Conoil Q3 2020: Profit Dips as Oil Industry Outlook Remains Cloudy

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Sunday, November 23, 2020, / 11:00 AM / by Proshare Research/Header Image Credit: Conoil Plc

 

Conoil Plc recorded a decline in its financial performance in Q3 2020 as the impact of a liquidity squeeze, economic contraction, the rising cost of funds and scarcity of foreign exchange weighed in on its profitability. Conoil Plc recorded a dip in its PBT by -33.47%, declining from N2.45bn in Q3 2019 to N1.63bn in Q3 2020. While its revenue dipped by -21.84%, declining from N112.72bn in Q3 2019 to N88.10bn in Q3 2020.


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Highlights

  •  Revenue declined by -21.84% to N88.10bn in Q3 2020.
  • PBT declined by -33.47% to N1.63bn in Q3 2020.
  • Administrative and distribution expenses declined by -15.55% and -21.20% in Q3 2020, respectively.
  • Equity rose by +10.56% to N20.58bn in Q3 2020.

 

A Squeeze on Profits

 

Profit


Conoil Plc recorded a decline in its profit before tax by -33.47% in Q3 2020. Its profit before tax declined from N2.45bn in Q3 2019 to N1.63bn in Q3 2020 (see Chart 1).


Chart 1: Conoil Plc PBT (N'bn)

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Source: Conoil Plc, Proshare Research

  

Revenue


The downstream retailer recorded a decline in its revenue by -21.84% in Q3 2020. Its revenue dipped from N112.72bn in Q3 2019 to N88.10bn in Q3 2020 (see Chart 2).


Chart 2: Conoil Plc Revenue (N'm)

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Source: Conoil Plc, Proshare Research

 

Trimming Expense Cost


Administrative Expenses and Distribution Expenses


The company saw a slide in both its administrative and distribution expenses in the third quarter of 2020. Its administrative and distribution expenses slumped by -15.55% and -21.20% respectively. The company's administrative expenses dropped from N5.1bn in Q3 2019 to N4.30bn in Q3 2020, some of the reasons for the reduction in administrative expense were the reduction in litigation claims, depreciation of property, plant & equipment, employer's contribution, legal & professional charges, etc. While its distribution expenses tumbled from N1.77bn in Q3 2019 to N1.39bn in Q2 2020 (see Chart 3).

 

 

Chart 3: Conoil Administrative Expenses and Distribution Expenses (N'bn)

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Source: Conoil Plc, Proshare Research


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Keeping the Equity Chest Filled


Equity


Despite the decline recorded in PBT and revenue, Conoil Plc recorded an improvement in its equity in Q3 2020, as its equity increased by +10.56%. Its equity rose from N18.61bn in Q3 2019 to N20.58bn in Q3 2020 (see Chart 4).

 

Chart 4: Conoil Plc Shareholders Fund (N'm)

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Source: Conoil Plc, Proshare Research

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The Upside to Liquidity


Current Ratio


Conoil Plc current ratio improved from 1.39 in Q3 2019 to 2.3 in Q3 2020. This suggests that the company's current assets could cover N2.3 of every N1 current liabilities (see Chart 5).

 

Chart 5: Conoil Plc Current Ratio

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Source: Conoil Plc, Proshare Research

 

Acid-test Ratio


Its acid-test ratio equally improved from 0.85 in Q3 2019 to 1.72 in Q3 2020. This implied that Conoil's liquid assets after adjusting for inventories could cover N1.72 of every N1 of current liabilities (see Chart 6).


Chart 6: Conoil Plc Acid-test Ratio

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Source: Conoil Plc, Proshare Research

 

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A Cloudy Oil Future

The future of the oil industry in Nigeria remains uncertain as the impact of the COVID-19 pandemic has savaged Conoil's financial performance. The problem with the oil business in 2020 is not unique to downstream operators (see illustration 1 below).

 

Illustration 1 Faces of The Oil Carousel

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Furthermore, Nigeria oil companies still battle with high operational cost, scarcity of FX, liquidity squeeze, and an unfriendly business climate which has affected operational efficiency across oil market segments and created a cloudy outlook for the industry.



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