| Stock & Analyst Updates |    1055 VIEWS  |
| Stock & Analyst Updates | |
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Tuesday, November
25, 2020, / 12:10 PM / by Bukunmi Adejobi, Proshare research /Header Image Credit: Ardova Plc
Ardova
Plc (formerly Forte
Oil Plc) Q3 2020 result showed an uptick in
performance as the company grew both top and bottom-line earnings compared to
its counterpart period in 2019. The
downstream oil marketer appears to have evolved a market strategy that shielded
it from the gusty coronavirus-induced headwinds that decimated the financials
of its close rivals.
Revenue
of the company bounded
upwards in the first 9months of 2020, with topline income rising to N128.17bn, representing a
short pogo jump of +3.75% over the preceding year's
N123.54bn.
Highlights
Getting A Whiff of Higher Income and
Sultry Profits
Revenue
The quarter-on-quarter (Q-o-Q) analysis shows that
revenue increased by +15.89% to settle at
N40.46bn from N35.26bn recorded in Q2 2020. The revenue growth was majorly driven
by an increase in earnings from fuels, lubricants, and sales from Liquefied Petroleum Gas (LPG) and Cylinder, although the company recorded a decline in Solar system revenue. (see chart 1 below)
Chart
1: Ardova
Revenue Q3 2019- Q3 2020(N'm)
Source:
Ardova Financial Statement, Proshare Research
Profit Before Tax
Ardova's operating
profit grew significantly by +77.04% Q-o-Q.
Pretax Profit was up for the quarter; it grew significantly by +111.31% to N1.25bn in Q3 2020 from N591.08bn
recorded in Q2 2020. The major driver of the growth in PBT was the increase in
finance income by +68.97% from N42.61m recorded in Q2 2020 to N72.0m in Q3
2020. The increase in finance income was supported by an increase in Interest
income on bank deposits and other interest income on investments. (see chart 2 below)
Chart
2: Ardova
Profit Before Tax Q3 2019- Q3 2020(N'm)
Source:
Ardova Financial Statement, Proshare Research
Having A Ball with Activity Ratios-The
Art of The Business
Liquidity Ratio
The oil marketer's
liquidity ratio for Q3 2020 was 9.11% compared to 4.36% recorded in Q2 2020. The
company managed its liquidity risk by ensuring that sufficient funds were
available to meet its current liabilities. However, the company's liquidity
position recorded its first increase since Q1 2020. (see chart 3 below)
Chart
3: Ardova's Liquidity Ratio Q3 2019- Q3 2020
Source:
Ardova Financial Statement, Proshare Research
Leverage Ratio
Ardova's leverage ratio
stood at 23.71% in Q3 2020 as against 23.78% recorded
in the previous quarter Q2 2020, the steady decline of
leverage ratio from Q3 2019 till Q3 2020 shows a significant decline in Ardova's debt size although the Company's
interest-bearing loans and borrowings increased by 4.80% in Q3 2020 to N4.28bn from N4.08bn recorded
in Q2 2020. (see chart 4 below)
Chart
4: Ardova's Leverage Ratio Q3 2019- Q3 2020
Source:
Ardova Financial Statement, Proshare Research
Current Ratio
The company's current ratio increased from 1.22 in Q2 2020 to 1.23 in Q3 2020. Ardova's current asset in Q3 2020 was higher than its current liability
showing that it held onto a positive
working capital position which suggests that the company can cover its short-term liabilities but could have done better with a ratio of between 2 and 2.5.
Chart
4: Ardova's Current Ratio Q3
2019- Q3 2020
Source:
Ardova Financial Statement, Proshare Research
Acid Test Ratio
The acid-test ratio for Ardova
in Q3 2020 stood at -0.67% as against -0.62% posted in Q2 2020, this is steady negative
growth from Q1 2020. The tougher working capital ratio (acid-test ratio) being
much lower than the current ratio suggests high dependence on inventory- the
highest being White Products with N5.69b which the company may need to reverse
as the economy picks up in 2021, the company's heavy dependence on inventory is
because it is a major player in the downstream sector as a petroleum products marketing
company i.e Fuels, Lubricants, and LPG. The growth of the company's inventory may
need to fall to ensure adequate future operational liquidity. (see chart 5).
Chart:
Ardova's Acid Test Ratio
Q3 2019- Q3 2020
Source:
Ardova Financial Statement, Proshare Research
Eyes on The Future- The Now and There
Taking a cue from Ardova's stellar performance in Q3
2020, the future appears prepped for sustained growth despite challenges
induced by the coronavirus pandemic and uncertainty surrounding the
international crude oil market as investors and traders skip into the new year
2021. Global oil demand remains shaky as the impact of the
COVID-19 pandemic still
looms, Nigeria Gross Domestic Product contracted by -3.62% in Q3 2020 with crude petroleum and natural gas
sector recording a decline of -13.89%, the company may still face jarring
demand realities in Q4 2020 and Q1 2021.
Furthermore, macroeconomic concerns such as the rising costs
of goods and services in the country leading to a decline in consumer spending,
lower demand for retail petroleum
products, high operational costs resulting in lower margins will most likely lead
to pressure on the company's liquidity and profitability.
Related News
1. Ardova
Plc Declares N1.9bn PAT in Q3 2020 Result, (SP:N12.65k) Ardova
Plc Notifies of Board Meeting Date and Commencement of Closed Period
2. Ardova
Plc Declares N1.01bn PAT in Q2 2020 Results, (SP:N12.15k)
3. Ardova
Plc Q2'20 Unaudited Results - Cost Efficiency Results in Operating Profit in
Q2'20
4. Ardova
Plc Notifies of Board Meeting Date and Commencement of Closed Period
5. Ardova
Plc Declares N497m PAT in Q1 2020 Result, (SP:N12.45k)
6. Ardova
Plc Q1'20 Unaudited Results - Base Effect Magnifies Earnings Weakness
7. ARDOVA
Plc Notifies of Board Meeting Date And Commencement of Closed Period for Q1
2020
8. Ardova
Plc Declares N3.9bn PAT in Q4 2019 Result,(SP:N17.00k)
9.
ARDOVA
Plc Notifies of Board Meeting Resolution
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