Equity Research Report: Oando Plc - NIGERIA
Oando February
Plc –Its is Your Rights: 2009 Take it or Trade it
This publication is produced by FSDH Securities Limited (FSDH Sec) a subsidiary of First Securities Discount House Limited (FSDH) solely for the information of users who are expected to make their own investment decisions without undue reliance on any information or FSDH Equity opinions contained herein. The opinions contained in the report should not be interpreted as an offer to sell, or a solicitation of any Research offer to buy any investment. FSDH Sec may invest substantially in securities of companies using information contained herein and may also perform or seek to perform investment services for companies Report- mentioned herein. Whilst every care has been taken in preparing this document, no responsibility or liability is accepted by any member of Rights Issue FSDH for actions taken as a result of Information provided in this publication.
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Equity Research Report: Oando Plc - NIGERIA
Executive Summary and privately-owned oil trading company. Currently , Oando imports a 1.0 significant portion of Nigeria’s petroleum product requirements. 1.1 History Oando Plc commenced business operations in 1956 as petroleum marketing company in Nigeria under the name “’ESSO” West Africa Oando Supply & Trading also maintains presence in the world’s products incorporated”’, a subsidiary of Exxon Corporation of the USA. On August 25, freight market in terms of vessels chartered on spot and time basis for the 1969, the company was incorporated under Nigerian Law as Esso Standard delivery of oil and oil products to various customers globally. With a track Nigeria limited. In 1976, the Nigerian government bought Esso’s interest record of 100% delivery on all its supply contracts, consolidating its existing and became 100% owner of the company. The company was then markets, Oando Supply and Trading has positioned itself as the supplier of choice for products supplies in the West African sub region. rebranded as Unipetrol Nigeria Ltd.
On March 01, 1991, the company became a public limited company – 1.2.3 Gas & Power: The Company is building the largest gas pipeline Unipetrol Nigeria Plc. In the same year, 60% of the company’s shareholding grid in Nigeria. It pioneered the private sector piping and distribution of was sold to the Nigerian Public under the first phase of the then privatization natural gas to industrial and commercial consumers. With 100km of pipes exercise. Its shares were subsequently quoted on the floors of the Nigerian already laid in Lagos State, and another 124 km in progress in Akwa Ibom, Stock Exchange (NSE) in February 1992. Cross River State, while aggressively seeking other authorization in Nigeria and the West African sub-region, Oando has taken bold steps towards Ocean & Oil Investments limited acquired a 30% stake in Unipetrol from the building sub-African’s largest gas pipeline network. The company’s target is Federal Government of Nigeria in 2000 and became a core investor. In that in the near future, Nigerian citizens and industries will begin to enjoy , August 2002, Unipetrol acquired 60% stake in Agip Nigeria Plc (“Agip) by the benefits of a cheaper, cleaner and safer fuel from it’s integrated gas winning an international bid conducted by Agip Petrol International B.V. The pipeline network. US$86mn acquisition was the largest ever of a Nigerian quoted company. Unipetrol management team subsequently completed the merger and The power business will contribute several captive power plants to the integration of Agip with Unipetrol and the combined entity was re-branded Nigerian market as it positions to be a major player in the Nigerian electricity Oando Plc in December 2003. Oando consolidated its affiliate and industry, whilst it stands ready to actively participate in the proposed power subsidiary companies into an integrated energy group. sector liberalization.
Oando was registered as an external company in South Africa on Tuesday, November 1, 2005 and on November 25, 2005, concluded its secondary 1.2.4 Energy Services: Oando is Nigeria’s foremost indigenous oilfield listing on the Johannesburg Stock Exchange (JSE) in South Africa. The services company. It made a bold entry in the oil & gas upstream services company is Africa’s leading integrated energy solutions provider which via Oando Energy Services – an integrated oilfield services company. In comprises a group of companies operating within Nigeria and the African demonstration of its high level of technical capabilities, the company won energy sector. competitive oilfield service contracts in excess of $150mn in Nigeria in 2007.
With the aim of being Nigeria’s largest indigenous oilfield services firm and 1.2 Business: The activities of the Group span from Petroleum Products encouraged by the renewed local content drive in Nigeria, it commenced its Marketing, Supply and Trading of Crude Oil & Refined Petroleum Products, $500mn five-year investment plan with the acquisition of two oil drilling rigs Gas & Power, Energy Services, Exploration & Production to Refining. A for approximately $100mn for use in the Niger delta. This company has also brief description of its activities is as follows: recently acquired a third oil rig to boost its drilling services.
1.2.1 Petroleum Products Marketing: Oando is one of the Nigeria’s 1.2.5 Oando Exploration and Production: The company is building leading oil retailers. Its leadership position as Nigeria’s foremost integrated a portfolio of oil & gas properties in Nigeria. The brave steps in the upstream energy company is associated with the successes it has recorded in the sector were boosted with the acquisition of oil & gas oilfields by Oando petroleum products marketing business. As the nation’s leading oil retailer, Exploration and Production Limited during the oil bloc bidding rounds. with one in every five litres of petroleum products being sold or distributed by Oando via its 500 retail outlets and strategically located terminals, it has Oando is the operator of two oil blocks – OPL 278 and OPL 236. The continuously ensured products supply and availability in Nigeria and West company is also a Nigerian Content Partner with AGIP Oil on OPL 282 and African countries. has a 45% interest in a marginal field, OML 56. These fields are in different stages of development and will significantly increase Nigeria’s oil & gas In a bid to improve the overall efficiency of the industry and to lower product reserves. cost for the consumer, it is on the brink to construct the largest products terminal in sub-Saharan Africa in Lekki free zone and an offshore sub- 1.2.6 Oando Refining: With a plan to develop 360,000bpd capacity marine pipeline delivery system in Apapa. Greenfield refinery in Lagos State , the diversified revenues streams drive incremental earnings growth for the group will ensure that performance is 1.2.2 Supply and Trading of Crude Oil & Refined Petroleum not dependent on any one particular business line. With its investments and Products: Oando is Nigeria’s largest independent and privately owned oil diversification into alternative energy sources, the company is fast achieving trading company. In 2004, Oando consolidated its global oil supply and its goal of being the leading integrated energy solutions provider in Nigeria trading businesses to emerge as sub-Saharan Africa’s largest, independent and in West African countries.
