11 Plc Q4 2017 Results Review: One-off Costs Weigh on 2017 Earnings

Proshare

Friday, April 20, 2018 /09:13 AM / FBNQuest Research 

Neutral Rating Maintained 

We forecast a PBT growth of 15% y/y to N12.8bn for 11 PLC (11) in 2018E. Our forecast is primarily driven by relatively lower costs, and a sales growth of around 6% y/y to a lesser extent. We do not anticipate any acquisition-related costs hitting the firm’s P&L this year. In 2017, 11 posted one-off acquisition-related costs of c.-N2.2bn following the completion of the purchase of a majority stake by NIPCO Investments. 

We expect a y/y improvement in sales even though 11 posted record sales in 2017. This is because we believe 11’s new core management will take on a more aggressive approach which will likely lead to gradual market share gains, especially within the white products category.
 

According to management accounts, 11 is currently upgrading its petroleum products storage capacity, with the intention of reducing reliance on third-party infrastructure. Storage capacity for gasoline and kerosene is set to rise by 15,000 metric tonnes (15,000MT) and 20,000MT respectively in 2018. Q4 earnings beat our forecast by c.45%; as such we have raised our EPS forecasts over the 2018-19E period by 25%. Our new price target of N283.0 is up 21% and implies an upside potential of +56.3%.
 

However, we maintain our Neutral rating because in the absence of a gasoline price hike or full deregulation, we do not see any near term catalysts for the stock. In 2018, Mobil shares declined -7% in 2017, underperforming the ASI by 14%. Mobil shares are trading on a 2018E P/E multiple of 7.5x for an average EPS growth of +4% y/y over the 2019-2020E period.


Q4 PAT of N2.9bn Came in Flattish YoY 
Q4 2017 sales were up 66% y/y to N37.0bn while PBT grew by 22% y/y to N4.3bn. A -364bp y/y gross margin contraction and a -17% y/y decline in other income were not enough to offset benefits coming through from the strong topline growth. 11’s sales held up surprisingly, unlike in prior quarters when petroleum product shortages occurred. 

We believe the new ownership/management deserve most of the credit. Below the PBT line, there were no one-off expenses during the quarter, similar to Q2 and Q3. PAT came in flattish y/y.
 

Sequentially, while sales were up 16% q/q, PBT and PAT both grew by 37-38% q/q. In addition to topline growth, a 20% q/q growth on the other income line provided support for the improved q/q trend. The Q4 PBT beat our N2.9bn estimate by 49%. The variance was driven by positive surprises on the sales and other income lines. 11’s full year PBT of N13.4bn also came in ahead of consensus PBT estimate of N10.9bn.

Proshare Nigeria Pvt. Ltd.

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