MOBIL: Challenging outlook due to fuel scarcity

Proshare

Thursday, June 04, 2015 8:34AM / FBN Capital Research

Underperform rating unchanged:
Although Mobil Oil Nigeria’s (Mobil) Q1 2015 results showed declines on a y/y basis for key line items, PBT of N2.1bn which fell 57% y/y beat our estimate by around 25%. Notwithstanding, we have cut our EPS forecasts by 4% on average over the 2015-16E period mainly due to a weaker sales outlook on the back of fuel scarcity.

Our new price target of N120.0 is around 4% lower than our previous target and implies a potential downside of 20% from current levels. Given the risk of a further devaluation of the naira (even if modest) and persistent subsidy payment delays this year, we forecast an adjusted EPS decline of around 25% for 2015E. Year-to-date, Mobil shares have shed -5.1%, underperforming the broad market by -2.8%. We retain our Underperform rating on the stock. 

Q1 2015 PBT down 56% y/y:
In Q1 2015, sales were down 26% y/y to N16.5bn. However, the decline on the PBT and PAT lines were more significant at 56% y/y and 62% y/y to N2.1bn and N1.5bn respectively. The trend in profitability is skewed by a property sale of around N3.0bn in Q1 2014.

Excluding this line item, Q1 2015 PBT would have come in higher by around 10% y/y and PAT up by 47% y/y. Sequentially, while sales declined by 13% q/q, PBT and PAT came in much stronger by 275% q/q and 730% q/q respectively. We note that Q4 2014 was a particularly difficult quarter for Mobil. As such, q/q trends were boosted by easy comparables. Compared with our estimates, while sales missed our N22.9bn forecast by 28%, PBT and PAT both came in ahead by 25% and 29% respectively.

Outlook:
Fuel shortages have persisted for the last three months and in our view are likely to weigh negatively on Mobil’s Q2 2015 earnings. A combination of a potential devaluation of the naira and delayed subsidy reimbursements by the federal government are the main reasons for the interruptions in the sector. Although we anticipate reforms such as a subsidy removal and full deregulation of the sector by the new administration, we doubt that major marketers will adjust very quickly to such policies in the very near term without any negative impact.

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