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Equity Research Report: Oando Plc - NIGERIA
Table 1: Professional Parties Table 4: Activity Table Registrar First Registrars Nigeria Date Activity Responsibility Limited Auditors Price Water House Coopers 25/01/2010 Acceptance List opens Issuing Houses/Registrars Bankers: Access Bank Plc 19/02/2010 Acceptance List closes Issuing Houses/Registrars BNP Paribas Diamond Bank Plc 08/03/2010 Receiving agents make returns Issuing Houses/Receiving Agents Ecobank Nigeria Plc Fidelity Bank Plc 09/03/2010 Lift Technical Suspension on existing shares Stockbrokers on the Nigerian Stock Exchange First Bank of Nigeria Plc First City Monument Bank Plc 29/03/2010 Forward allotment proposal and draft Issuing Houses newspaper announcement to Securities and Exchange Commission (SEC) First Securities Discount House Guaranty Trust Bank Plc 31/03/2010 Receive SEC approval of the allotment Issuing Houses Limited Intercontinental Bank Plc Kakawa Discount House Ltd. 02/04/2010 Return excess/rejected application money Issuing Houses/Registrars Nigerian International Bank Ltd. Oceanic International Bank Plc 16/04/2010 Dispatch share certificates/credit CSCS Registrars accounts Standard Chartered Bank Ltd. Standard Bank, London 19/04/2010 Forward declaration of Compliance to the NSE Issuing and JSE Houses/Stockbrokers Stanbic IBTC Bank Plc Sterling Bank Plc 21/04/2010 Listing of the newly issued shares/Trading Issuing commences Houses/Stockbrokers Union Bank of Nigeria Plc United Bank for Africa Plc 21/04/2010 Submission of summary report to SEC Issuing Houses WEMA Bank Plc Zenith Bank Plc Sources of Information: Annual Report & Accounts, Rights Circular ,Company’s website, CBN, NBS, NNPC, NSE, and FSDH Research. Table 5: Rights Summary Table 2: Subsidiary Information as at December 31, 2008 Authorized Ordinary Share 2,000,000,000 Name of Entity Interest Held (%) 905,084,628 905,084,628 Akute Power Limited 100.00 Rights Issue Rights Issue Apapa SPM Limited 100.00 1 for 3 1 for 3 East Horizon Gas Co. Ltd. 100.00 December 18, 2009 December 18, 2009 Gaslink Nigeria Limited 98.00 N20,437,328,687.35 N20,437,328,687.35 Oando Energy Services Limited 100.00 301,694,876 301,694,876 Oando Exploration & Production Ltd. 100.00 N70.00 N70.00 Oando Gas & Power Limited 100.00 January 25, 2010 January 25, 2010 Oando Lekki Refinery Limited 100.00 February 19, 2010 February 19, 2010 Oando Marketing Limited 100.00 Oando Port Harcourt Refinery Ltd. 100.00 Table 6: Purpose of the Offer Oando Production & Development Co. 85.00 N’mn % Est. Completion Period Oando Supply & Trading 100.00 Upstream Assets Refinancing 14,919.25 73.00 Immediate Oando Trading 100.00 Operational Capital Development & 3,883.09 19.00 24 Months Upstream Business Development OES Teamwork Limited Bermuda 100.00 Working Capital 1,634.99 8.00 Immediate OES Terminals & Logistics Ltd 100.00 Total 20,437.33 100
Table 3: Company Summary Table 7: The Rights Dynamics Ticker OANDO Current Market Price N93.99 Sector Petroleum Marketing Right Price N70.00 Date of Incorporation 1956 Theoretical Ex-Rights Price N87.99 Date of Listing 27th February, 1992 – NSE * Value of the Rights N17.99 1st November, 2005 – JSE ** Financial Year End December Core Investor:
Number of Fully Paid Share 904,884,628 Oando Plc is an associate of Ocean & Oil Investment (Nigeria) Ltd, a special purposes entity set up for the purpose of acquiring significant interest in Unipetrol. As at September 30, 2009, Ocean and Oil Investment owned 32.72% of Oando Current Capitalization (N) 85,050,106,148.12 Plc’s Shares. NSE Capitalization (N) 5,549,271,250,480.81 % of NSE Capitalisation 1.53 52 Week high (N) 99.19 52 Week low (N) 60.00 YTD Return (%) 17.78 52 Weeks Volume Traded 760,698 Trailing EPS (N) 10.41 Trailing P/E ratio (X) 9.03 FSDH Research Page 3
Equity Research Report: Oando Plc - NIGERIA
2.0 Review of Nigerian Economy 3.0 Review of Nigerian Petroleum Industry The latest data released by the National Bureau of Statistics (NBS) shows 3.1 History: that on an aggregate basis, the economy when measured by the Real Oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after half Gross Domestic Product (GDP), grew by 7.07% in Q3, 2009 as against a century of exploration. The discovery was made by Shell-BP, at the time 6.13% in the corresponding quarter of 2008. The growth rate is higher than the sole concessionaire. Nigeria joined the league of oil producers in 1958 the growth rate of 5.98% recorded in 2008. Even though the performance of when its first oil field came on stream producing 5,100 bpd. After 1960, the economy in 2008 was good in the light of the global economic exploration rights in onshore and offshore areas adjoining the Niger Delta recession, it fell below the target of 9.8% for the year. Meanwhile, the target were extended to other foreign companies. growth rate for the year 2009 as contained in the 2009 Federal Government budget is 7.5%. The growth in the economy was driven largely by non-oil In 1970, the end of the Biafran war coincided with the rise in the world oil sector in 2008. However in 2009, recovery in the oil sector which started in price, and Nigeria was able to reap instant riches from its oil production. Q2 2009, following the Amnesty deal of the Federal Government, accelerated the GDP growth rate. Crude Petroleum and Natural Gas, which Nigeria joined the Organisation of Petroleum Exporting Countries (OPEC) in accounted for 15.54% of the GDP at constant basic prices as at Q3 2009, 1971 and established the Nigerian National Petroleum Company (NNPC) in recorded a growth rate of 2.01% in Q2 2009 and 0.71% in Q3 2009. In 1977; a state owned and controlled company which is a major player in both 2008, oil GDP contracted by 6.19%. the upstream and downstream sectors. Following the discovery of crude oil by Shell D’Arcy Petroleum, pioneer production began in 1958 from the According to the National Bureau of Statistics (NBS), the structure of the company’s oil field in Oloibiri in the Eastern Niger Delta. By the late sixties Nigerian economy as at December 2008 (provisional) in term of sectoral and early seventies, Nigeria had attained a production level of over 2 million contribution the to the GDP are: Agriculture: 42.07%; Manufacturing: 4.13%, barrels of crude oil a day. Although production figures dropped in the Solid Minerals: 0.31%; Telecomm/Postal Services: 2.90%, Finance & eighties due to economic slump, the year 2004 saw a total rejuvenation of Insurance: 3.79%; Building & Construction:1.83%; Hotel and oil production to a record level of 2.5mn barrels per day. Current Restaurants:0.46%; Crude Petroleum & Natural Gas:17.54%; Wholesale development strategies are aimed at increasing production to 4mn barrels and Retail Trade:17.33% and Others: 9.63%. per day. Petroleum production and export play a dominant role in Nigeria's economy and account for about 90% of her gross earnings. This dominant The current administration is making frantic effort to diversify the productive role has pushed agriculture, the traditional mainstay of the economy, from base of the economy so that the economy is less vulnerable to the the early fifties and sixties, to the background. international oil price volatility. The government is addressing this through the implementation of its 7- point agenda. 3.2 Current State of Petroleum Industry in Nigeria
