Wednesday, April 22, 2015 8:37 AM / FBN Capital Research
Moving from Neutral to Underperform: Following Mobil Oil Nigeria’s (Mobil) Q4 2014 results which showed a PBT decline of 59% y/y, we have cut our EPS forecasts by 9% on average over the 2015-16E period. Notwithstanding, our new price target of N125.0 is only around 3% lower than our previous target primarily because of a 50bp reduction to our risk free rate to 14.5%, to reflect the yield compression on FGN bonds. Our new price target implies a potential downside of 22% 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 22% for 2015E. We have changed our rating on the stock to Underperform from Neutral. Year-to-date, Mobil shares have gained +1.3%, broadly in line with the market.
Soft Q4 on the back of gross margin contraction: Q4 2014 results showed that while sales were down 6% y/y to N18.9bn, the declines on the PBT and PAT lines were more significant at 59% y/y and 92% y/y to N551m and N180m respectively. A 94bp y/y gross margin contraction to 12.1% and a 43% y/y decline in other income were the primary drivers behind the PBT decline. On a sequential basis, while sales came in flattish q/q, PBT and PAT declined by 68% q/q and 85% q/q respectively. Mobil proposed a DPS of N6.60 which works out to a dividend yield of just 4.1% and a payout ratio of around 39%, significantly below a five-year average of 70%. Compared with our estimates, sales missed our N19.8bn forecast by 5%, while PBT and PAT both came in behind by much wider margins.
Outlook: In our view, Mobil’s 2015 earnings is likely to be hit by a weakening naira and delayed subsidy reimbursements by the federal government. In the absence of any real estate property sales, we expect adjusted-EPS to come in lower by around 22% y/y to N9.42. Although Nigeria’s President-Elect has stated plans to end the subsidy regime on petrol, we believe the industry will need some time to adjust fully to a sector driven primarily by market forces.
1. MOBIL Rated Neutral After the Release of Q4 2014 Result Gross Margin down by 94bps