Friday 15 June 2012

This snapshot report placed the Q4 2011 earnings report of the company under close scrutiny as regards to its performance in the quarter and relates this in a clear and balanced manner without compromise as highlighted in the subsequent paragraphs.

Overview

Oando Plc presented its 2011 full year report for the period ended December 2011. The result came with some low points as investors’ sentiment appeared unfavourable in the recent time towards the share price of the vibrant oil marketing company.

The weakness in the performance of the company is not too far from our expectation as the earlier profit warning presented to the market by the company had hinted such unimpressive performance.

The unimpressive performance has been attributed to the exceptional item of N9.6billion which included impairments of assets, project expenses from capital raising exercises, acquisitions, and termination of technical and managerial charges.

Furthermore, a cursory look at the financials of the company revealed a significant impairment of the bottom-line amid sustained and impressive turnover posture. The PAT plunged by -78% (YoY) to close weak at N3.4billion against N14.37billion recorded in the previous year comparable period.

The profit margin reveals inefficient posture of the management and poor cost management as the margin dipped below 1% due to huge expenses incurred during the period. The total expenses closed at N50.05billion as against N29.70billion recorded in the previous year comparable period as it has shown in the audited result.

In a similar vein, the negative postures of shareholders’ fund and net assets further revealed the impact of the impairment experienced during the year. The net assets closed weaker at N92.42billion, dipping by -0.67% (YoY) from N93.04billion recorded in Q4’2010. Meanwhile, the shareholders’ fund tanked by -7.32% (QoQ) in the quarter to buttress the impairment noted above.
 

 Observations 

We observed that the company recorded a very weak bottom-line compared to figures recorded in both previous quarter and year comparable period. The PAT closed at N3.4billion against N10.16billion recorded in Q3, 2011- an unimpressive performance when compared with N14.37billion recorded in Q4, 2010.

Apart from the huge exceptional item of N6.62billion recorded in the quarter, further analysis suggests the company has huge debt profile on its balance sheet as shown in the audited report. The interest payable growth stood at 53.6% to close at N8.82billion against N5.74billion recorded in the previous year comparable period.

To this regard, we call attention of the management to this trend as this can send wrong signal to the investors while it remains a huge burden on the bottom-line.


 

More so, the gross profit of the company is on the continued slide which signifies inefficiency in terms of the cost management and operational expenses- a signal to inability to sustain robust bottom-line as reflected the falling gross profit margin. The management is advised to cost initiative strategies in place to salvage the persistent slide in the gross profit posture of the company.

The profit margin also closed lower at 0.59% to further buttress the operational inefficiency of the management as we have noted above.

Similar trend observed in the EPS trend as the profitability posture remained unimpressive. The EPS plunged to close at N1.52 as against N6.32 recorded in the previous year comparable period.

On the final note, the Net Assets and shareholders posture remained unimpressive as a result of impairment.

The shareholders’ fund plunged by 7.32% (QoQ) to close at N92.47billion as against N99.73billion recorded in the previous quarter. The outlook remained unimpressive by -0.67% when compared with previous year comparable period.

Observation & Comments on Q1’12  

The outlook in the first quarter remained the same, though no exceptional item was report but the huge cost and debt profile remained firm which seems to be one of the burdens on bottom-line of the company.

Aside this, the continued negative posture of the working capital of company is worrisome as this may signify short term liquidity pressure for the company which may also raise wary posture of investors towards the company in the near term.

Also, this further revealed continued inefficiency as we have observed in the audited report which could be traced to sustained poor cost management and operational efficiency- we call attention of the management to this unimpressive trend in the operating efficiency of the company.

The profitability posture of the company remained weak as reflected in both gross profit and PAT margins which closed weaker when compared with previous year comparable period. Nevertheless, we observed slight improvement on shareholder’s fund, moving out negative state to close with 2.6% growth (YoY).

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