MRS Oil Nigeria Plc H1 2021 Results: Bottomline Earnings Skyrocket as Sales Rise

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Saturday, September 04, 2021 / 09:00 PM / By Tosin Ige, Proshare Research / Header Image Credit: MRS Oil Nigeria Plc 




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Recently, MRS Oil Nigeria Plc (NGX: MRS) released its unaudited half-year (H1) financial statement. According to the report, the company's revenue increased by +53.19% Y-o-Y to N36.75bn in H1 2021. Profit after tax grew more significantly by +145.96% Y-o-Y N151.54m H1 2021, and earning per share increased by +146.30% Y-o-Y to N0.50 in H1 2021.

 

Growth in the top and bottom-line numbers came about by improved sales volumes in premium motor spirit (petrol) and automotive gas oil (diesel) and increased finance income.

 

Key Highlights

  • MRS's gross revenue rose by +53.19% Y-o-Y from N23.99bn in H1 2020 to N36.75bn in H1 2021.
  • Before-tax, profit increased by +258.54% Y-o-Y from -N211.30m in H1 2020 to N334.99m in H1 2021.
  • Profit after tax rose by +145.96% Y-o-Y from -N329.71m in H1 2020 to N151.54m in H1 2021.
  • Gross profit increased by +39.88% Y-o-Y from N1.68bn in H1 2020 to N2.35bn in H1 2021.
  • Cost of sales increased by +54.19% Y-o-Y from N22.31bn in H1 2020 to N34.40bn in H1 2021.
  • Finance cost increased by +5.79% Y-o-Y from N235.36m in H1 2020 to N248.99m in H1 2021.
  • Taxation increased by +54.93% Y-o-Y from N118.41 in H1 2020 to N183.45m in H1 2021.
  • Selling and distribution expenses surged by +30.19% Y-o-Y from N535.25m in H1 2020 to N696.85m in H1 2021.
  • Total debt grew slightly by +o.o7% Y-o-Y from N1.41bn in H1 2020 to N1.41bn in H1 2021.
  • Total assets declined by -11.05% Y-o-Y from N36.66bn in H1 2020 to N32.61bn in H1 2021.
  • Net Assets increased sightly by +0.89% Y-o-Y from N16.84bn in H1 2020 to N16.99bn in H1 2021.
  • Earnings per share grew significantly by +146.30% Y-o-Y from -N 1.08 in H1 2020 to N0.50 in H1 2021.

 



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MRS Run against The NGX ASI

Over the 8months, MRS's share price has remained relatively stable due to the lack of technical or fundamental changes in the company's operations and activities. The share price started the year at N13.75 and declined to N12.30 towards the end of January 2021.

 

The price later rose and stayed at N13.40 through February and March before falling to N10.90 through April and May 2021. The price maintained its N12.60 price throughout the rest of Q2 and early Q3 2021. Analysts believe MRS's share price may have built support at N10.90 with no resistance in the near term, given its rise to N13.85 as of August 27, 2021.

 

MRS share price has traded significantly below the NGX oil and gas industry index year-to-date (YTD). Analysts believe the increasing deviation between MRS's share price and the NGX oil and gas index is attributable to the industry average's low proportion of MRS share price. Essentially, MRS share price accounted for an average of 4.25% of the NGX oil and gas daily index in the last 8 months (see chart 1 below).

 

Chart 1: MRS Share Price and NGX Oil and Gas Index

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Profitability: Revenue Growth Pulls Up Profit

 

Revenue

In H1 2021, MRS's sales revenue rose by +53.19% Y-o-Y from N23.99bn in H1 2020 to N36.75bn in H1 2021, a retreat from the 7year low recorded in H1 2020 (See chart 2 below). The double-digit revenue growth came from the rise in premium motor spirit and automotive gas oil. At the same time, -0.43% Y-o-Y decline in Aviation Turbine Kerosene (ATK), -32.97% Y-o-Y fall in Lubricants and Greases, and a -28.52% Y-o-Y decline in Liquefied Petroleum Gas (LPG) put a limit on revenue growth. Conversely, Premium Motor Spirit (PMS) increased by +74.87% Y-o-Y from N17.82bn in H1 2020 to N31.17bn in H1 2021 while Automotive Gas Oil (AGO) increased by +4.36% Y-o-Y from N2.51bn in H1 2020 to N2.62bn in H1 2021.

 

Analysts believe the low base effect further supports the growth in H1 2020. This was on the back of the COVID-19 pandemic and the ensuing lockdown during the year.

 

Chart 2: MRS Revenue H1 2015 - H1 2021 (N'bn)

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Source: MRS Financial Statement, Proshare Research

 

Profit Before Tax

Growth in the top-line figures of MRS spurred the rise of +258.54% Y-o-Y in profit before tax (PBT) from a loss of N211.30m in H1 2020 to a profit of N334.99m in H1 2021 (See chart 2 below). This can be attributed to the growth in sales, the low base effect, and a quantum leap in finance income. The high H1 2021 PBT grow rate came from a negative base period in 2020. PBT within the first half of the year was also buoyed by sales revenue which grew by +53.19% Y-o-Y and finance income which leaped substantially by +9,033% Y-o-Y growth from N4.4m in H1 2020 to N410.6m in H1 2021.

