Wednesday, August 19, 2015 09:02AM / FBN Capital Research
Rating changed to Neutral:
Mobil Oil Nigeria’s (Mobil) Q2 2015 results surprised positively on many lines. The key drivers were a 641 bp y/y expansion in gross margin and an 86% y/y rise in other operating income.
The combined effect of these two lines more than offset a double-digit y/y topline decline. Giving the relative stability in delivering petroleum products so far in H2 and the new administration’s commitment to meet all outstanding subsidy payments, we have raised our EPS forecasts by 20% on average over the 2015-16E period.
Our new price target of N160.0 is around 24% higher than our previous target because we have rolled forward our valuation to 2016. Our new price target implies a potential upside of 6% from current levels. Year-to-date, Mobil shares have shed -4.3% compared with the ASI (-13.5%).
We upgrade our recommendation on the stock to Neutral from Underperform.
Q2 2015 PBT and PAT both up by more than 40% y/y:
While sales were down 22% y/y to N15.3bn, PBT and PAT were both up 45% y/y and 49% y/y to N2.1bn and N1.4bn respectively. Profitability was supported by a 641bp y/y gross margin expansion to 19.4% and an 86% y/y rise in other operating income which offset the double-digit y/y decline in sales.
The boost on the other income line was primarily due to subsidy re-imbursements and rising income from its property business, given that renovation work on its key rental property is now complete. Sequentially, sales declined by 7% q/q, while PBT came in flattish q/q and PAT declined by around 5% q/q.
Given that the federal government (FG) has decided to carefully review the current PMS subsidy policy, we do not think a full deregulation of the sector is likely to happen during the current year.
That said, we believe that the FG is likely to meet all outstanding subsidy payments within the next 12 months given less reliance on private sector imports amidst rising local products refining.
In Q2, Mobil received around N1.2bn from the FG in subsidies with N5.9bn still outstanding. We forecast 2015E EPS to decline by 28% y/y mainly due to a poor performance in Q1 2015.