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11 PLC- Neutral rating maintained

Proshare

Monday, January 22, 2018 /12:25 PM /FBNQuest Research 

PT up 19% to N234.0, reflecting lower interest rate environment
We forecast PBT growth of 6% y/y to N10.3bn for 11 PLC (11) in 2018. However, we estimate an EPS decline of -14% y/y to N19.46 during the same period. The central driver behind this forecast is that we do not have an estimate for the OCI line over the next four quarters. 

Excluding this income line, earnings growth is broadly in line with our PBT growth expectation. We also do not anticipate any acquisition-related costs hitting the firm’s P&L this year. We believe 11’s new core management will take on a more aggressive approach and as such expect the firm to gradually gain market share, especially within the white products category. Nonetheless, we believe the partial deregulation of the downstream sub-sector of the industry is likely to weigh on petroleum marketers’ growth prospects.
 

In order to prevent gasoline shortages last year, the state oil company, NNPC, was the major petroleum product importer. Rising petroleum product prices resulted in the expected open market price rising significantly above the price ceiling of N145 per litre. Our new price target of N234.0 is up 19% and implies an upside potential of +8.3%. Our price target is driven by market-reflective adjustments to our risk-free rate and equity risk premium assumptions. While we lowered the former by 150bps to 14%, we cut the latter by 50bps to 6.0%.
 

In 2017, Mobil shares declined -30% in 2017 underperforming the ASI by 73%. In the absence of a gasoline price hike or a full deregulation, we do not see any near term catalysts for the stock in 2018. As such, we maintain our Neutral rating. Mobil shares are trading on a 2017E P/E multiple of 9.6x for an average EPS decline of -4% y/y over the 2017-2019E period.
 

9M 2017 PBT up 7% y/y while PAT came in flattish y/y
In 9M 2017, while sales of N88.3bn grew 23% y/y, PAT came in flattish y/y at N5.9bn. A gross margin contraction of -448bps y/y to 12.1% and one-off pension-related expense of –N2.2bn offset the double-digit topline growth and -5% y/y opex decline. 

Following the acquisition of a majority stake in Mobil by NIPCO a significant portion of the firm’s Defined Benefit Scheme was migrated to a Defined Contribution Scheme leading to the actuarial loss. Mobil also posted other comprehensive income of N1.3bn.
 

In Q3, Sales grew 48% y/y N32.0bn compared with Q1 and Q2 growth which came in below 15%. Compared with our estimates, sales and PAT beat by 12% and 16% respectively. The wider variance on the earnings line is driven by a positive surprise in operating expenses which came in lower than expected.
 

Proshare Nigeria Pvt. Ltd.

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