Forte Oil Q1 '16 - Fair value of share is N92.39, SELL

Proshare

Friday, April 22, 2016 7:38 PM / FSDH



Improved Performance in Q1, 2016

 

1.0      Q1 2016 Performance Analysis:

 

Forte Oil (FO) improved its top and bottom line performance in Q1, March 2016, despite the challenges the oil marketing companies faced during the period. The company’s Turnover (T/O) increased by 7.68% to N35.60bn in Q1 2016, compared with N33.06bn recorded in the corresponding period of 2015. The cost of sales rose by 6.16% to N30.80bn in Q1 2016 from N29.01bn recorded in Q1 2015 leading to an 18.56% increase in Gross Profit (GP) to N4.81bn, from N4.05bn in 2015. Cost of sales as a percentage of T/O decreased to 86.50% from 87.74% as at Q1 2015.

Selling, distribution and administrative expenses increased by 0.40% to N3.13bn in Q1 2016 from N3.12bn. The rise in distribution expenses is attributable to the increase in freight costs associated with the distribution of petroleum products as well as the company’s freight business. Forte Oil has successfully raised a crude oil lifting contract invoice for the first time in its operations and expects to boost revenue by up to N2bn by FY 2016.

Net finance costs increased by 73.85% to N1.14bn in Q1 2016 from N658.25mn in Q1 2015. The Profit Before Tax (PBT) rose to N1.30bn, an increase of 54.51% from N842.35bn recorded in the corresponding period of 2015. The tax provision also rose by 486.55% to N347.23mn in Q1 2016 from N59.20mn in Q1 2015, leading to a Profit After Tax (PAT) of N954.24bn in Q1 2016 from N783.15mn in the corresponding period of 2015. The company’s profit margins rose in Q1 2016 compared with Q1 2015.

The performance in the three-months ended March 2016 results show a marked improvement over the corresponding period of 2015. Forte Oil’s profit increased as improved margins from the new pricing mechanism of the Petroleum Product Pricing Regulations Agency (PPPRA) took effect. Other factors that improved FO’s profits are the positive impact of the increased electricity tariff on its power business and the added boost from FO’s other operating income.

The company’s total assets decreased to N118.98bn in Q1 2016, from N121.76bn recorded in FY 2015. FO hopes to increase the production capacity in the Geregu power plant from 414MW to 435MW by Q3 2016. Forte Oil will also activate two (2) additional Power Generation Turbine for its Power Generation business by July 2016. These measures should improve both the company’s revenue and profits in FY 2016.

The cash profit generated from FO’s core operating activities increased to N3.02bn in Q1 2016 from N2.15bn in Q1 2015. The proportion of revenue that translated to cash profit increased to 8.49% in Q1 2016 from 6.52% in 2015, meaning that more revenue was translated to cash in Q1 2016. We also noted that a considerable part of the company’s cash is channeled towards its interest expenses.



The working capital stood at a negative N3.44mn; while the current ratio also fell to 0.96x as the company uses short-term borrowings to fund its operations. We estimate a PAT of N6.90bn for FY Dec 2016. This will generate an Earning Per Share (EPS) of N5.29 and a final Dividend Per Share (DPS) of N3.60 based on a dividend pay-out of 67.93%.

Looking at the performance in Q1 2016, we maintain our previous SELL rating on the stock of Forte Oil Plc at the current price of N275.12per share.



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