MOBIL: Tough Trading Environment Offset by Real Estate; Maintains Neutral Rating

Proshare

Wednesday, April 20, 2016 10:39AM/FBNQuest

Raising our EPS ests. by 10% over the 2016-17E period

Mobil Oil Nigeria’s (Mobil) Q4 2015 earnings came in 45% behind our forecast because of a loss of –N679m on the other comprehensive income line. Underlying earnings beat by double digits, boosted by strong rental income (up 185% y/y), following the completion of renovation works on investment properties.

 

As such, we have raised our EPS estimates by 10% over the 2016-17E period, driven by an upward adjustment of around 68% to our rental income forecast. We have increased our price target by 6% to N153; this represents a potential upside of just 1.2% at current levels.

 

Mobil shares are trading on a 2016E P/E multiple of 11.7x for a flattish EPS growth in 2017E. The shares have shed -5.5% ytd (vs. -13.9% for the NSE ASI). We reiterate our Neutral rating.

 

Strong rental income growth more than offset y/y rise in opex

In Q4 2015 while sales came in flattish y/y, Mobil’s PBT and PAT both grew by around 200% y/y to N1.7bn and N544m respectively. The y/y growth rates on both lines were flattered by easy comparables.

 

In Q4 2014, PBT and PAT declined by 60% y/y and 92% y/y to N551m and N180m respectively due to subdued product volume sales and soft rental income on the back of renovations for key investment properties.

 

Back to Q4 2015, a gross margin expansion of 265bps y/y, a 185% y/y growth in other income and a positive result in net finance charges offset a flattish topline and a double-digit y/y rise in opex to lead to the strong PBT growth.

 

Compared with our estimates, while sales were ahead of our N15.3bn forecast by 24%, PBT beat by only 5% primarily due to a negative surprise (49%) on the opex line. However, PAT was 45% behind our forecast due to the loss of N679m on the OCI line. We had forecast zero for this line.

 

 

Outlook

Nationwide petrol shortages have persisted for months on the back of low import volumes. Fx scarcity and operational constraints are mostly to blame - issues we do not expect to ease in the very near term. In 2016, we forecast a sales decline of -10% y/y of N57.8bn, driven by a decline in unit volumes of around 15-20%.

 

We nonetheless believe that management’s focus on cost efficiencies and the higher margin lubes segment is likely to provide a much needed buffer to earnings in 2016, and partially offset the soft topline. We estimate an EPS decline of 4.5% y/y to N12.9.


 

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