ARDOVA Plc Audited 2020 FY Report: Repositioning in A Pandemic, The Hard Trek


Tuesday, March 09, 2021 / 07:00 PM / by Adaeze Nwachukwu and Tosin Ige Proshare Research/ Header Image Credit: Ardova plc


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Ardova plc, formerly Forte Oil Plc, experienced significant changes in its operational and business performance in 2020 following the Covid-19 pandemic and the consequential low demand for oil globally. The group had in 2019 set out on a repositioning agenda by divesting from subsidiary businesses and accruing interest on subsidy claims. Its 2019 FY report came out with a cleaner balance sheet and a stronger asset base. However, the 2020 FY report showed some distortions in the growth of the group.

While the Group recorded a +3.05% Year-on-Year (Y-o-Y) growth in revenue to N181.94bn in 2020 from N176.55bn in the preceding year, its profit after tax dipped by -52.54% Y-o-Y from N3.92bn in 2019 to N1.86bn in 2020. The break swerve in the company's profit signalled the need for a rethink of its business model as it considers a hard trek to a new operational frontier.

Key Highlights

  • The total revenue for the company in 2020 increased by +3.05% Y-o-Y from N176.55bn in 2019 to N181.94bn in 2020.
  • The Group's cost of sales (COS) increased marginally by +2.75% Y-on-Y from N165.27bn in 2019 to N169.81bn in 2020.
  • Gross profit increased Y-o-Y by +7.31%  N12.13bn in 2020 from N11.28bn in 2019.
  • The finance cost of the Group declined by -68.86% Y-o-Y from N4.83bn in 2019 to N1.50bn in 2020.
  • The operating profit grew by +15.99% Y-o-Y from N4.92bn in 2019 to N4.14bn in 2020.
  • Its profit after tax dipped by -52.54% to N1.86bn in 2020 from N3.92bn in 2019.
  • The Group's total assets increased by +37.92% Y-o-Y from its N47.02bn in 2019 to N64.85n in 2020.
  • Earnings per share slumped significantly by -52.67% Y-o-Y in 2020.


Share Price and Volume Movement- Swimming in A Fish Bowl

Over a 14month period, Ardova share price had a bowl-shaped movement. The share price decreased in the wake of the global pandemic - Q1 2020, as investors were uncertain of the future. In Q2, the investors' sentiment was mixed, which reflected on the price, as it recorded a slightly unstable movement with an upward surge in May 2020. In Q3 and Q4 2020, the share price movement maintained stable flow though with a marginal decline in June and September. The new year saw growth in the share price but declined marginally in February 2021.

The volume of Ardova shares traded was also volatile. Investor sentiment towards volume traded was majorly influenced by the trend in business that occurred in 2020. During the period, January 2021 recorded the highest volume traded while February and March 2020 records the lowest volume traded which was during the peak of the COVID-19 induced lockdowns. (see chart 1 below).    


Chart 1: Ardova Share Price Movement Vs Volume of Shares Traded

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Source: NSE, Proshare Research

Share price and volume as of 26 February 2021.

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Revenue Growth and Profit Dive; A Tale of Two Numbers


The Group's revenue grew by +3.05% Y-o-Y to N181.94bn in 2020 from N176.55bn recorded in the previous year. The increase was driven largely by 90.51% fuel revenue and 9.33% lubricants and greases revenue. The increase in 2020 revenue was also driven by N274.21million haulage and transportation services revenue in the year which was not part of the proceeding year's revenue.  Additionally, 29.94% of the revenue came from the company's ten foreign customers.

The FY2020 audited result reveals growth in total revenue despite decline recorded in all revenue lines of the company except revenue from the sale of fuel. Fuel revenue increased by +3.41% Y-o-Y, while revenue from lubricants and greases declined by -1.59%, solar revenue and revenue from the sale of LPG and cylinder dipped by -72.44% and -43.58% respectively (see chart 2 below).

Contrary to the growth recorded in Naira terms, the revenue of the O&G company declined by -16.98% in US dollar terms, from $ 575.18m in 2019 to $477.51m in 2020. The decline in US dollar terms is a result of the devaluation of the domestic currency. CBN's official rate for the different periods was used for the translation.  




