11 Plc FY 2020 Report: Wrestling A Pandemic and Battling A Bottom line

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Thursday, May 06, 2021, 08:00 AM / by Tosin Ige, Proshare Research/ Header Image Credit: 11 Plc


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Note:

The entire share capital of 11 Plc were delisted from The Daily Official List of the Nigerian Exchange Limited (the Exchange) on Friday, 7 May 2021. The delisting of the entire issued share capital followed its shareholders' approval to delist from the Exchange.



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11 Plc (pronounced: Double one) had its fair share of challenges at the heart of the 2020 global COVID-19 pandemic. The company recognized that it could not fully determine the impact of the pandemic given the continuous resurgence of the virus across the world. However, the 2020 FY performance of the oil marketer showed a notable pandemic slap down as economic headwinds sent revenue and profit spiraling off course.

 

The company's revenue dipped by -14.49% year-on-year (Y-o-Y) to N163.91bn from N191.68bn in 2019. The decrease in revenue further led to a -31.54% Y-o-Y fall in gross profit for the year to N11.39bn from N16.64bn in 2019, despite the decline in cost of sale from N175.04 in 2019 to N152.52bn in 2020.


 

Related Link: NGX Delists 11 Plc From Its Daily Official List, Market CAP Drops by N39bn



Key Takeaways

  • 11 plc's revenue for 2020 declined by -14.49% Y-o-Y to N163.91bn from N191.68bn in 2019.
  • Finance cost increased by +53.45% Y-o-Y from N310.10m in 2019 to N475.86m in 2020.
  • Administrative expenses also increased by +5.41% Y-o-Y from N4.52bn in 2019 to N4.77bn in 2020.
  • The profit before tax for the year declined to N 8.99bn in 2020 from N13. 11bn in 2019 which is a decrease of -31.42% Y-o-Y.
  • The company income tax declined by -34.71% Y-on-Y from N4.22bn in 2019 to N2.76bn in 2020.
  • Its profit after tax also dipped by -29.86% to N6.23bn in 2020 from N8.88bn in 2019.
  • The Company's total assets increased by +4.68% Y-o-Y from its N91.18bn in 2019 to N95.45bn in 2020.
  •  Its earnings per share dropped significantly by -29.87% Y-o-Y in 2020.

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Rising Price Meets Fluctuating Volume

The company share price began the year 2020 on a stable note, with a slight decline in February. The share price of 11 Plc seems to "defile" the series of events in 2020 which brought down economic activities across the globe: the pandemic-induced lockdown which occurred majorly in the first and second quarters; the low crude within the year; and the "EndSARS" protests early in Q3, among others. Even at the height of the pandemic between February ending and May, the company's share price rose rapidly, reflecting investors' optimistic sentiment towards future earnings. Aside from the relative decline in mid-2020, the company share price sustained an upward trend; increasing at a stable rate towards the end of 2020, and has remained fixed through Q1 2021.

 

On the contrary, the company traded share volumes exhibit high volatility throughout 2020 and Q1 2021. The volume traded low at the end of 2019 but recorded a significant increase in Q1 2020 to trade close to 100,000 units. In April, the volume again dropped significantly probably due to the extended lockdown that investors had hoped would be eased. This further informed the sharp increase in volume traded between May and June when the lockdown was eventually eased in many sectors. However, the traded volume oscillates sharply in the remaining part of 2020 as the positive sentiment could not be sustained due to the lingering effects of the pandemic. The volume has continued to trade lower in the larger part of the new year (see chart 1 below).

 

Chart 1: 11 Plc Share Price Movement Vs Volume of Shares

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Share price and volume as of 26 March 2021. Source: NSE, Proshare Research



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Profitability: A Bruising Tumble

The company revenue projection was capped in 2020. Over the past five years, the company revenue has been growing along an upward path, from a record low of N64.22bn in 2015 to N191.68bn in 2019. Against this trend, the company's revenue dipped by -14.49% Y-o-Y from N191.68bn in 2019 to N163.91bn in 2020. The decline in revenue was largely driven by a decline in fuel income (see chart 2 below).