Currently, more than 95% of the country’s foreign exchange earnings and 3.2.1 Oil & Gas about 85% of its revenue is derived from crude oil, making the oil industry a An estimate in 2003 showed a recoverable crude oil reserves at 34mn very important sector for foreign exchange and revenue growth in the barrels. The reserve base is expected to increase due to additional Nigerian economy. The sharp drop in the price of oil in the international exploration and appraisal drilling. Already, over 900mn barrels of crude oil of market in 2008 and early 2009 as a result of weak demand from the recoverable reserves have been identified. industrialized nations and the weak non-oil export in Nigeria as a result of infrastructure deficiency are responsible for the depreciation and Nigeria has an estimated 159 trn cubic feet (Tcf) of proven natural gas subsequent devaluation of the value of the country’s currency. reserves, giving the country one of the top ten natural gas endowments in the world. Due to a lack of utilization infrastructure, Nigeria still flares about A number of petroleum marketing companies recorded huge losses from the 40% of the natural gas it produces and re-injects 12% to enhance oil sharp drop in the price of unregulated petroleum product (diesel). In recovery. The World Bank estimates that Nigeria accounts for 12.5% of the addition, there was a delay in the payment of the FGN subsidy to the oil world's total gas flaring. Shell esti mates that about half of the 2 bcf/d of marketers, which increased the financing costs to these operators. Banks associated gas -- gaseous by-products of oil extraction -- is flared in Nigeria are also hesitant to extend credit to oil marketers, due to the fact that some annually. The new industry strategy is to collect the associated gas and of the banking woes came from the petroleum marketing companies. The process it into liquefied natural gas (LNG), greatly enhancing Nigerian implication of the cut back in credit is that oil marketers are sourcing funds natural gas revenues while simultaneously reducing carbon dioxide at higher rates and this is reducing the bottom line; the effect of which is emission. passed to the share price. In order to solve the lingering crisis of fuel shortages in Nigeria, the Federal government has resolved ot pay the 3.2.2 Oil Fields subsidy within 45days. FSDH Research strongly believes that full Of the 606 oil fields in the Niger Delta area, 355 are on-shore while the deregulation of the downstream sector is the principal solution to the remaining 251 are offshore. Of these, 193 are currently operational while 23 problem in the sector. have been shut in or abandoned as a result of poor prospectivity or total drying up of the wells. Outside the Niger Delta, a total of 28 exploratory oil wells have been drilled all showing various levels of prospectivity as seen in These wells include two (2) discovery wells in Anambra State, one (1) discovery well each in Edo State and Benue State each and Twenty-four (24) wells in the Chad Basin. However, production is yet to commence from any of the wells.
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Equity Research Report: Oando Plc - NIGERIA
3.2.3 Nigerian Liquefied Gas 1. Domestic Gas Market Expansion The Nigerian LNG project is being implemented in phases with an initial As a result of various projects established, total gas utilized in the country production from two trains. The plant is situated at Bonny Island. NLNG has increased from about 197mn scf/d in 1999 to about 573 mmscf/d in 2004. successfully secured market for its moderate production volume from its Substantial demand growth is expected in this decade. Consequently, base project and train three. domestic demand for natural gas is expected to increase to about 1700mmscf/d. Investment opportunities therefore abound in the domestic 3.2.4 Regulatory Overview: gas market. There are two major regulators in the Nigerian Oil and gas industry. There are: The Department of Petroleum Resources (DPR) and The Nigerian 2. Independent Power Plants National Petroleum Corporation (NNPC) Government is encouraging Joint Venture (JV) and Petroleum Sharing DPR: This is government agency charged with the responsibility of Contract (PSC) multinational oil companies operating in Nigeria to embark regulation and supervision of all the operations being carried out under on IPPs, as part of the Power Sector reform. The Reform Act reviewed the licenses and leases in the Oil and Gas. The operations include the generation, transmission and distribution of electricity in the country to exploration, production and marketing of crude oil and refined products. improve its performance. The IPPs will not only boost electricity supply but also, provide necessary infrastructural support orf economic growth, and NNPC: This vested with the exclusive responsibility for upstream and also guarantee additional revenue to the participating JV & PSC companies. downstream development, which entails exploiting, refining, and marketing The IPPs will further strengthen the oil companies' social responsibility in Nigeria’s crude oil. The NNPC through the National Petroleum Investment the local economy as well as protect the environment through Management Service (NAPIMS) supervises and manage government environmentally sustainable operations and industry best practices. The investment in the Oil & Gas Industry. Since its inception, the NNPC and its various IPPs are expected to contribute about 3,000 MW to the national subsidiaries have undergone strategic restructuring, which have kept it grid. This strategy will ensure the realization of Government's intention to abreast of opportunities in local and international spheres. NNPCs oil and increase the national electricity generation from the current 3,000 MW to gas operations are undertaken both in upstream and downstream about 10,000 MW to enhance economic activities. operations. 3. The Liquefied Natural Gas Projects Upstream Operations: This involves crude oil production. Some of the Since production started from trains 1& 2 in 1999, NLNG has been one of major activities in which investment opportunities abound in the upstream the fastest growing endeavours in the world. Train 3 was commissioned in sector include: Surveying; Civil Works; Seismic Data Acquisition & November 2002 while 4 and 5 are expected to be on stream soon. Interpretation; Geological Activities; Drilling Operations Crude Oil Transportation & Storage; Exploration and Production. 4. The West Africa Gas Pipeline The Final Investment Decision of the West Africa Gas Pipeline was signed Downstream Operations: The downstream operations cover crude oil & on 16th December 2004. The initial capacity utilization of the pipeline which gas conversion into refined, petrochemical products & finer chemicals, and is 200 mmcf/d is expected to increase to about 460 mmcf/d by 2026. This gas treatment as well as transportation and marketing of the petroleum project which is of strategic importance is expected to foster cooperation products. The downstream plants under the NNPC include the four and economic development in the sub-region in the spirit of the New refineries with a total installed capacity of 445,000 barrels per day; two in Partnership for African Development (NEPAD). Port Harcourt (210 000b/d), one each in Warri and Kaduna (125,000b/d and 110,000b/d respectively). Also, three petrochemical plants in Warri and 5. The Tran Saharan Gas Pipeline Kaduna are part of downstream operations. A Tran Saharan gas pipeline running from Nigeria to Algeria is under consideration. The objective is to make Nigerian piped gas available to 3.2.5 Gas Investment Opportunities Europe. The technical and commercial viability of this project is however A lot of investment opportunities abound in the natural gas sector of the being studied through a feasibility study being undertaken by a consultant Nigerian petroleum industry. Increasing attention is now being given to this on behalf of NNPC and Sonatrach. vital sector. Government's aspirations for the gas sector include creating new industries out of the old oil industry; capturing economic value and 6. Gas to Liquids & Natural Gas Liquids generating as much revenue. Others are developing the domestic gas These include the Escravos Gas- to- Liquids with a capacity of 34,000 market, ending gas flaring as soon as possible. barrels per day, the Escravos Natural Gas Liquids 1, 2 & 3 as well as the Mobil Natural Gas Liquids 1& 2. In totality, on going gas transmission Remarkable progress has been recorded towards the realization of these programmes would entail commercialization of about 14,750 mmscf/d of gas objectives. Of the current annual gas production of about 2,000 bscf, about by 2011 (80% for LNG). However, about US$2.5bn will be required annually 40% is flared. This is a drastic drop from the 70% proportion flared in about in stable investments (upstr eam and LNG plants) to capture opportunities in 5 years ago. The hitherto flared gas is being channeled into gas powered gas and power. The private sector therefore has a critical role to play in the projects for rapid utilization and monetization with a view to maximizing realization of these and other projects. With these developments in the gas value addition to the nation's natural gas resource. Many gas-based projects sector as well as the transformation in the upstream, it is believed that are being undertaken in line with Governments aspirations in the sector. energy sector driven initiatives could contribute up to 60% towards doubling They include: of the nation's GDP over the next 10 years.