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

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Source: Ardova Financial Statement, Proshare Research


Profit Before Tax

The Group's profit before tax fell by -37.57% Y-o-Y to N2.91bn in 2020 from N4.65bn in 2019. The decline in the profit before tax in 2020 is attributable to the significant drop in operating profit despite the decline in finance cost. Finance cost was N4.83bn in 2019 but declined significantly in 2020 to N1.50bn, a -68.86% Y-o-Y decline. The decline in cost did not translate to an increase in profit due to the accompanying decline in operating profit. The operating profit of the Group declined by -15.99% Y-o-Y from N4.92bn in 2019 to N4.14bn in 2020. The decline in operating profit was a result of the decline in other income such as investment property rental income (see chart 3 below).

In US dollar terms, PBT declined more significantly when compared to the percentage change in Naira terms. PBT declined by -49.58% Y-o-Y from US$15.15m in 2019 to US$7.64m in 2020.



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


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Source: Ardova Financial Statement, Proshare Research

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Activity Ratios: Dodging Live Bullets


Current Ratio

An ideal current for a downstream player in the O&G sector is 2.0, which reflects the company should be more liquid to meet its short-term obligations. In 2020, Ardova current ratio stood at o.98 a decline from 1.21 in 2019. This figure is even lower than its US counterparts which recorded an average current ratio of 1.02. This implies that the Group had not been doing well in managing its working capital- an indication of short-term solvency. The 2020 current ratio of 0.98 also indicates that the Group has liquidity challenges and covering its short-term liabilities would be challenging (see chart 4 below).


Working capital for the period declined significantly by -113.61%, from N5.47bn in 2019 to a loss position of N744.24m in 2020. The decline in working capital was majorly driven by +75.66% growth in current liabilities.



Chart 4: Ardova Current Ratio 2015-2020

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Source: Ardova Financial Statement, Proshare Research


Acid-Test Ratio

Ardova's acid-test ratio settled between 0.72 and 0.67 in 2019 and 2020, respectively. The marginal decline in the acid test ratio in 2020 was driven by the +13.39% Y-o-Y increase in inventory which was an indication that Ardova had maintained a relatively high inventory level. This suggests that the Group's ability to pay its immediate liabilities such as the short-term debts could prove difficult in months ahead if past inventory policy is sustained (see chart 5 below).

Current assets grew Y-o-Y by +71.54%, which was driven by +71.91% growth in cash and equivalents. Also, restricted cash of N19.71m and employee benefit of N610.30m was added to 2019 figures which was absent in 2018 results.


Chart 5: Ardova Acid-Test Ratio 2015-2020

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Source: Ardova Financial Statement, Proshare Research


Liquidity Ratio

The Group's liquidity ratio for 2020 was 5.39% down from 6.83% recorded in 2019. The low liquidity between 2017 and 2020 compared to the relatively higher ratio recorded between 2015 and 2016 indicate that the Group had fallen short of its obligations associated with its near-term liabilities that required immediate cash or near-cash asset covers (see chart 6 below).


Chart 6: Ardova Liquidity Ratio 2015-2020 (%)

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Source: Ardova Financial Statement, Proshare Research


Leverage Ratio

The oil marketer's leverage ratio for 2020 stood at 28.51% compared to the 32.25% in 2019. The steady decline in Ardova's leverage ratio was caused by an +11.49% Y-o-Y increase in its total shareholders' equity from N16.16bn in 2019 to N18.02bn in 2020 relative to the -1.44% decrease in total debt from N5.21bn in 2019 to N5.14bn in 2020, the decline in leverage was a bright spot of its 2020 result (see chart 7 below).



Chart 7: Ardova Leverage Ratio 2015-2020 (%)

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Source: Ardova Financial Statement, Proshare Research


Going Forward-The New Energy Fast Track

Going by the revenue progression and declining finance cost for Ardova Plc in 2020, the coming days appear bright. However, this is subject to the challenges and uncertainty that the lingering pandemic holds against the demand for oil and oil price futures. Uncertainty in international oil demand has had the effect of mounting pressure on the Group's top and bottom line profit, and liquidity. Therefore, to guarantee its operational sustainability the downstream oil marketer may need to find less volatile lines of businesses.


The drive towards cleaner energy sources suggest that the company could strengthen its gas sales opportunities to feed into the country's pivot to a new gas-driven decade. It could equally use its investment in cutting-edge technology to pursue sales growth in gas, solar, and waste to energy conversion products.


With a COVID-19-induced shift in energy alternatives and a fast-tracked global agenda for cleaner energy usage, companies like ARDOVA may need to rethink their business models as the energy world reimagines its future.

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