Introduction
The 2016 financial year was a fantastic one for Mobil Oil Nigeria Plc. It able to step up the level of its business activities, and profitability ratios for the year were mostly a progression over the preceding year’s. Profit margin improved, as did return on assets and return on equity. Earnings per share was a whopping N22.61 and shareholders smiled home with a DPS of N8.00 for the year.
We however predict that the 2017 financial year will be a slightly leaner one for Mobil than 2016 was. As at its first quarter, growth momentum was slowing down and it couldn’t translate as much of its earnings into profit.
Core operations
Mobil recorded a growth in all of its major parameters for its 2016 financial year. First to experience an increase was the company’s gross earnings, rising to a three year high of N94.1 billion, 46.6 per cent higher than the N64.2 billion recorded in the preceding year. This 46.6 per cent growth rate is as compared to a decline rate of 8.5 per cent in 2015.
After operations, Mobil was left with a pre-tax profit of N12.0 billion, 73.9 per cent higher than the N6.9 billion pre-tax profit recorded in the erstwhile year. This 73.9 per cent growth rate is also as compared to a pre-tax profit decline rate of 17.9 per cent in the preceding year. After-tax profit also grew over the preceding year’s by 63.7 per cent, closing at N8.2 billion, while distributable profit was N8.7 billion, a whopping 107.1 per cent more than the 2015 result.
The company achieved one of the highest earnings per share (EPS) for companies listed on the Nigerian Stock Exchange (NSE) for 2016. Such EPS was a whopping N22.61, a vast improvement over the already high N13.51 EPS recorded in 2015. The company then reacted appropriately by rewarding shareholders with a total dividend of N8.00, also commensurably up from N7.20 in the past year.
Profitability ratios
With higher earnings and correspondingly high profits, it was imperative that Mobil’s profitability ratios for 2016 would be positively impacted. For the year, it recorded a profit margin of 12.8 per cent, higher and better than 10.7 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 N12.80, as compared to a profit of N10.70 in the preceding year.
Also, the company performed significantly better in 2016 than it did in 2015 in terms of return on assets (ROA) and return on equity (ROE), contrary to the trend in the manufacturing industry for the period under review. ROA was 19.4 per cent while ROE was 37.3 per cent, both better than the ratios of 12.7 per cent and 32.7 per cent respectively in the preceding year. These high ratios indicate a superior management of key assets.
Other ratios
Mobil’s shareholders’ funds in 2016 could finance a higher proportion of its total capital than it did in the preceding year, and this means that its capital adequacy was more robust than that of the prior year. The result for the year was 50.1 per cent, higher and therefore better than the 38.7 per cent recorded in the erstwhile year. The result recorded however was not on par with what was obtainable in the industry for the period under review.
As per the liquidity position of the company, it was able to convert assets into needed funds even more quickly than it did in 2015. Current ratio, which measures whether or not a firm has enough resources to pay its debts over the next 12 months, was 1.2 times (higher than 1.1 times in 2015), and suggests a high efficiency of the company’s operating cycle and its ability to turn its products into cash.
Having a debt to equity ratio of 1.2 shows that the company is using only N1.20 of liabilities in addition to each N1.20 of stockholders equity. In other words, the company is using N2.20 of total capital for every N1.00 of equity capital, higher than the N2.10 result the company recorded in 2015.
Sustainable growth
For the review year, the company recorded a distributable profit of N8.7 billion. It dedicated N2.88 billion of this to dividend and retained N5.32 billion. It therefore it had a retention ratio of 0.65, higher than it did in the past year.
With a profit margin of 12.8 per cent, an asset turnover of 1.5 times, and an assets/equity ratio of 2.9, the company had a sustainable growth rate of 36.2 per cent for the period under review. This means that the company recorded a 36.2 per cent inherent capacity for growth during the course of the year, an improvement over the 20.8 per cent result in 2015. Thus, it a 36.2 per cent capacity for growth, and this was quite commendable in the light of Nigeria’s economic recession and a reduced consumer purchasing power. For the year under review, actual growth was 46.6 per cent, and analysis shows that the company grew faster than might be sustainable in the long run.
2017 Q1 result
Mobil’s 2017 first quarter result shows that it is too now feeling the bite of Nigeria’s economic recession, just like every other company is. Its 2017 financial year does not look like it’s shaping up to be a great one for both company and its shareholders. While the oil company recorded a higher turnover than the corresponding period in 2016, its pretax profit and after tax profit for the period were much lower than those of the prior year, While pre-tax profit declined by 15.4 per cent to N2.3 billion, after-tax profit slid by as much as 99.3 per cent to N13 million only. We cannot yet predict if the 2017 financial year will end on a great note for Mobil or not.
Stock value
As is expected of an oil stock, the Mobil stock is expensive, and our analysis shows that it is overvalued at its current market price of N284.65, even though the price has fallen over the past few weeks. As at the analysis date of May 28 2017, net assets per share was N36.13, and this was just but a fraction of the current market price and suggests overvaluation.
The company is also worth much less in its books than it is selling for on the NSE at now, as shown by a lower book value as compared to its market value. While book value is N21.5 billion, current market capitalisation is a much higher N105.7 billion. This also, is a sign of overvaluation.
One point in the stock’s favour is that it is very consistent with dividend income. This last year, shareholders received a dividend of N8.00 per share.
We do not recommend a buy for investors at this point.
Unique strategies
The history of Mobil in Nigeria dates back to 1907 when Socony Vacuum Oil Company began marketing operations in Nigeria, through the sale of sunflower kerosene. In 1978, the company became a publicly quoted company and assumed its current name and status.
One of the six major petroleum products marketers in the country, it currently has over 200 retail outlets located in all 36 states of Nigeria. The company owns three plants located in Apapa that manufacture lubes, petroleum jelly, and insecticide. Its ultra-modern lube oil plant, with a capacity of 450,000 barrels per annum is regarded as one of the most sophisticated in Africa.
Conclusion
NIPCO, a company which just acquired a N90 billion stake in Mobil, has acquired a good and profitable business. In a recessive economy dotted by languishing companies, Mobil was one of the few Nigerian companies that recorded a commendable profit in 2016. This is to be commended. The average investor might however not have the necessary financial leverage to buy into the company because it is an expensive stock.
*Source: Mobil’ 2016 financial report
* Mobil’ 2017 Quarter 1 unaudited results
*The Nigerian Stock Exchange