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Equity Research Report: Oando Plc - NIGERIA
4.0 Nigerian Local Content Policy Petroleum Products Distribution by Marketing Despite huge investments made by the Federal Government of Nigeria Companies(Market Share); Q3 2008 AP (FGN) in the oil and gas sector of the economy, an average of US$10bn per 13.48 annum, its contribution to GDP growth has been minimal. This is largely due 6.48 Conoil 31.76 to low Nigerian Content in the industry, evident from the over 80% of work 4.64 Mobil value carried out abroad. This has led to a dearth in jobs, skills 5.03 NNPC Retail development, capacity building & utilization and lack of sustained national 2.39 economic development. To address the situation, the Federal government 21.1 15.12 Texaco has set Nigerian Content targets for the oil and gas industry of 45% by 2006 Total and 70% by 2010 respectively. In addition, presidential directives have been Oando issued with the aim of domesticating a significant portion of economic Independent derivatives from the oil and gas industry. To deliver on these directives and Marketers targets, the Nigerian National Petroleum Corporation (NNPC) has put in place a comprehensive Nigerian Content development strategy currently 6.0 Crude Oil Exports being rolled out in the industry. As at the end of the third quarter of 2008, six major regions continue to dominate the destination of Nigerian Crude and Condensate exports. Nigerian Content is the quantum of composite value added or created in the North America, Africa , Asia, South America and Central America which Nigerian economy through the utilization of Nigerian human and material together took 74.95% of Nigeria’s exports. The balance of 25.05% went to resources for the provision of goods and services to the petroleum industry European Countries. In terms of exports by destination, a total of within acceptable quality, health, safety and environment standards in order 78,644,146 barrels (43.12%) of the country’s crude oil was exported to to stimulate the development of indigenous capabilities. North America; 14,662,096 barrels (8.04%) went to South America, while 45,682,388 barrels (25.05%) went to Europe, 20,853,503 barrels The vision is to transform the oil & gas industry into the economic engine (11.43%) was sold to Asia and the Far East. Central America accounted for job creation and national growth by developing in-country capacity and for 1,571,322 barrels or 0.86% while the balance of 20,961,836 barrels or indigenous capabilities. It seeks to promote a framework that guarantees 11.49% was exported to African countries. active participation of Nigerians in oil and gas activities without compromising standards. The policy also focuses on the promotion of value addition in Nigeria through the utilization of local raw materials, products, Crude Oil Export by Destination: Q3 2008 and services in order to stimulate growth of indigenous capacity. 11.49 0.01 5.0 Petroleum Products Distribution North America 11.43 Available data shows that about 196.03 million barrels of Crude Oil and 43.12 South America Condensates were produced in the third quarter 2008. This gives a daily Central America average of 2.13 million barrels per day (mmbd). Third quarter’s figure is 25.05 6.25% higher than the second quarter’s production of 184.50 million. Total Europe crude oil and condensates lifting for both domestic and export was about Asia & Far East 193.42 million barrels. Oil companies lifted about 97.05 million barrels Africa (50.11%), NNPC lifted about 96.37 million barrels (49.82%). Broken down 0.86 8.04 by fiscal regime; JV/AF-JV companies lifted about 62.53 million barrels, Others PSC/SC companies 24.58million barrels, Independent/Sole risk companies lifted slightly over 9million barrels, while Marginal fields operation From the review of the business Model of Oando and oil & gas industry in companies lifted about 0.92million barrels. Out of NNPC’s liftings; about Nigeria, FSDH Research is confident that Oando is well positioned to take 55million barrels was for federation account, while about 41million barrels good advantage of the ensuing opportunities in the industry. was for domestic use. 7.0 Strengths & Opportunities In the petroleum products distribution slate, Premium Motor Spirit (PMS) · Diversified Business Model had the highest figure of 2,394 million litres (66%) reflecting average daily · Good knowledge and expertise of domestic market sales of 26 million litres. This was followed by Automotive Gas Oil (AGO) · Strong brand name with total sales figure of 411 million litres (11%) averaging 5 million litres per · Wide product distribution network day. Dual Purpose Kerosine (DPK) came third in the petroleum products · Experienced and dedicated management team distribution slate with total sales figure of 383 million litres (11%) giving an average daily sales figure of 4 million litres. · Local Content Policy in the oil & gas industry · Inadequate power generation in Nigerian which Oando stands to fill a
The Market Share by the major marketing companies are: Oando Plc: portion (21.09%); Total Plc: (15.12%); African Petroleum: (13.48%); Texaco: · Regulated pricing (2.39%); Conoil: (6.48%); Mobil: (4.64%); and NNPC Retail (5.03% ). · Proposed deregulation of the Oil Industry in Nigeria
Weaknesses & Threats · Unwillingness of banks to extend credit to oil marketers · Low profit margin
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Equity Research Report: Oando Plc - NIGERIA
· Negative working capital Working Capital(2004-2008) 5,000.00 · Current global economic and financial crises, resulting to weak 285.94 demand for oil - · Credit crunch in the local financial market leading to rising interest -5,000.00 2008 2007 2006 2005 2004 -4,483.89 rates. -10,000.00 -6,602.00 -5,680.93
-15,000.00 N'mn 8.0 Analysis & Recommendation -20,000.00 The analysis here is based on the latest audited results of Oando Plc, which is as at December 31, 2008. As at the time the offer opened, the 2009 account had not been -25,000.00 audited. Events between 2008 and 2009 may show marked differences. The company -30,000.00 however included the proforma profit and loss statement in the Rights Circular. -35,000.00 -32,630.21 8.1 Capital Structure Working capital/ Net current Asset Total Equity of Oando declined from N47.42bn in 2007 to N44.88bn in 2008, translating to a decrease of 5.35% between the period. The decrease in total equity came from 32.27% decline in revaluation of land and building Long Term Vs Short Term Liabilities(2004-2008) assets from N10.65bn in 2007 to N7.22bn in 2008 and minority interest 240,000 191,384 which declined by 19.41% from N187.43mn in 2007 to N151.04mn in 2008. 200,000 The Compound Annual Growth Rate (CAGR) in the total equity between 160,000 2004 and 2008 is 20.28%. 120,000 95,354 N'mn 64,585 80,000 55,589 49,729 37,471 Shareholders' Funds(2004-2008) 19,914 40,000 3,999 3,654 55,000 3,455 47,229 - 44,728 45,000 2004 2005 2006 2007 2008
35,000 Long Term Liab. Current Liab.
