Conoil Plc H1 2021 Results: Profit Looks Up as Tax Adjustments Kick In


Sunday, August 29, 2021, 9:00 PM / by Tosin Ige, Proshare Research / Header Image Credit: Conoil Plc

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Conoil Plc (NGX: Conoil), amidst the severe insecurity and other challenges of the downstream oil market in Nigeria, recorded strong performance across its major financial indices in the half-year (H1) 2021. The company's net sale for the period was N1.06bn as against N338.7m recorded in the corresponding period of 2020. The growth represented a +213.7% Y-o-Y increase in profit in H1 2021. Retained earnings also grew by +5.0% Y-o-Y from N15.63bn in H1 2020 to N16.41bn in H1 2021.


Analysts believe the company employed an aggressive finance cost management strategy and growth in sales to drive its H1 2021 performance. Its finance cost declined by -55.78% Y-o-Y while its sale revenue increased by +17.72% Y-o-Y.

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Key Highlights

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Conoil Share Prices vis-a-vis Industry and NGX Average

Conoil's share prices traded slightly above its 6-month moving average, which stood at N19.03 with an asymmetric corridor of -2/+1.9 in major part of H1 2021.  The share prices were relatively stable year-to-date (YTD), reaching a near term resistance at N22.35 in early august and medium-term support at N17.05 in late March. Analysts believe the share prices are unlikely to break the resistance point in the near term. Activities in the company's shares market may remain unchanged given a lack of dividend proposal despite the significant growth in profits.


The company share price growth has continued to trade below growth of the NGX ASI. The company's share values seem more like a drop in an ocean, accounting for 6.7% of the NGX oil and gas index and 0.05% of the NGX ASI (See chart 1 below).


Chart 1Conoil Share Price Movement Vs NGX and Industry Index

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*share price and volume as of 20 August 2021

Source: NSE, Proshare Research

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Profitability-Top and Bottom Figures Growth


The company's total revenue increased by +17.72% Y-o-Y to N67.64bn in H1 2021 from N57.46bn in H1 2020 and is on track for the pre-pandemic N72.22bn revenue recorded in H1 2019. The revenue growth resulted from the easing of travel restrictions in H1 2021 (See chart 2 below).


The revenue proceeds represent sales of the following white products: Premium Motor Spirit (PMS), Dual Purpose Kerosene (DPK), Aviation Turbine Kerosene (ATK), Automotive Gasoline/grease Oil (AGO), and Low-pour Fuel Oil (LPFO) which grew by +16.91%; and sales of lubricant which grew by +32.61% Y-o-Y in H1 2021. The company made no sales of LPG within the period.


Chart 2: Conoil Total Revenue H1 2015 - H1 2021 (N'bn)

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Source: Conoil Financial Statement, Proshare Research



Given the recovery in economic activities and the associated increase in revenue, the company's profit before tax (PBT) increased by +213.73% Y-o-Y from N498.08m in H1 2020 to N1.56bn in H1 2021, the highest in the last five years (see chart 3 below). The increase was fueled by the decline in administrative expenses and finance costs. Expressly, administrative costs declined by -13.22%, while finance costs declined by -55.78% in H1 2021 compared to their values in the corresponding period of 2020.


The company's profit after tax also increased by +213.73% Y-o-Y from N338.7m in H1 2020 to N1.06bn H1 2021. The growth in PBT reflected a large change in income tax expenses.


Chart 3: Conoil Profit Before Tax H1 2015 - H1 2021 (N'm)

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Source: Conoil Financial Statement, Proshare Research

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Quality Growth in Assets


Current Ratio

Conoil's current ratio grew from 1.48 in H1 2020 to 1.66 in H1 2021, reaching its highest level in seven years but still lower than analysts preferred ratio of 2:1 (See chart 4 below).


Chart 4: Conoil Current Ratio H1 2015 - H1 2021

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Source: Conoil Financial Statement, Proshare Research


Acid-Test Ratio

The Acid test ratio, which measures a company's liquidity excluding inventory, showed that Conoil had its highest adjusted liquidity ratio in H1 2021. The ratio increased +18.14% from 1.26 in H1 2020 to 1.48 in H1 2021 (See chart 6 below). In effect, the company met over 100% of its near-term debt obligations with its most liquid assets. The growth in the adjusted liquidity ratio resulted from a -35.66% Y-o-Y decline in the company's inventory and a fall in the company's short-term liabilities within the period.


Chart 5: Conoil Acid-Test Ratio H1 2015 - H1 2021

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Source: Conoil Financial Statement, Proshare Research



Leverage Ratio

Conoil's leverage ratio recorded a growth of +83.09% Y-o-Y from 16.0% in H1 2020 to 29.29% in H1 2021 (See chart 7 below). This implies that the finance portfolio of Conoil is made up of 30% debts and 70% equity. A breakdown of the ratio revealed that total debt increased higher at +90.26%% Y-o-Y than the increase of +3.92% Y-o-Y in total equity from H1 2020 to H1 2021. Whereas the company is currently in a good position, the debt accumulation trajectory is a pointer for caution in H2 2021.


Chart 6: Conoil Leverage Ratio H1 2015 - H1 2021 (%)

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Source: Conoil Financial Statement, Proshare Research


Doing Well with Efficiency

Working Capital Turnover

Conoil has done well over time in the efficient use of its working capital, reaching its highest efficiency level in H1 2019. With the peculiarity of 2020, analysts believe the company improved as working capital turnover rose by +8.62% from 3.81 in H1 2020 to 4.14 in H1 2021 (See chart 8 below). It showed that the company had continued to generate revenue from funds derived from operations.


Chart 7: Conoil Working Capital Turnover H1 2015 - H1 2021 (%)

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Source: Conoil Financial Statement, Proshare Research


Total Asset Turnover

The Efficiency of asset management revealed that the company reached its highest efficiency level in seven years at the close of H1 2021. Total asset turnover increased by +43.20% Y-o-Y in H1 2021 from the corresponding period of 2020 (See chart 8 below). In effect, for each N1million the company incurred in assets, its sale revenue grew by N1.4million. Analysts believe the company is efficient in asset management and has the prospect of further strengthening its Efficiency in H1 2021.


Chart 8: Conoil Total Asset Turnover H1 2015 - H1 2021  (%)

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Source: Conoil Financial Statement, Proshare Research



Conoil: Periscoping FY 2021


Conoil H1 2021 results show that the company performed better than its corresponding period of 2020. Analysts have, however, argued that equity investors are unlikely to react significantly to its H1 performance given its relatively mild earnings, annual dividend per share decline, and no interim dividend expectation. However, mid to long-term investors may push buying interest in the company's shares as they wait out capital appreciation based on future earnings.


The company made a substantial N15.3bn profit in FY 2020 but declared  N1.39bn in dividends.


In H1 2021, the company retained N1.06bn in profit, increasing the company's total retained earnings to N16.41bn in H1 2021. Despite the accumulated earnings, the company has no significant investment project to either grow its white product market or strengthen its capacity in gas transition.


Analysts believe that the company has the prospect of delivering an impressive financial statement by full-year 2021 as economic activities continue to recover and demand grows faster in the Q4 seasonal travel boom. However, a resurgence of the delta variant of COVID-19 in the country could cap the company's revenue growth in Q3. Analysts believe the slower growth in Q3 would be brief as they maintain an optimistic projection for the company in Q4 2021.

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