Wednesday, October 29, 2014 7:41 PM / FBN Capital Research
Event: Mobil Oil Nigeria reports Q3 2014 results
Implications: Upward revisions to consensus full year 2014 estimates expected
Positives: Gross margin expanded by 260bps y/y to 15.4% and opex down 19% y/y. PBT and PAT both up by 32% y/y
Negatives: Sales down 7% y/y
This afternoon, Mobil Oil Nigeria (Mobil) reported Q3 2014 results which showed that while sales were down 7% y/y, PBT and PAT were both up by 32% y/y to N1.7bn and N1.2bn respectively. A 260bp y/y gross margin expansion and a 19% y/y decline in operating expenses were the key drivers behind the much improved PBT. Following Q2 2014 numbers, management reiterated a commitment to focus on higher margin products such as lubricants,. However, we also believe relatively lower crude oil (basic raw material for all petroleum based products) prices during the quarter contributed significantly to the wider margin. Brent prices have slipped by almost 20% over the last three months. We await mangement’s comments to provide more clarity on the gross margin movement. On a sequential basis, while sales were down 6% q/q both PBT and PAT came in higher, both by 24% q/q respectively.
Compared with our estimates, while sales missed our N20.8bn forecast by 5%, PBT and PAT both came in ahead by 36%. The difference is primarily down to positive surprises on the opex line and in gross margin: opex of N1.6bn came in 11% behind of our N1.8bn forecast, while gross margin surprised by 337bps.
Consensus sales and PBT forecasts for 2014 are N84.7bn and N6.3bn respectively. As such, on the back of these numbers we expect upward adjustments to anaylsts’ estimates. Looking ahead, the federal government has again stressed the need for the removal of petroleum subsidies in 2015. Although the broader economy could take a hit in the short to medium term following such a policy move, the local downstream petroleum sector is likely to be the key beneficiary. Price ceilings on key products such as premium motor spirit (PMS) limits the willingness of serious players to invest in the sector. In addition to this, delays in repayment of subsidies by the federal government weighs on the liquidity of these firms, leading to higher interest costs.
At current levels, on our published estimates, Mobil shares are trading on a 2014E P/E multiple of 15.1x for 5% EPS decline in 2015E. Year to date, Mobil shares have gained 44.2% compared with the NSE ASI (-7.7%). We rate the stock Neutral.
Our estimates are under review.