The 2016 financial year was quite a profitable one for Conoil Plc. It was able to increase the tempo of its revenue generation and made more sales during the course of the year. While the increase in revenue was a little slight, it was yet much better than the result of 2015 when it recorded a decrease in income. The company was then able to sustain the momentum of its income generation down to its profit level, and had a substantially higher level of profit when compared to that of 2015.
This immediately led to better profitability ratios, better earnings per share, and a slightly higher dividend for shareholders. We are however of the opinion that while the 2017 financial year will still be a profitable one for Conoil Plc (and by extension its shareholders), we predict that profitability might be lower than that of 2016.
The oil company earned a little more revenue in 2016 than it did in 2015, as compared to the prior year when it made less revenue than 2014. Meanwhile, it had spent a little less on cost of sales in 2016 to achieve the level of sales that it did. Revenue for the year was N85.0 billion, 2.5 per cent more than the N82.9 billion recorded in 2015.
One other good thing is that Conoil was also able to effectively curtail its finance costs during the course of the year, cutting such costs by more than half. Thus, it had a commendable pretax profit of N4.3 billion, 26.5 per cent more than the N3.4 billion recorded in 2015. It also achieved a 22.5 per cent growth in after tax profit during the course of the year, with the after tax profit swelling to N2.83 billion.
Earnings per share (EPS) as well as dividend per share (DPS) were thus predictably higher than those of the prior year. At N4.099, the EPS was 22.8 per cent higher than the N3.33 recorded before. Meanwhile, DPS was N3.10, just 3.3 per cent higher than the N3.00 recorded in 2015.
Because of higher revenue and profit profiles for the year, profitability ratios took an upward swing during the course of the year. For the year, it recorded a profit margin of 5.1 per cent, higher than 4.1 per cent in 2015. Analysis shows that for every N100 earned by the company in the course of the year, it recorded a profit of N5.10, as compared to a profit of N4.10 in the preceding year.
As per return on assets (ROA) and return on equity (ROE), the company performed better in 2016 than it did in 2015, and the results it recorded are still high enough to be commended. ROA for the year was 6.2 per cent, up from 4.9 per cent in the prior year, and not as high as the industry average for 2016. ROE was 15.3 per cent in 2016, up from 13.1 per cent in 2015 but lower than what most other companies recorded for 2016.
Perhaps because of the harsher Nigerian economic climate, the company employed fewer employees during the course of the year and its employee number decreased to 189 from 202. Earnings per employee then improved to N449.73 million on the average, up from N410.39 million in 2015. This is indicative of employee productivity and company efficiency.
Not only did Conoil have a better capital adequacy in 2016 than it did in the prior year, the result also overshot the industry average for the period. At 95.4 percent, and higher than the 93.7 per cent result recorded in the prior year, the oil company’s result remains high and suggests that its financial strength in the future is unshakeable.
The company did not buck the common trends of the manufacturing industry for the 2016 financial year in terms of current ratio. It followed the rule of most companies having high current ratios, and had the ability to meet short term liabilities with short term assets, with a current ratio of 1.3 times.
Having a debt to equity ratio of 2.78 shows that the company is using N2.78 of liabilities in addition to each N1.00 of stockholders equity. In other words, the company is using N3.78 of total capital for every N1.00 of equity capital, a little lower than the result Conoil achieved in 2015.
Conoil recorded a distributable profit of N2.83 billion in 2016, and retained 24 per cent of it, and this is as compared to the one per cent it retained in 2015. With a profit margin of 5.1 per cent, a retention ratio of 0.24, an asset turnover of 1.2 times and an asset to equity ratio of 3.8, the company had a sustainable rate of 5.6 per cent. This means that using only the resources it generated, the company had the capacity to grow by only 5.6 per cent during the course of the year. It was however able to grow by an even lower 2.5 per cent, which means it did not achieve its inherent capacity for growth. This is understandable in the light of Nigeria’s economic recession and a reduced consumer purchasing power.
The Conoil stock sold at N32.59 as at our analysis date of August 11 2017. Our analysis determines that it is overvalued at that value. First, nets assets per share is N26.69, lower than the current market price. Secondly, the book value to market value ratio is much less than one, another clear indication of overvaluation. While book value is N18.5 billion, the market value is N23.4 billion. It is obvious that the company is worth less in reality than the price it is currently trading at. It is important to state that the seeming overvaluation of Cannoli’s stock is compensated for by the goodwill the company enjoys from the consuming public and investors alike. The stock also always pays a dividend (no matter how low), so this is good news for the investor.
From our analysis of the company’s quarter one result, the 2017 financial looks like it’s shaping up to be a great one for the company. Not only was it able to step up the tempo of its income generation (turnover grew by 28.9 per cent to N24.5 billion), the residual effect also got to pre tax profit level. Pre tax profit was N255 million, and this was a vast improvement over the N861 million loss recorded in the corresponding period in the past year.
While profit margin for the period was a mere one percent, it is still better than loss margin of 4.5 per cent recorded in the erstwhile year.
Conoil Plc was incorporated in 1960 as a private limited liability company. It was then known as National Oil and Chemical Marketing Plc. It was however converted to a public company in 1991. Today, the company is known principally for the marketing of refined petroleum products, the manufacture and marketing of lubricants, household and liquefied petroleum gas for both domestic and industrial use.
Our analysis shows that the Conoil stock in one that pays dividend, so it is an ideal stock for the investor who is interested in a regular dividend income.
*Source: Conoil’s 2016 financial report
*Conoil’s 2017 first quarter unaudited results
*The Nigerian Stock Exchange