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Stats: 2,054,886 members, 4,421,486 topics. Date: Sunday, 19 August 2018 at 09:58 PM
Nigeria Q1’18 Trade Report: Current Account Dominated By Petroleum Story / Forte Oil To Sell Nigerian Assets, Exit Ghana / Femi Otedola No Longer A Billionaire As Forte Oil Shares Fizzle - Forbes.com (2) (3) (4)
|Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by BrandSpurNG: 5:26am On May 17|
Decent Q1’18 numbers buoyed by Power earningsSelling all subsidiaries, retaining flagship fuel retailing businessPower business divestment comes as surpriseTargets 6-9 months to complete the proposed restructuringTotal deregulation of downstream sector very key post-divestmentMixed earnings trajectory, valuation revised lower on liquidity challenges
Decent Q1’18 numbers buoyed by Power earnings
FO’s Q1’18 numbers were quite decent, beating our estimates across most line items. Meanwhile, the mixed performance across the company’s business segments persisted in Q1’18. Despite reporting an impressive 14% y/y increase in Revenue to ₦25.8 billion (Vetiva: ₦20.7 billion), the Fuel Retailing segment (largest segment – accounts for 65% of group revenue) reported a 29% y/y decline in Gross Profit (₦1.9 billion vs. Vetiva: ₦2.1 billion) as the tough operating environment in the petroleum downstream sector continued to pressure margins. Performance of the Production Chemicals segment (smallest segment – accounts for c.1% of revenue) was also weak, reporting a 16% y/y decline in Gross Profit to ₦0.2 billion following a 17% y/y Revenue decline.
Bucking the trend, however, the Lubricant & Grease segment (9% of Revenue and 3rd largest segment) reported a 16% y/y increase in Gross Profit to ₦0.7 billion amidst a 7% Revenue growth to ₦3.5 billion. Also, the Power Generation segment (2nd largest segment – accounting for 25% Revenue) remained the key driver of earnings growth, reporting a 72% y/y increase in Gross Profit to ₦4.1 billion (Vetiva: ₦3.5 billion) on the back of a strong topline performance (up 54% to ₦10.1 billion). Notably, the contribution from the Power Business accounted for 60% of the Group’s gross profit. Overall, Q1’18 Group Revenue rose 21% y/y to ₦39.8 billion whilst Gross Profit was up 17% y/y to ₦6.8 billion – 15% and 8% ahead of our estimates respectively. With OPEX coming in flat y/y (16% better than estimate) and net finance expense declining 23% y/y (in line with estimate), Q1’18 PBT rose 54% y/y and 38% ahead of our estimates to ₦3.2 billion. In all, Q1’18 PAT rose 57% y/y to ₦3.0 billion (Vetiva: ₦1.7 billion), further supported by lower than expected effective tax rate – 6% vs Vetiva’s 28%.
Selling all subsidiaries, retaining flagship fuel retailing business
Forte Oil (FO) recently released a notice of its Annual General Meeting (AGM) scheduled for May 28, 2018. Notably, one of the Special Resolutions to be considered at the AGM is a company restructuring plan that would involve the divestment of all FO’s subsidiaries – AP Oil & Gas Ghana Limited (“APOG”, 100% owned), Amperion Power Distribution Company Limited (“APDC”, 57% owned) and Forte Upstream Services Limited (“FUSL”, 100% owned). Effectively, the flagship Petroleum Marketing segment in Nigeria will be the only surviving business line post-restructuring, and the proceeds from the divestments will be used in funding its strategic expansion and repositioning.
Power business divestment comes as surprise
We are not surprised about FO’s plans to sell off its interest in APOG as this is in line with management’s earlier guidance as far back as 2016. We note that the subsidiary has consistently declared losses in the last three years, and the tough operating landscape in Ghana spells further weak earnings outlook. The decision to divest interest in FUSL is also not entirely shocking as a contribution from the subsidiary has historically been less significant (c.3.7% of Group’s gross profit since inception in 2011), even as it has been on a downtrend over the past three years. We understand that whilst the Power business remains profitable, cash flow within the segment has been challenging due to huge receivables.
We note that whilst the ₦701 billion Payment Assurance Guarantee Intervention Fund (PAG) introduced by the FG in 2017 has partly supported Power Generating companies’ liquidity, there are still huge power receivables on FO’s books (FY’16: ₦14.6 billion, FY’17: ₦32.6 billion). Meanwhile, the facility is also said to have been fully disbursed with no clear signals of another funding on the horizon. Subject to shareholders approval, we understand the proposed restructuring could be concluded by the end of the year.
Total deregulation of downstream sector very key post-divestment
We believe that the renewed full focus on the Petroleum Marketing segment is heavily supported by expectations of total PMS deregulation in the near term as well as the belief that the company can compete profitably within the space. For us, we do not expect a full-deregulation until much after elections and/or the commencement of operations at Dangote refinery. Aside from the challenges of capped margins in the PMS segment, we believe that the Nigeria Petroleum downstream sector is quite attractive particularly for big players with large asset base and sound logistics (like FO) given that it is a volume-play business.