N'mn 22,544 25,000 20,036 21,298 The long term receivables relate to long term prepayment and the pipeline cost recovery account which are N427.57mn and N14.12bn respectively. 15,000 The current assets which grew by 78.87% to N158.75bn in 2008 from 5,000 N88.75bn in 2007 was boosted by the growth in debtors & prepayments 2004 2005 2006 2007 2008 which increased by 310.98% to N69.37 bn and cash & bank balances, which grew by 184.62% to N48.98bn in 2008 from N17.21bn in 2007 . Adding the long-term assets and the current assets of the company Composition of Shareholders' Funds(2008) together, the total assets grew by 75.53% to N285.55bn in 2008 from N162.68bn in 2007. This represents a CAGR of 45.89% between 2004 and 16% 1% 2008.
16% The total assets of the company were financed by a mix of equity, short term borrowing and long term borrowing with short term borrowing 67% accounting for a large proportion. As at December 2008, the total Assets of Oando stood at N285.55bn while total liabilities stood at N241.11bn. The short term liabilities stood at N191.38bn accounting for 79.38% of the total liabilities while the long-term liabilities stood at N49.73bn accounting Paid Up Share Capital Share Premium Account 20.62% of the total liabilities. The interest bearing liabilities of Oando as at General Reserve Revaluation Reserve the December 31, 2008 stood at N185.14bn out of which 76.89% was short term borrowing while 23.11% was long term borrowin g. As a result of this financing mix, the company operated on a negative working capital of Looking at the composition of the long term assets of Oando which stood at N32.63bn at the end of the year, a deteriorating position from a negative N126.80 bn in 2008 from N73.93bn in 2007, representing a growth of working capital of N6.60bn as at the end of the previous year. We note that 71.51%, the fixed assets which grew by 122.98% to N89.90bn in 2008 between 2004 and 2008 the company only operated on a positive working accounted for 70.90% of the total long term assets, intangible assets capital in 2004 when the working capital was N285.94mn. In addition, the accounted for 17.63% while long ermt receivables accounted for 11.47%. current ratio and the quick ratio as at 2008 stood at 0.83x and 0.75x Major contributors to the intangible assets are: goodwill: N21.71bn from respectively. Given this situation, Oando may find it difficult to meet its N21.74bn in 2007 and Software costs: N644.46mn from N725.83bn in 2007. short-term obligations as they fall due except most of the short term borrowings are restructured to a long term borrowings.
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Equity Research Report: Oando Plc - NIGERIA
on the working capital of the company which stood at a negative of N32.63bn as at 2008. Capital Employed Vs Total Assets(2004-2008) 285,554 300,000 The cursory look at the statement of cash flow shows that Oando is investing heavily in businesses that will ensures that the company continues to generate income in future in spite of the volatility of oil prices. The cash 200,000 162,684 used in investing activities increased by 148.72% from N20.26bn in 2007 to
N'mn 92,437 94,170 N50.54bn in 2008 while the net cash from financing activities increased by 81,974 100,000 63,034 67,330 283.64% from N24.97mn in 2007 to N95.80bn in 2008. The net cash 25,563 26,385 27,852 generated from oper ating activities decreased by 379.76% from N4.89bn in - 2007 to a negative of N13.69bn in 2008.The cash and cash equivalent as at December 31, 2008 which stood at N48.98bn was made up of N32.03bn in 2004 2005 2006 2007 2008 fixed deposit and N16.95bn cash at bank and in hand. Capital Employed Total Assets
Meanwhile, the capital employed (i.e total assets less current liabilities) Profitability increased from N25.56bn in 2004 to N94.17bn in 2008 representing a Oando has been able to attain a desirable position in the country’s oil & gas CAGR of 38.54% and a growth of 39.86% between 2007 and 2008. industry looking at its profitability in the last 5 years. Its turnover increased from N103.06bn in 2004 to N339.42bn in 2008 representing a CAGR of Looking at the historical performance of Oando, as at 2008, the interest 34.71%, and grew significantly by 82.59% between 2007 and 2008. An cover, which represents the number of time the earning of a company can analysis of the turnover indicates that 80.82%, 2.75% and 16.44% was cover its interest obligations was 2.01x a deterioration over 6.25x in 2007. generated within Nigeria, Other West Africa Countries and Other countries We note that it has consistently deployed its assets to generate enough respectively. revenue to reward both the equity holders and the debt providers (both short and long term). In other words, the risk of generating inadequate cash flow Turnover(2004-2008) to meet interest expenses is minimized. The ratio remained above 1x 400.00 throughout the five years covering 2004 and 2008. Going forward we are 339.42 confident that the company will be able to generate enough earnings from 350.00 its operations to meet interest obligations given its diversified business 300.00 model. 250.00 209.08 200.00 182.76 185.89 N'bn Liquidity 150.00 103.06 The current assets of the company increased from N37.76bn in 2004 to 100.00 N158.75bn in 2008, representing a CAGR of 43.20% and a growth of 50.00 78.87% between 2007 and 2008. The major contributors to the increase between the immediate two years are: debtors & prepayments (up 310.98% - to N69.37) and cash & bank balances (up by 184.62% to N49.98bn). It is of 2004 2005 2006 2007 2008 note that the company had put in place a system which has reduced the debtors position at 2008 to N24.33bn from N29.93bn in 2007, a decrease of 18.71%. In another development, the current liabilities increased from Analysis of Turnover by Region(2008) N37.47bn in 2004 to N191.38bn in 2008 representing a CAGR of 50.33% between the period and an increase of 100.71% between 2007 and 2008. 3% 16% The relationship between the current assets and current liabilities reflects a marginal deterioration when considering the marginal increase in the current ratio and quick ratio between 2007 and 2008. The current ratio decreased to 81% 0.83x in 2008 from 0.93x. However, the decline in debtors brought about an improvement in the quick ratio, which increased to 0.75x in 2008 from 0.67x in 2007. As noted earlier, the huge short term borrowing exerted pressure Within Nigeria Other West African Countries Others
Interest Cover(2004-2008)
7.00 6.25 Oando’s growth strategy combined with costs reduction strategies resulted 6.00 in impressive performance in the profit before tax which increased from N1.46bn in 2004 to N8.34bn in 2008, representing a CAGR of 54.52% and a 5.00 3.61 4.00 growth of 52.24% between 2007 and 2008. The return on average equity 2.77 stood at 18.08% in 2008, up from 15.26% in 2007. The return on average Times 3.00 2.01 2.00 1.25 assets stood at 4.30% a marginal increase from 3.72% recorded in 2007. In 1.00 addition, the return on average capital employed decreased from 11.61% in - 2007 to 10.33% in 2008.
