Forte Oil Plc - September Equity Research Report

Proshare

Monday, September 22, 2014 3:25 PM / fsdh

 

Company:                Forte Oil Plc 

Rating:                     HOLD

 

Summary:

Turnover (T/O) increased by 32.77% to N79.61bn, compared with N59.96bn recorded in the corresponding period of 2013. The Profit Before Tax (PBT) stood at N4.19bn, representing a significant increase of 151.94% from N1.66bn recorded in the corresponding period of 2013. The impressive growth in PBT is partly due to the contribution made by the investment in power assets. The tax provision also recorded a significant increase of 288.88% to N1.06bn from N271.93mn, leading to a Profit After Tax (PAT) of N3.13bn in Q2 2014 from N1.39bn recorded in the corresponding period of 2013, representing a substantial growth of 125.19%.

 

Forte Oil’s sustained positive performance during the period was driven by its three year strategic business transformation initiative aimed at repositioning the business on the foundations of strong corporate governance, business ethics and effective business controls as well as superior customer service.

 

Forte oil plans to achieve market dominance through the expansion of retail infrastructure, commercial business and non-fuel revenue; diversification into the upstream space through profitable acquisition of upstream assets before the end of 2014; achieve and generate the installed capacity of 414MW at Geregu Power Plant; increase distribution efficiency; diversification into related high margin products and improvement on logistics through the acquisition of additional trucks.

Valuation

We considered the following factors in arriving at our 5-year forecasts:

         The competitive position of the company in the industry

        Strategic initiative on diversification into the upstream space where there is opportunity for higher margins

         Passage of the oil and gas industry reform

         Contribution from the power business

         Diversification into related high margin products in the downstream sector

         The various cost reduction strategy of the company

      Strategic investment through expansion of retail infrastructure, commercial business and non fuel revenue

        Stable macroeconomic indicators

 

Our fair value for Forte Oil is N242.49 per share. The stock is currently trading at N223.89 which offers an upside potential of 8.31% in terms of capital appreciation from the current market price. We therefore place a HOLD on the shares of Forte Oil Plc at the current price of N223.89.

 

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