Wednesday, August 29, 2018 /10:08 AM/FBNQuest Research
EPS forecasts over the 2018-19E period increased by 5%
11 Plc’s earnings of N2.7bn beat our estimate by 22%. While sales were in line, the variance in earnings was driven by positive surprises in both non-core income and operating expenses. We forecast a full year topline growth of 35% y/y to N168.5bn in 2018E due to management’s more aggressive approach to the downstream enterprise.
We have also raised our estimate for other income by 9% to N8.6bn and cut our opex forecast by c.-15%. This is to reflect the current rental income run rate of c.N2bn per quarter in 2018 and an improving operational environment. On average, we have raised our EPS forecasts over the 2018-19E period by 5%.
Our new price target of N298.0 is up by a similar magnitude. From current levels, our new price target implies a potential upside of 66%. Similar to Total Nigeria (Total), we maintain our Neutral rating on the stock because of a lack of near term catalysts. This year, 11 is set to upgrade its petroleum products storage capacity, with gasoline and kerosene capacity to rise by 15,000 metric tonnes (MT) and 20,000MT respectively.
In the longer term, reduced reliance on third-party infrastructure should be positive. Year-to-date, 11 shares have declined by -7.5%, in line with the NSE ASI’s performance. They are trading on a 2018E P/E multiple of 6.4x for an average EPS growth of +2% y/y over the 2019-2020E period, which compares to a 2018E P/E multiple of 5.5x for an average EPS decline of around -21% y/y for Total over a similar period.
Q2 2018 PAT of N2.7bn up 126% y/y
In Q2, 11’s sales grew by 32% y/y to N40.8bn while PBT was up by 10% y/y to N4.0bn. The relatively smaller growth on the PBT line was driven by a -169bp y/y gross margin contraction and a double-digit rise in operating expenses. PAT was up by 126% y/y to N2.7bn because of a loss of –N1.3bn on the OCI line in Q2 2017.
Sequentially, sales, PBT and PAT all declined q/q. While sales fell by -9% q/q, PBT and PAT were both down by around -2%. Compared with our estimates, while sales were in line with our forecast, PBT beat by 22%, driven mainly by positive surprises in operating expenses and rental income.