FORTE OIL PLC: a growing energy powerhouse


Tuesday, November 10, 2015 6:00PM / GTI Research

9 Months 2015:  Revenue down by 25.26%; Profit After Tax up by 6.69%

Forte Oil(or the “Company” or “FO”) Plc, an indigenous marketing petroleum Company released its third quarter earnings for the period ended September 30, 2015 on the 16th of October 2015. The result showed a 25.26% decline in sales revenue to ₦91.61 billion ($458.05mn) from ₦122.58 billion ($612.90mn) Year-on-Year (YoY) while profit after tax (PAT) grew by 6.69% to ₦4.28 billion ($21.40mn) from ₦4.01 billion ($20.05mn) YoY. Gross profit and operating profit declined by 2.37% and 12.10% YoY respectively while net finance cost reduced by 74.44% YoY.


FO recorded an improved third quarter performance compared to the second quarter as revenue and profit after tax grew by 8% and 0.36% respectively quarter on quarter (QoQ).


Most recently, FO sold 17% ($200mn) equity stake to Mercuria Energy Holdings SA, the world’s third largest independent energy trader and asset operator, as part of its commitment towards expansion. Forte Oil Plc is a well-placed player in the oil and gas downstream business, upstream services, power generation and upstream exploration although more than 89% of its revenue still comes from fuel sales.


We have adjusted for increased contribution of FO’s power business and our analysis clearly shows the growth potentials inherent in FO as the Company continues to make investment efforts to becoming Nigeria’s premier integrated energy solution provider. With aggressive drive to compete in upstream sector and power business, we have made a two year forecast which reflects moderate growth in 2015 and an improved growth in 2016.



Based on our analysis, Forte Oil Plc is currently trading at a premium to our estimated fair value of N278 with a 12Month investment horizon. In arriving at our fair value for the stock, we focused on the historical financial performance of the stock and our expectation for FY 2015.


Our fair value for FO shares was calculated using the Discounted Cash Flow (DCF) Model comprising our expected cash flow estimate and dividend consideration for the Company and GTI Securities customized tweak to adjust for the risk of investing in the Nigerian oil and gas sector. Our Required Rate of Return (RROR) factors in a risk premium of 12.50% and the yield for the most recently issued 20-Year FGN Bond was applied as the risk free rate of return.


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