2004 2005 2006 2007 2008
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Equity Research Report: Oando Plc - NIGERIA
Net Assets Per Share(2004-2008) EBITDA VS PBT(2004-2008) 30,000 27,203 66.12 70.00 62.88 60.00 49.11 50.00 42.63 20,000 39.72 40.00 9,591 10,742
N'mn 30.00 10,000 7,222 6,814 4,713 5,694 20.00 2,621 3,794 1,607 10.00 - - 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 PBT EBITDA
Oando’s GP margin increased marginally to 11.67% in 2008 from 11.54% in Q3 Unaudited Result 2007. EBITDA margin increased to 8.01% from 5.16% in 2007, while the The unaudited Q3‘09 result of Oando for the period ended 30 September, PBT margin decreased to 3.16% from 3.67% in 2007. The contribution of 2009 released to the Nigerian Stock Exchange (NSE) showed that its staff to the company’s profitability improved within two years as PBT per Turnover grew by 7.25% to N342.82bn, compared with N319.64bn in the staff increased to N24.92mn in 2008 from N13.85mn in 2007, while staff corresponding period of 2008. Profit Before Tax (PBT) grew by 26.60% cost per staff increased from N4.98mn in 2007 to N7.17mn in 2008. between 2008 and 2009 to N9.23bn from N7.29bn. The company’s provision for tax which increased by 49.90% between 2008 and 2009 to Management Efficiency N2.60bn from N1.73bn brought about a Profit After Tax (PAT) of N6.64bn as The number of time capital employed could generate revenue increased against N5.56bn in 2008, representing a growth of 19.36%. from 2.76x in 2007 to 3.60x in 2008. Oando’s debt recovery effort has paid- off as the collection period decreased significantly from 58.78days in 2007 A cursory look at the company’s profit margins reveals an increasing trend to 26.17days in 2008. In a similar development, the payment period as at compared with the results at the corresponding quarter in 2008. The PBT December 2008 which stood at 32.97 days was longer than the collection margin increased marginally to 2.69% in Q3‘09 from 2.28% as at Q3’08, but period. down from 3.16% as at the end of the financial year in December, 2008. This shows that the company’s total cost as a percentage of Turnover stood Investment Analysis at 97.31% in Q3’09, down marginally from 97.72% in the corresponding An Investment in Oando shares in the last five year has proved to be worth period in 2008. PAT Margin currently stands at 1.94%, up marginally from while investments in terms of capital appreciation and growth benefits (cash 1.74% in the corresponding period in 2008, but down from 2.46% as at FY dividend and bonus payment). The Earnings Per Share(EPS) grew from ’08. The results also indicate that the percentage of the Turnover, PBT, and N3.52 in 2004 to N9.22 in 2008, representing a CAGR of 27.18% and a PAT in the Q3 result to the Full Year Audited Turnover, PBT and PAT for growth of 26.80% between 2007 and 2008. In a similar development, the period ended December, 2008 are: 101%, 85.94% and 79.53%, Dividend Per Share (DPS) increased from N2.00 in 2004 to N6.00 in 2008 respectively. This suggests that the company has clearly out-performed the representing a CAGR of 31.61%. Oando maintained a dividend payout in previous year both in top-line and should exceed its bottom-line excess of 50% during the last 5 years. performance at the current run-rate.
EPS vs DPS(2004-2008) A cursory look at the balance sheet position as at Q3 2009 compared with the position as at December, 2008 shows that the company continued its 10.00 investments and upgrading of the existing plants to expand its operations 8.00 and gain additional markets. Its fixed assets increased by 13.72% to N102.24bn from N89.90bn in FY 2008, also the net assets increased by 6.00 7.66% to N48.15bn from N44.73bn as at FY 2008. Cash and bank 4.00 balances decreased from N48.98bn in FY 2008 to N11.58bn in Q3 2009 the Naira(N) payment of FY 2008 dividend may be linked to the drop in the net assets 2.00 and the cash and bank balances. The short-term borrowing stood at N76.35bn as at Q3, 2009, representing a decrease of 43.64% over the FY - 2008 position of N135.47bn. A number of factors may be responsible for 2004 2005 2006 2007 2008 the sharp drop in the short term borrowing. Some of which are: banks may be unwilling to renew their short term facilities to Oando because of the tight credit situation in the market. On the other hand, Oando might have However, the net assets per share (NAPS) decreased from N66.12 in 2004 deliberately paid down at maturity in order to avoid excessive interest rate to N49.11 in 2008, representing a Compound Annual Decline Rate (CADR) usually associated with short-term borrowing. Oando’s working capital also of 7.16% and a decline of 21.89% between 2007 and 2008. deteriorated from a negative N27.09bn in FY 2008 to a negative N38.42bn in Q3 2009. Stocks increased by 16.92% to N18.81bn from N16.09bn during the review period. The trade debtors increased marginally by 2.93% to N32.80bn from N31.86bn, while trade creditors also increased marginally by 4.94% to N28.42n in Q3 2009 from N27.08bn as at FY 2008. This suggests
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Equity Research Report: Oando Plc - NIGERIA
that the company may be employing cash management strategies to theoretical ex-right price of N87.99. Thus the value of each right taken is conserve its cash for its investment or financing needs in the near future. N17.99 and the return on each of the right taken is 25.70%. On the basis of this, we recommend that existing shareholders takes up their rights or trade 9.0 Valuation it on the floors of the Nigerian Stock Exchange (NSE) and Johannesburg In arriving at a fair value for Oando Plc, we used the forecast of the Stock Exchange (JSE). company as contained in the Rights Circular. We are of the opinion that the financial projections of the company are fairly aggressive, given the 10.0 Return Analysis competitions that we expect to see in the industry following the proposed full An investment in Oando stock since January 02, 2003 held up to February deregulation of the Oil and Gas industry. We employed a comparable 15, 2010 shows a total growth of 229.92%. An investment worth of valuation method of two variants – Enterprise Value(EV) to Earning Before N100,000 in Oando stock in January 02, 2003 purchased 1,846 units after Interest Tax Depreciation and Amortization (EBITDA) multiple and Price to adjusting for transaction cos ts estimated at 4% and at a price of N52 per Earnings (P/E) multiple to capitalize the earning. We limited our valuation to share. The investment earned net dividends (that is less withholding tax of one year, which is 2010 financial year, because we inferred from the 10%) of N43,633 and total bonus of 1,200 units. The accumulated chairman’s statement that the company will soon raise additional capital. shareholding increased by 50% to 3,046. The market value at the valuation The implication of raising additional capital either in form of equity or debt is date is N93.99. The total value of the investment of N329,916.66 is made that there will be a further dilution of the earnings of the company in order to up of market value of N286,284.14 and dividend earned of N43,632.52. The service the instrument that will bring about the additional capital. CAGR in return within the period is 22.01%.