 

The company has three major revenue sources: fuels, liquefied petroleum gas (LPG), and lubricants. The company's revenue from LPG increased by +36.62% Y-o-Y from N1.38bn in 2019 to N1.88bn in 2020. Similarly, revenue from lubricants rose marginally by +5.72% Y-o-Y from N35.33bn in 2019 to N37.35bn in 2020. However, fuel revenue fell by -19.55% Y-o-Y from N154.96bn in 2019 to N124.67bn in 2020.

 

Chart 2: 11 Plc Total Revenue 2015-2020 (N'bn)

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Source: 11 Plc Financial Statement, Proshare Research

 

The company profit before tax slumped by -31.42% Y-o-Y from N13. 11bn in 2019 to N 8.99bn in 2020, the second-lowest profit before tax over the last six years coming behind the N6.91bn recorded in 2015 (see chart 3 below). The decline in the profit before tax can be attributed partly to the combined effect of a -29.57% Y-o-Y drop in operating profit and -23.26% Y-o-Y decline in finance income in 2020 and partly to the +53.45% Y-o-Y increase in finance cost in 2020.

 

Chart 3: 11 Plc Profit Before Taxation 2015-2020 (N'bn)

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Source: 11 Plc Financial Statement, Proshare Research


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Asset Quality: The Asset-Liability Warfront

Over the last six years, 11 Plc current ratio has been fairly stable skimming slightly above 1.0 which suggests higher liquid assets relative to short-dated liabilities. The oil retailer's current ratio in 2020 took a knock falling by -15.04% Y-o-Y from 1.13 in 2019 to 0.96 in 2020, its lowest value in the past six years (see chart 4 below). The ratio indicates that the lubricant seller had struggled to cover short-term liabilities as assets were hurt by the business consequences of the coronavirus pandemic in 2020.

 

Chart 4: 11 Plc Current Ratio 2015-2020

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Source: 11 Plc Financial Statement, Proshare Research


A stricter measure of liquidity, the acid test ratio, showed that the company had large inventories relative to its corporate sales, thereby trimming down liquidity in 2020. The acid test ratio increased marginally by +9.23% Y-o-Y from 0.65 in 2019 to 0.71 in 2020 (see chart 5 below).

 

Chart 5: 11 Plc Acid-Test Ratio 2015-2020

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Source: 11 Plc Financial Statement, Proshare Research

 

Using a milder measure of liquidity, the company's liquidity ratio still turned up the possibility of a company working through pains of limited short-term assets relative to contemporary liabilities. In the last six years, the oil firm's liquidity ratio has risen step-wise in two different phases. Initially, the ratio rose between 2015 and 2017 but dropped sharply in 2018 before rising gradually along a lower growth path between 2018 and 2020. The increase in the liquidity ratio in 2020 to 15.77% from 9.97% in 2019 was driven by the +65.52% Y-o-Y increase in liquid assets in 2020 (see chart 6 below).

 

Chart 6: 11 Plc Liquidity Ratio 2015-2020 (%)

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Source: 11 Plc Financial Statement, Proshare Research

 

The company's leverage ratio for 2020 climbed from 10.35% in 2019 to 12.33% in 2020, the highest in the last few years (see chart 7 below). The marginal increase in the leverage ratio in 2020 was driven by a +28.95% Y-o-Y increase in total debt against the +8.21% Y-o-Y increase in total equity in 2020. The company's debts seem to be growing rapidly.

 

Chart 7: 11 Plc Leverage Ratio 2015-2020 (%)

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Source: 11 Plc Financial Statement, Proshare Research



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What the Future Holds

11 Plc was adversely affected by the 2020 global COVID-19 pandemic. Almost all of its financial indices suffered declines in 2020 compared to 2019. However, analysts believe that the 2020 FY performance should not be taken in isolation to assess the strength or weakness of the oil company given the peculiarity of that year. They have observed that over the previous five years, the company posted a notable upward swing in a few of its corporate numbers. Nonetheless, the 2020 FY performance suggested the need for the company to develop operational risk strategies to hedge against future shocks.

 

Another major concern for analysts was that the 2021 outlook of the company seemed to be mildly dim. According to the company:

 

"The Covid-19 crisis continues to impact all businesses, with the effect expected to be more pronounced in the future. The priority for us is to protect the health, safety, and welfare of all stakeholders under our duty of care as well as support the Government and its agencies as they work to reduce the impact of the outbreak."



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