Tuesday, May 9, 2017 12:16 PM/ FBNQuest Research
Underperform rating maintained
In Q1 2017, Mobil Oil Nigeria (Mobil) delivered a PBT decline of -15% y/y and the PBT missed our PBT estimate by around 10%. Similar to Total Nigeria (Total), gross margin compression completely offset benefits coming through from strong topline growth.
PAT was worse off because of a pension-related expense of N2.0bn following the conversion of a significant portion of the firm’s Defined Benefit Scheme to a Defined Contribution Scheme.
We cannot rule out further acquisition-related charges over subsequent quarters.
Following the negative earnings surprise in Q1 2017, we have cut our EPS forecasts over the 2017-19E period by 18% on average. Our new price target of N180.0 is down by a similar magnitude.
From current levels, we see an implied downside potential of - 46% and retain our Underperform rating on the stock.
Notwithstanding, we note that a tender offer to minority shareholders at a price similar to the acquisition deal price (N417/share) is a strong possibility, and would continue to influence trading patterns in the near term.
Year-to-date, Mobil shares have appreciated +19%, outperforming the NSE ASI by around 21%.
However, in the last month, the shares have underperformed the market, down -7.8% (ASI up +3%).
They are currently trading on a 2017E P/E multiple of 21.1x for an EPS growth of 13% in 2018E; this compares with a 2017E P/E multiple of 9.6x for an EPS decline of -14% in 2018E for Total.
Q1 2017 PAT down significantly due to exceptional charge of N2bn
Q1 2017 sales grew 11% y/y to N25.2bn while PBT and PAT both declined y/y. PBT fell -15% y/y to N2.3bn but PAT declined much more to N13m.
Following the recent 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 an actuarial loss of c.N2.0bn.
Additionally, a gross margin contraction of -480bps y/y to 12% more than offset any benefits coming through from the double-digit topline growth, a 13% y/y rise in other income and flattish opex, leading to the PBT decline of -15% y/y.
Sequentially, while sales were up 13% q/q, PBT declined by - 36% q/q. PAT was down significantly as a result of the actuarial loss stated above.
Compared with our estimates, while sales beat our N21.5bn forecast by 17%, PBT came in behind by 10% due to a negative surprise on the gross margin line.
1. Mobil Oil Nigeria Plc - Another IOC Exits Downstream
2. NIPCO Investments Limited Completes N90bn Acquisition of ExxonMobil’s Stake in Mobil Oil Nigeria Plc
3. Nipco Inv. Files Application with SEC for An Authority to Proceed with the Acquisition of MOBIL
4. MOBIL Declares N5.74 bn Profit in Q3 16 Result SP N190.00k
5. Divestment of Shares by ExxonMobil Oil Corporation from Mobil Oil Nigeria Plc
6. Mobil Nigeria Plc Q2 16 - Sturdy sales and rental income buoy higher margins
7. MOBIL Declares N4.42 bn Profit in Q2 16 Result SP N162.00k
8. Mobil Oil Nigeria Plc Records 80% Sales Growth YoY in Q2'16
9. MOBIL Outlook improves in Q1 16 despite product scarcity
10. MOBIL Q1 revenue hits 4-year high
11. MOBIL Declares N1.82 bn Profit in Q1 16 Result SP N155.00k
12. MOBIL: Tough Trading Environment Offset by Real Estate; Maintains Neutral Rating
13. MOBIL: Opex up by 17% in Q4’15 Results; Shares Rated Neutral
14. MOBIL Declares N4.87 bn Profit; Proposes 720k Dividend in 2015 Audited Result,(SP:N156.00k)