We used the projected Turnover (TO) for the year 2010 but excluded the N.B: For the purpose of the return analysis valuation, benefits are other operating income figure released in the forecast from the calculation of recognized in the year in which the investment qualified to it (the date our Earning Before Interest and Tax(EBIT) as we are not convinced that the in which the Register of Members was closed for the benefits). items that make up the income are within the regular businesses of the company. Some of these items are: rent received; profit from sales of assets and foreign exchange gain. Therefore our revised EBIT is estimated at Oando Vs NSE ASI Rebased (Feb. 2009-Feb 2010) N46.86bn, while EBITDA is estimated at N57.97bn leaving the depreciation for the year at N8.11bn. We used the PAT forecast of the company for 2010. We used 1,206.78mn Ordinary Shares which will be available post 110 Rights Issue. Applying Enterprise Value (EV)/EBITDA multiple of 5.94x, a P/E multiple of 10.74x, we arrived at N129.22 per share using EV/EBITDA 90 multiple and N159.75 per share using price earnings multiple. Applying a weight of 55% on N129.22 and 45% on N159.75, we arrived at N142.96 per share, which should be the fair value of the company assuming the 70 company will not raise additional capital and the projections are not aggressive. 50 The forecast Earnings Per Share (EPS) for the periods ending 2010, 2011 and 2012 are N14.87, N34.42 and N48.68 respectively while the Dividend Per Share (DPS) are N3.72, N4.76 and N5.15 respectively. This translates to dividend payouts of 25.01%, 10.81% and 7.64% respectively. The low dividend payout for the periods also justifies the provision for additional capital raising exercise. OANDO PLC NSE ASI Rebased
The current market value of Oando share is N93.99 while the Rights Issue price is N70.00.The right issue ratio is one (1) for three (3), resulting to
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Equity Research Report: Oando Plc - NIGERIA
Table 8: 5-YEAR FINANCIAL SUMMARY Profit & Loss Account(2004-2008), N’mn 2008 2007 Change (%) 2006 2005 2004 CAGR(%) Turnover 339,420 185,892 82.59 209,079 182,763 103,063 34.71 Cost of Sales 299,811 164,443 82.32 192,402 165,301 89,708 35.21 Gross Profit 39,610 21,449 84.67 16,677 17,463 13,355 31.23 Operating Profit 21,410 8,110 163.98 5,936 4,579 3,772 54.35 EBITDA 27,203 9,591 183.62 7,222 5,694 4,713 55.00 PBT 10,743 6,814 57.66 3,794 2,621 1,607 60.79 Tax 2,399 1,333 79.95 719 848 144 102.16 PAT 8,343 5,480 52.24 3,075 1,774 1,463 54.52
Balance Sheet(2004-2008), N’mn 2008 2007 Change(%) 2006 2005 2004 CAGR(%) Fixed Assets 89,903 40,319 122.98 14,396 13,690 11,703 66.48 Intangible Assets 22,351 22,465 0.51 14,514 13,601 9,723 23.13 Other Long Term Item 14,545 11,138 30.58 4,612 3,578 3,798 39.89 Long Term Assets 126,800 73,932 71.51 33,533 30,.869 25,277 49.66 Current Assets 158,753 88,752 78.87 58,904 51,105 ,37,757 43.20 Total Assets 285,554 162,684 75.53 92,437 81,974 63,034 45.89 Current Liabilities 191,381 95,354 100.71 64,585 55,589 37,471 5033 Long Term Liabilities 49,729 19,914 149.72 3,455 3,654 3,999 87.79 Total Liabilities 241,113 115,268 109.18 68,040 59,244 41,470 55.28 Working Capital (32,630) (6,602) 394.25 (5,681) (4,484) 286 Total Equity 44,879 47,416 (5.35) 24,396 22,726 21,442 20.28
Key Financial Ratio(2004-2008), % 2008 2007 2006 2005 2004 Gross Profit Margin 18.08 15.26 13.05 8.03 EBITDA margin 11.67 11.54 7.98 9.55 12.96 PBT margin 8.01 5.16 3.45 3.12 4.57 ROE 18.14 15.71 21.56 7.11 5.73 ROCE 26.51 17.04 14.94 17.35 14.76 Collection Days 26.17 58.78 34.86 43.09 46.76 Payment Days 32.97 59.69 25.84 21.95 70.78 Current Ratio 0.83 0.93 0.91 0.92 1.01 Debt Ratio 65.00 43.00 45.00 47.00 21.00 Total Debt to Equity 413.00 148.00 171.00 170.00 63.00 Interest Cover(x) 2.01 6.25 2.77 3.61 1.25 Equity/Assets 16.00 29.00 26.00 28.00 34.00 EPS 9.22 7.27 5.37 2.65 3.52 DPS 6.00 6.00 4.00 2.50 2.00 Net Asset Per Share 49.11 62.88 42.63 39.72 66.12 Source: Rights Offer Circular
11.0 Comparative Analysis The business model of Oando is different from the comparable companies In this analysis we looked at the financing structure of the comp arable (which are companies quoted on the Petroleum marketing Sub-sector of the companies and relate it to the financing of Oando. We note that the result Nigerian Stock Exchange (NSE)).The principal business of the comparable we compare here is the Audited result as at December 2008 being the latest companies is marketing of petroleum products. As we have shown above available to us at the time of this report. N332.15 bn representing 97.86% of the total revenue of Oando as at December 2008 was derived from fuel, lubricant and related products while the remaining N7.27bn representing 2.14% was derived from gas, Non-fuel and others. Going forward, we expect the contribution of fuel and lubricant and other related products to total revenue to decline. Nevertheless, we do not have better comparable companies that are quoted than the petroleum marketing companies.
