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By CHUKWUMAH KELECHUKWU.
“You’re making a terrible mistake if you stay out of a game that you think is going to be very good over time because you think you can pick a better time to enter it,” says Buffet.
When Warren Buffet offered above piece of advice to potential investors, he was reminding them that there cannot be any better time to enter a forward-looking equity than when the stock price has bottomed out as in the case of Oando Plc and Presco Plc.
Despite seeming negative outlook of both stocks, discerning investors couldn’t ignore placing a bet on Monday driven by outlook of the companies’ fundamentals which stockbrokers described as unassailable.
On a day when 19 stocks traded at losses, price gains by both stocks along with 22 others helped to moderate an otherwise abysmal performance following sell-offs in ETI (-9.7%), CCNN (-10.0%) and NIGERIAN BREWERIES (-2.5%) that dragged the benchmark index 14 basis points or 0.24 percent lower to 29,809.2 points.
Thus, extending year-to-date losses to 5.2 percent while market capitalisation shed equal percentage or N18.5billion to N13.136 trillion.
But as massive shares offloading continues, discerning investors are taking position in companies whose fundamentals are yet to be to properly priced by the market.
For instance, Oando Plc which closed at N4.00 per share after gaining N0.05 or 1.3 percent on Monday has its earnings per share (EPS) well above 18 percent, implying that the stock could return as much as 18 percent profit based on last audited financial performance of the company as of 2018.
In the past one week, price capital appreciation of the equity has risen +8.11 percent to N4.00 per share, about 1.09 percent below the allowed maximum price movement range, and making the stock one of the best performing in the last one week.
For a company that posted profit in its last three financial statements, it won’t be any mistake to take position in the stock with expectation for impressive returns at year end.
Volume of activities on the stock in last ten trading sessions from June 10 to 24 indicate that more than 26.237 billion shares of Oando have changed hands since June 10. At average price of N4 per share, this amount to about N104.95billion.
In equities trading, liquidity is of essence. In other words, the ease with which shareholders can convert their prized stocks to cash matters a lot more than many understand.
Despite board crisis, Oando Plc regained investors confidence after record third consecutive profit driven by a strong performance in its crude oil trading division and a 3 percent increase in turnover to $312 million, up from $301 million.
A partial divestment from its marketing subsidiary notwithstanding, the company posted a profit of N4.6billion profit after tax in its first quarter of 2019 (Q1 2019), an 11 percent increase over N4.2billion in corresponding period in 2018 (Q1 2018) just as turnover increased 12 percent to N168billion, up from N150.6billion in Q1, 2018.
The energy company had closed 2018 financial year with a N28.8billion profit for the year ended December 31, 2018 after coming out from years of loss position induced by huge dollar-denominated leverages.
Rising crude oil prices which surged above $66 per barrel in first quarter 2019, $3 higher than the year’s projected average, had boosted financial outlook of the indigenous energy solutions provider.
An analysis of the company’s Q1 financial statement filed to the NSE showed that its crude oil trading division, Oando Trading, was a significant revenue driver with 11 percent increase in earnings and a 3 percent increase in total turnover to $312million, up from $301 million.
The company has continued to increase its market share in the downstream sector through its trading business, with the result that turnover grew 12 percent to N168 billion from N150.6 billion in Q1 2018.
To further improve net distributable earnings, the Group also reduced total leverage by 5 percent to N200.9billion, down from N210.9 billion in 2018 while its long term borrowing decreased by 1 percent to N75.8billion compared to N76.8 billion in 2018.
Production increased significantly by 11 percent to 43,745boe/day compared to 39,556boe/day in the same period of 2018 in Oando’s upstream subsidiary.
Oil production had also increased by 13 percent from 14,823bbls/day in Q1 2018 to 16,815bbls/day in Q1 2019, while natural gas production increased by 18 percent from 124,910mcf/day in Q1 2018 to 147,163mcf/day in Q1 2019.
With this improved outlook of the company’s fundamentals, the market may have begun to properly price the stock to match its true value which stockbrokers put a little above N10 per share, all things being equal.
BADEJO ADEMUYIWA has 23 years experience as a Finance Writer, specialising in Insurance and Investigative Reporting.
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