Oando Plc Q2'16 Earnings: Any Cause for Alarm?

Proshare

Wednesday, July 20, 2016 12:40PM/Proshare Markets

On Monday, July 18, 2016, Oando Plc issued H12016 earnings guidance stating that it is expected to report materially lower earnings for the period due to the impact of the Naira devaluation against the US dollar. Specifically, Oando mentioned that it has USD denominated borrowings of ~$261 million in its Naira denominated earnings businesses, and due to the 40% devaluation of the Naira (during the period in consideration) against the dollar from the rate of N199/$1 to N280/$1, this has effectively resulted in significant foreign exchange losses for the company.

With the Naira now trading at N292.25/$1 as at Friday July 15, 2016 (following CBN’s move to allow market forces determine the true value of the Naira), with a potential to further depreciate due to forex shortage, there is no doubt that this would negatively impact the company’s USD denominated borrowings the more.

Recall that in Oando’s 2015 Audited Financial Statements, Ernst & Young expressed an opinion
casting doubts on the Group’s ability to continue as a going concern. Regardless of the company’s position that its restructuring efforts would help mitigate this, the earnings guidance released makes us wonder if investors truly have nothing to worry about concerning Oando.

A look at Oando’s financials in recent time revealed that the firm just turned around its negative PAT position announced in its 2014 and 2015 Auidted financial statements with N4.10 billion PAT in Q1 2016. Can the company sustain this feat?



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