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Equity Research Report: Oando Plc - NIGERIA
African Petroleum (AP) The total assets of the company were financed by a mix of equity and short term borrowing with short term borrowing accounting for 75% of the total Interest cover stood at 25.19x in 2008, but down from 63.73x in 2007. In assets while equity accounted for 10%. As at December 2008, the total another development, total debt accounted for 17% of the total equity. assets of AP stood at N71.66bn while total liabilities stood at N64.70bn. The short-term liabilities stood at N62.92bn accounting for 97.26% of the total Chevron liabilities while the long-term liabilities stood at N1.77bn accounting only There was no debt in the capital structure of Chevron as at the end of the 2.74% of the total liabilities. The interest bearing liabilities of AP as at financial year in December 2008. The total assets of the company were December 31, 2008 stood at N53.60bn. As a result of this financing mix, the financed by equity supported by trade creditors, dues to related companies company operated on a negative working capital of N1.96bn at the end of and other liabilities. As at December 2008 the total Assets of Chevron stood the year, a deterioration over a negative of N1.26bn as at the end of the at N11.33bn while total liabilities stood at N9.42bn. The short-term liabilities previous year. In addition, the current ratio and the quick ratio as at 2008 stood at N8.14bn accounting for 86.45% of the total liabilities while the long- stood at 0.97x and 0.78x respectively. Given this situation, AP may find it term liabilities stood at N1.28mn accounting for 13.55% of the total liabilities. difficult to meet its short-term obligations as they fall due. Nevertheless, AP As a result of this financing mix, the company operated on a negative generated adequate earnings to be able to pay its interest expenses as at working capital of N370.74mn at the end of the year, down from N1.43bn as when due as the Interest cover stood at 2.30x in 2008, but down from 3.43x at the end of the previous year. In addition, the current ratio and the quick in 2007. In another development, total debt accounted for 770% of the total ratio as at 2008 stood at 0.95x and 0.69x respectively. Chevron may not equity. . find it difficult to meet its short-term obligations as they fall due. In another development, the long-term liabilities accounted for 66.60% of the total Mobil equity. The total assets of the company were financed by a mix of equity and short term borrowing with short term borrowing accounting for 18% of the total Conoil assets while equity accounted for 14%. As at December 2008, the total The total assets of the company were financed by a mix of equity and short- Assets of Mobil stood at N19.91bn while total liabilities stood at term borrowing with short term borrowing accounting for 60% of the total N17.08bn.The short term liabilities stood at N12.28bn accounting for assets while equity accounted for 21%. As at December 2008, the total 86.45% of the total liabilities while the long-term liabilities stood at N4.80bn assets of Conoil stood at N56.81bn while total liabilities stood at N44.90bn. accounting for 28.09% of the total liabilities. The interest bearing liabilities of The short-term liabilities stood at N42.98bn accounting for 95.73% of the Mobil as at December 31, 2008 stood at N3.61bn all of which was short- total liabilities while the long-term liabilities stood at N1.92bn accounting term loan. As a result of this financing mix, the company operated on a only 4.27% of the total liabilities. The interest bearing liabilities of Conoil as negative working capital of N3.55bn at the end of the year a deteriorating at December 31, 2008 stood at N34.09bn. As a result of this financing mix, position over a negative position of N2.31bn as at the end of the previous the company operated on a working capital of N5.59bn at the end of the year. In addition, the current ratio and the quick ratio as at 2008 stood at year, a decline over N6.14bn as at the end of the previous year. In addition, 0.71x and 0.39x, respectively. Given this situation, Mobil may find it difficult the current ratio and the quick ratio as at 2008 stood at 1.13x and 0.98x to meet its short-term obligations as they fall due. In another development, respectively. Given this situation, Conoil should be able to meet its short- total debt accounted for 127% of the total equity. term obligations as they fall due. In addition, Conoil generated adequate earnings to be able to pay its interest expenses as at when due as the TOTAL Interest cover stood at 2.23x in 2008, though down from 3.33x in 2007. The total assets of the company were financed by a mix of equity and short term borrowing with short term borrowing accounting for 3% of the total Our Comments assets while equity accounted for 17%. As at December 2008, the total The diversified and the large market share of Oando in the Petroleum assets of TOTAL stood at N41.77bn while total liabilities stood at making industry in Nigerian accounted for the huge turnover it recorded in N34.50bn.The short term liabilities stood at N31.64bn accounting for 2008. It recorded the highest turnover among the quoted petroleum 91.69% of the total liabilities while the long-term liabilities stood at N2.87bn marketing companies. In addition, the huge investment the company has accounting 8.31% of the total liabilities. The interest bearing liabilities of been making to ensure steady flow of income necessitated the huge assets TOTAL as at the December 31, 2008 stood at N1.21bn, which was short of N285.55bn. Oando recorded the largest long term borrowing in its capital term loan. As a result of this financing mix, the company operated on a structure in the industry. Also, Oando recorded the lowest working capital negative working capital of N2.85bn at the end of the year from a negative among its comparables as a result of its the huge short term loan. As noted position of N2.30bn as at the end of the previous year. In addition, the earlier, the short-term loan needs to be converted to longer-term loan so current ratio and the quick ratio as at 2008 stood at 0.91x and 0.61x that it can enable the company to have adequate working capital. respectively. Given this situation, TOTAL may find it difficult to meet its short-term obligations as they fall due. Nevertheless, it generated adequate earnings to be able to pay its interest expenses as at when due as the
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Equity Research Report: Oando Plc - NIGERIA
Table 9: Annual Capital Growth & Returns Analysis of N100,000 Investment in Oando Plc since January 02, 2003 Value Receipt Period 2003 2004 2005 2006 2007 2008 2009 Total Amt Invested 100,000 Holding As At January 1,846 2,031 2,538 2,538 2,538 2,538 3,046 Amt. used less cost 96,000 Bonus Shares Received 185 508 - - - 508 - 1,200 Share Price May, ‘05 57.99 Cumulated Holding 2,031 2,538 2,538 2,538 2,538 3,046 3,046 No of Units Purchased 1,846 Dividend Earned - 3,655 4,569 5,711 9,138 20,560 8,224 43,633
Date of Valuation 15-Feb-2010 Accumulated Shareholding 3,046 % Increase in Shareholding 50 Price (N) 93.99 Market Value (N) 286,284.14 Total Dividend (N) 43,633 Value of Investment (N) 329,916.66 Cost of Investment (N) 100,000 Profit (N) 229,916.66 % Increase 229.92 CAGR 22.01
Table 10: Comparative Analysis: 2008 Company Oando AP Chevron Mobil Total Conoil Average Turnover 339,420 162,596 48,688 66,741 177,412 124,322 153,197 Gross Profit 39,610 27,011 4,269 7,433 19,147 12,990 18,410 EBITDA 27,203 13,613 397 4,138 7,872 7,627 10,142 PBT 10,743 7,148 (305.72) 2,544 6,508 3,282 4,987 PAT 8,343 5,103 (225.42) 1,719 4,393 1,821 3,559 Total Assets 285,554 71,660 11,330 19,915 41,771 56,606 81,139 Current Liabilities 191,384 62,922 8,140 12,281 31,635 42,984 58,224 Long Term Liabilities 49,796 1,774 1,275 4,797 2,867 1,919 10,405 Interest Bearing Liabilities 185,143 53,604 0.00 3,608 1,210 34,088 55,531 Working Capital (32,630) (1,959) (370) (3,554) (2,849) 5,589 (5,962) Capital Employed 94,170 8,737 3,191 7,634 10,136 13,821 22,948 Net Assets 44,441 6,963 1,915 2,837 7,269 11,903 12,555 EBITDA Margin(%) 11.67 8.37 0.82 6.20 4.44 6.13 6.27 Interest Cover(x) 2.01 2.30 0.00 0.00 25.19 2.23 7.93 Debt Ratio(%) 65.00 75.00 0.00 18.12 3.00 75.67 47.36 Total Debt/Equity(%) 413.00 770.00 0.00 127.00 17.00
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