 

Meanwhile, profit after tax (PAT) increased by +145.96% Y-o-Y from -N329.71m in H1 2020 to N151.54m in H1 2021. This was supported by the negative base but moderated by the minimum tax legislation.

 

Chart 3: MRS Profit Before Taxation H1 2015 - H1 2021 (N'bn)

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Source: MRS Financial Statement, Proshare Research



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Liquidity Weakness Rides on the Back of Deleveraging


Current Ratio

MRS current ratio declined by -3.36% Y-on-Y from 1.19 in H1 2020 to 1.15 in H1 2021. The trend shows the company has been recording fluctuations in its current ratio over time (See chart 4 below). The H1 2021 current ratio at 1.15 implies that the company held on to relatively moderate working capital as its current asset was higher than its current liabilities. However, the company's historical performance showed it had not satisfied analysts' preferred ratio of 2:1.

 

Chart 4: MRS Current Ratio H1 2015 - H1 2021

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Source: MRS Financial Statement, Proshare Research

 

Liquidity (Cash and Prepayments) Ratio

MRS liquidity ratio for H1 2021 was 5.55%, up from the 2.26% recorded in H1 2020, a slight retreat from the 2-period downward trend (see chart 5 below). The relatively lower liquidity ratios recorded between H1 2017 and H1 2021 compared with the higher ratios recorded between H1 2015 and H1 2016 suggest that the company had performed below capacity in financing its debt obligations without external capital over the last five years.

 

Chart 5: MRS Liquidity Ratio H1 2015 - H1 2021 (%)

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Source: MRS Financial Statement, Proshare Research

 

Acid-Test Ratio

MRS's acid-test ratio declined in H1 2020 from 1.03 to 0.88 in H1 2021, reaching its lowest level in H1 2021 over the last seven years (See chart 5 below). The decline between the ratio in H1 2020 and H1 2021 was mainly driven by the +32.21% Y-o-Y increase in inventory from N3.03bn in H1 2020 to N4.01bn in H1 2021, which is an indication that the company maintained a relatively high inventory. This has restraining implications on the company's ability to meet its near-term debt obligations.

 

Chart 6: MRS Acid-Test Ratio H1 2015 - H1 2021

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Source: MRS Financial Statement, Proshare Research

 

Leverage Ratio

MRS leverage ratio at 8.30% in H1 2021 shows a -52.95% Y-o-Y drop from 17.64% in H1 2020 (See chart 7 below). The decline in the company's debt-to-equity ratio in H1 2021 suggests that for every N1million the company holds in equity, it has a corresponding N830,000 in debt. Analysts believe the deleveraging efforts may have bolstered the growth in some bottom-line figures.

 

Chart 7: MRS Leverage Ratio H1 2015 - H1 2021 (%)

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Source: MRS Financial Statement, Proshare Research



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Efficiency: The Sweat Work Seems to Be Working

Total Asset Turnover

MRS asset turnover ratio shows the company achieved its highest total asset turnover in H1 2021, a sharp rebound from the 7year low recorded in H1 2020. Essentially, the H1 2021 asset turnover ratio of 1.06 implies that the company generated N1.06 in sales revenue for every N1 it incurred in assets during the first half of the year. The ratio had fallen sharply in H1 2019 from its positive trend between H1 2015 and H1 2018 (See Chart 8 below). The company may need to maintain its current trajectory to achieve greater efficiency in H1 2021.

 

Chart 8: MRS Plc's Asset Turnover H1 2015 - H1 2021

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Source: MRS Financial Statement, Proshare Research

 

Working Capital Turnover

Working capital turnover ratio, a measure of how efficient a company is generating sales using its working capital, for H1 2021 shows a sharp increase from 7.48 in H1 2020 to a record high of 18.82 in H1 2021 (See Chart 9 below). The high ratio suggests that MRS is generating sufficient revenue with its working capital. Analysts believe the company can achieve more efficiency in H2 2021 with prudent investment.

 

Chart 9: MRS Plc's Working Capital Turnover H1 2015 - H1 2021

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Source: MRS Financial Statement, Proshare Research



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Outlook for H2 2021: Brighter Days Ahead

Given the H1 2021 results, which were mainly affected by the country's slow recovery in economic activities and power challenges, analysts expect more impressive performance from the company in H2 2021 as the economy normalized. Analysts believe MRS sales revenue will improve and trickle down to the bottom-line figures in Q3 and Q4 2021 as the COVID-19 vaccination program leads to greater mobility. The signing of the PIB creates an investment-friendly environment for the downstream oil sector. The optimism is supported by the company's ongoing business model review. Analysts believe that the evaluation would identify the critical business risks and opportunities for the company's growth and competitiveness.

 

The company focuses on ensuring sufficient access to capital to grow and refinance maturing debt obligations on debt financing. As part of the liquidity management process, the Company has various credit arrangements with some banks which can be utilised to meet its liquidity requirements. Analysts believe this strategy should lower finance costs and free up cash flows in the near term for the company's capital expenditure and business expansion.




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