By Chukwumah Kelechukwu
Sharp decline in the earnings per share (EPS) returns of the Mobil Nigeria PLC and a couple of equities listed on the petroleum sector of the Nigerian Stock Exchange (NSE) dragged down NSE Oil & Gas Index by -3.95 percent as witnessed last week, the highest decline in the week.
NSE Oil & Gas Index which mirrors the performance of the petroleum sector declined from previous week’s close at 292.09 to 280.54, representing -3.95 percent decline, the worst decline among all the NSE Indices during the week.
Stockbrokers said the sharp decline in the NSE Oil & Gas Index which coincided with release of 2018 full year financial result of Mobil Plc also known as 11Plc highlighted increasing constraints in the oil and gas sector of the economy stoked by government’s policy.
The oil company’s 2018 full year financial result, showed 50 percent decline in earnings per share in the last quarter of 2018 ended December 31.
Its gross revenue as at December 31, 2018 stood at N164.609billion as against N125.257billion in previous year of 2017 when the company had to pay some exceptional charges induced by regulation.
However, the revenue was heavily weighed by higher operating expenditure and cost of sales leaving profit lower at N9.328billion as against N7.518billion in 2017.
With the full year 2018 EPS of N25.87, representing about +24.1 percent, the board of directors of the company has proposed a final dividend of N8.25 per share, which equates to a yield of 4.85 percent on its last closing price.
At N3.34 billion, the company’s operating expense surged 31 percent year on year in Q4 2018, with the ratio-to-revenue closing at 8.4 percent, the highest ever recorded by the company since first quarter of 2017.
The full year result shows a huge 50 percent increase in volume-related expenses, about 38 percent of total operating expense which compounded the weaker gross margin and decline in the earnings before interest and taxes (EBIT) which also declined by 52.4 percent.
The quarterly revenue trend revealed stagnating volumes which stood at -9 percent in Q2, -4 percent in Q3, and +1 percent in Q4, all indicating weak demand in the period under review.
The company’s revenue in the fourth quarter (Q4) 2018 grew by 6.9 percent year on year. Compared to Q3 2018 however, revenue only grew by a marginal 1.1 percent.
Commenting on financial performance of the leading petroleum marketer, analysts at Lagos based Cordros Capital Limited pointed out that the government, via the Nigerian National Petroleum Corporation (NNPC), manages pricing across the deregulated segments — AGO, DPK, and ATK — where it holds a significant market share, thus, further constraining margins.
“This suggests that barring a major improvement in the macros, pump price hike or full price deregulation, the company will not achieve a meaningful revenue growth in 2019,” the analysts stated in their report released on Monday.
The analysts concluded that the oil company’s per share earnings which measures returns on investment is unimpressive.
According to them, it would have been worse at a -4.3 percent but for the absence of previous year’s exceptional charge.
“Mobil’s Q4 EPS is unimpressive, in our view. For the full year, Mobil’s EPS and EBIT are above 2017FY (+24.1% and +1.2% respectively), but only due to the absence of the previous year’s exceptional charge (adjusting for the charge, EPS would have been down by 4.3% y/y), reflecting a weak operational performance in the period, amidst the still challenging operating environment,” the analysts concluded.
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