Thursday, December 08, 2016 1:16 PM /FBNQuest Research
Downgrading to Underperform
In Q3 2016, Mobil Oil Nigeria (Mobil) delivered stellar y/y earnings growth. However, the q/q trend, which showed declines for key P&L line items, provides a better pointer for Q4. Q3 sales and earnings both declined by 22% q/q and 49% q/q respectively, reflective of lower product volume sales following petroleum product price increases in Q2.
The federal government had announced a gasoline price hike of c.50% to N145/litre in May. Although we had anticipated a contraction in gross margin in Q3 as relatively cheaper products sold off, the magnitude of the contraction, by -350bps y/y to 13%, was surprising.
Compared with our estimates, Q3 earnings missed by 41%. As such, we have cut our EPS forecasts over the 2016-17E period by 8% on average. Our new price target of N193.2 is lower by c.1.5%.
In the past month Mobil shares have rallied strongly (up +70% vs ASI: -5%) following the announcement that Nipco Investments, an indigenous downstream oil and gas company, will pay US$301m for ExxonMobil Nigeria’s 60% interest in Mobil Nigeria.
The financial consideration follows Nipco’s earlier execution of a sales and purchase agreement with ExxonMobil for the acquisition of over 216 million ordinary shares in October.
Assuming the deal is concluded at an exchange rate of between N300/US$ and N350/US$ (FX rate not disclosed), the agreed sale price works out at N417-487/share, a significant premium to Mobil’s closing share price of N219.41 before the announcement. For now, we believe that market’s expectation for a tender offer is premature.
At current levels, we see an implied downside potential of -40%. As such, we downgrade our recommendation on the stock from Neutral to Underperform. The shares are currently trading on a 2016E P/E multiple of 16.2x for flattish EPS growth in 2017E. Year-to-date Mobil shares have appreciated +102%, outperforming the NSE ASI by around 112%.
Q3 2016 PBT and PAT up 73% y/y and 80% y/y respectively
Mobil reported Q3 2016 results which showed that sales of N21.6bn were up 60% y/y while PBT and PAT grew by 73% y/y and 80% y/y to N2.0bn and N1.3bn respectively.
Sequentially, sales, PBT and PAT all declined by 22% q/q, 48% q/q and 49% q/q respectively. Compared with our estimates, Q3 sales came in behind by 9% while PBT was behind by a much wider margin of 48%.
The steep gross margin contraction which surprised negatively was the primary driver behind the comparatively weaker earnings. 9M sales of N71.9bn grew by 59% y/y, while PBT and PAT were also up, by 62% y/y and 57% y/y respectively.
1. Nipco Inv. Files Application with SEC for An Authority to Proceed with the Acquisition of MOBIL
2. MOBIL Declares N5.74 bn Profit in Q3 16 Result SP N190.00k
3. Divestment of Shares by ExxonMobil Oil Corporation from Mobil Oil Nigeria Plc
4. Mobil Nigeria Plc Q2 16 - Sturdy sales and rental income buoy higher margins
5. MOBIL Declares N4.42 bn Profit in Q2 16 Result SP N162.00k
6. Mobil Oil Nigeria Plc Records 80% Sales Growth YoY in Q2'16
7. MOBIL Outlook improves in Q1 16 despite product scarcity
8. MOBIL Q1 revenue hits 4-year high
9. MOBIL Declares N1.82 bn Profit in Q1 16 Result SP N155.00k
10. MOBIL: Tough Trading Environment Offset by Real Estate; Maintains Neutral Rating
11. MOBIL: Opex up by 17% in Q4’15 Results; Shares Rated Neutral
12. MOBIL Declares N4.87 bn Profit; Proposes 720k Dividend in 2015 Audited Result,(SP:N156.00k)
MOBIL Q3 Sales Decline by 27 YoY Stock Rated NEUTRAL
Mobil books Biggest one-day loss on fresh sell-down
MOBIL Records 34 Decline in PBT in Q3 15 Result SP N154.00k
MOBIL Moving from Underperform to Neutral
MOBIL Records Decline in Sales as Upwards Revision of 2015 Estimates is Expected