with section 715 of the Companies and Allied Matters Act, No.3 of 2020 (as amended) and other applicable rules and regulations.

“The Proposed Transaction is subject to the review and clearance of the Securities and Exchange Commission (SEC) as well as the approval of the shareholders of the Company,” Ardova said in a statement at the NGX.

“The terms and conditions of the Proposed Transaction will be provided in the Scheme Document which will be dispatched to all shareholders following the receipt of an order from the Federal High Court to convene a Court Ordered Meeting.

“If the conditions of the Proposed Transaction are satisfied and same is sanctioned by the Federal High Court, the Company would be delisted from NGX. Further developments will be communicated to shareholders in due course. Ardova Shareholders and members of the public are advised to exercise caution in dealing in Ardova’s shares until further information is provided,” Ardova stated.

Last 7 Days Trades

Meristem research analysts in their recent note while advising a “Hold” for existing investors and cautious trading for intending investors said since the buy-out announcement, “Ardova share price has been on a losing streak, accumulatively shedding 8.15percent so far in 2023. Also, we note that the company does not have an history of dividend payment to shareholders”.

Ardova has a total of 1.31 billion units of issued share capital, of which 74.06percent (970.67 million units) are held directly by Ignite Investments and Commodities Limited (through Abdulwasiu O. Sowami, a member of the Board of Directors). The remaining 25.94percent (339.96million shares) represents the company’s free float.

The offer price represents a discount of 1.53percent to the price (N17.65) on the date of announcement and a 25.04percent premium to the price on November 30, 2022 (the last trading day before the Offer), the analysts said.

Read also: Meristem analysts ask investors to ‘hold’ Ardova stocks amid proposed buy-out

“While the company’s Board is still deliberating on the offer, the stock is currently trading at N16.90 (as of February 15), which is 8.47percent premium over our 2023 target price of N15.58. In addition, the proposed offer price of N17.38 represents a premium of 11.55percent to our target price,” the analysts added.

“After a successive decline in the share price in four consecutive years (2018 2021), Ardova recorded a significant uptick (41.54percent year-on-year) in its price in 2022, most of which occurred between November and December when the entire equities market had a bullish outing”.

Also, the analysts had noted that Ardova revenue grew at a compounded annual growth rate (CAGR) of 6.18percent between 2016 and 2021. The Company operates a network of over 450 retail outlets spread across the Country with major petroleum storage installations at both Apapa (Lagos State) and Onne (Rivers State).

Ardova Plc also provides aircraft refuelling operations at its Aviation Joint User’s hydrants in Ikeja and Joint Aviation depots in Abuja, Port Harcourt and Kano making the Company one of Nigeria’s leading providers of aviation fuel for local and international airlines. The Company also procures and markets Liquefied Petroleum Gas.

The Company manufactures and distributes a wide range of quality lubricants, which include Super V, Visco 2000, Diesel Motor Oil from its lubricating oil blending plant at its Apapa terminal in Lagos. The Company acts as the main distributor for Shell lubricants branded products for the automotive and industrial sectors in Nigeria.

In addition to its strategic retail and commercial network in Nigeria, Ardova Plc has embarked on providing clean energy hubs and mini-grids and renewable energy solutions through its Solar brand which distributes low-cost solar power solutions to domestic customers.

Ardova’s investment subsidiaries are: Axles and Cartage Limited which it holds 100 percent equity, AP LPG Limited (100percent), AP Renewables Limited (100 percent), Ardogreen Energy Limited (53.05percent), Bags & Kegs Limited (100percent). Bags and Kegs Limited is the acquisition vehicle used by Ardova to acquire 100percent stake in Enyo Retail and Supply Limited. The Company was awarded an interest in Olua Marginal field by the Nigerian Upstream Petroleum Regulatory Commission. The vehicle that holds this interest is Ardogreen Energy Limited. The Company owns 53.05percent of the equity of Ardogreen Energy Limited. The vehicle is yet to commence operations as at year end.

Though in 2022 financial year, Ardova grew its revenue to N240.813billion from N201.440billion in 2021, it reported negative retained earnings of N1.239billion from a positive of N6.590billion in 2021.
Looking at the notes to the unaudited consolidated financial statements for the year ended December 31, 2022 shows loan receivables which represents amounts lent to the Company’s subsidiaries and it is made up of a loan of N12.326billion to Enyo Retail and Supply Limited and a loan of N6.261billion to Axles and Cartage Limited under the following terms.

The loan to Axles and Cartage was advanced on December 31, 2021 in the sum of N6.261billion with a maturity date of December 31, 2029. The loan has a moratorium on principal and interest of eighteen months. The interest rate is 14percent. The loan to Enyo Retail and Supply Limited was advanced on November 15, 2021 in the sum of N12.326billion with a maturity date of November 15, 2029. The loan has a moratorium on principal and interest of twelve months. The interest rate is 14percent.

“As per the company’s most recent financial statement (2022FY unaudited), revenue increased by 19.55percent year-on-year (YoY) to N240.81billion, due to revenue growth across segments. The revenue growth is attributable to the surge in price of petroleum products during the year. For context, the average price of PMS and 5kg LPG increased by 24.38percent YoY and 27percent YoY to N206.19 per litre and N4,565.56, respectively in 2022.

“The downstream industry is characterised by high cost of sales (industry cost to sales ratio averaged circa 92percent in the past five years). Reflecting that, Ardova’s cost to sales ratio averaged 92.06percent during the same period. However, the firm’s cost to sales ratio was lower in 2022 (94.21percent in 2022FY, versus 95.11percent in 2021FY), due to the faster growth in revenue relative to direct cost.

“Thus, the company grew it’s gross profit by 41.70percent YoY to N13.96billion and gross margin inched higher to 5.80percent in 2022FY. However, the increase in gross profit was eroded by the 87.01percent YoY increase in operating expenses, resulting in an operating loss of N2.50billion.

“The sharp increase in operating expenses was driven by the jump (circa183percent) in expenses from the fuel segment (major driver for revenue growth). Furthermore, high finance costs added more pressure on bottom-line performance as the company’s profit after tax declined by 49.41percent YoY to -N7.61billion in 2022FY,” Meristem analysts said.