Particularly, we highlight that post the currency devaluation in 2016, the working capital requirement in the downstream business has increased significantly – putting pressure on cash flow and increasing the need for additional capital. We understand that FO might be open to possible M&A as part of its expansion plans for the Petroleum Marketing business (post-divestment of its subsidiaries); this should further strategically reposition FO in the industry.
Mixed earnings trajectory, TP revised lower on liquidity challenges
Our long-term outlook on FO has changed significantly following the plan to divest all its subsidiaries. Post-divestment, FO will transform from running an
integrated energy model to a slimmer business model focused on petroleum products retailing on a larger scale. And as earlier highlighted, we believe that the full deregulation of the petroleum downstream industry is key to unlocking the sector’s value regardless of the scale of operations of industry players.
As such, we hold a bearish outlook on FO’s new/proposed business model (entirely petroleum products marketing) in the near term. We do not expect the divestment to be completed before the end of the year, hence, we expect FY’18 earnings to enjoy the full contribution of the Power Business amongst other subsidiaries before its divestment.
Pending further details on the restructuring plan and expansion plans for the petroleum retailing business, we continue to base our forecasts on the current diversified business model. We revise our FY’18 PAT to ₦7.7 billion (Previous: ₦6.4 billion) amidst revision to FY’18 revenue estimate to ₦154.1 billion (Previous:
₦138.6 billion), Net finance expense to ₦6.4 billion (Previous: ₦4.9 billion) and FY’18 tax rate assumption to 20% (Previous: 28%).
Notwithstanding our higher revisions to earnings, our target price is reduced to ₦77.75 (Previous: ₦83.57), largely weighed by the dimmer outlook on FO’s operating cash flow and increasing working capital need. We have also placed the stock on a HOLD recommendation pending further clarity on the planned divestments.
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by femmyJohn(m): 7:32am On May 17|
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by cheddahboy(m): 7:32am On May 17|
Ote$ making more dollars.
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|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Mutemenot(m): 7:33am On May 17|
Grammar, who else got confused like me .
Don't quote me o cos my dad told me we don't understand English early mo mo
7 Likes 2 Shares
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by manforgu: 7:34am On May 17|
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Nobody: 7:36am On May 17|
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by DEXTROVERT: 7:38am On May 17|
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Alejoc(m): 7:40am On May 17|
Come into alternative energy solution....
Wind energy is still almost untapped in Nigeria!
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Eleniyan007(m): 7:41am On May 17|
Wtf wat is dis??
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by brownsugar23: 7:41am On May 17|
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by lonelydora: 7:41am On May 17|
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Dollipsejay(m): 7:42am On May 17|
Exactly what I have been saying. If we had done it like this it would have been better.
I didn't read that thing o
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by lonelydora: 7:42am On May 17|
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Nairalandmentor(m): 7:47am On May 17|
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by deepwater(f): 7:48am On May 17|
Was that why we saw him inside molue yesterday
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Nobody: 7:51am On May 17|
Lol. I can bet that 95% of Nairalanders don't understand this post
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Stycon(m): 7:51am On May 17|
Maybe this restructuring will do same magic the first one did to the share price as well as their bottom line.
Btw, Femi founded Zenon(assumed he has major stake too) and Zenon has 41% stake in forte oil and himself now owns over 11%. Interesting
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by yeyerolling: 7:56am On May 17|
This is the reason trash makes FP cos the average NL na dullard. Only few understand this article hahahah
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Odionwere: 8:15am On May 17|
Your assistance is needed here.
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Bobby95(m): 8:24am On May 17|
Pls if u understand this material pls explain to the class.
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by xerxes456(m): 8:59am On May 17|
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thats the end... today is my Lazy day
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Ugosample(m): 9:07am On May 17|
I thought I was the only one who noticed that
The guy don use scope get controlling stake of the company
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by tdayof(m): 10:15am On May 17|
Stycon:The guy is a genius. I love the idea.
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by annexworld(m): 1:06pm On May 17|
Nice move. No harm in trying.
Get an office space for as low as 1800 in the heart of Abuja.
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by Nobody: 6:02pm On May 17|
Stycon:Heard who owns 58% of zenon oil
|Re: Forte Oil Plc: Decent Q1’18 Numbers, Plans To Divest Subsidiaries by laudate: 2:17pm On May 18|
Wait a minute. The attached diagram shows Zenon Petroleum & Gas as a subsidiary of Forte Oil. Wasn't Zenon wound up at one time or shut down? How come it is still being listed as a subsidiary of Forte Oil? And what happened to Seaforce Shipping, which handles the vessels used for loading petroleum products by Forte Oil? How come it isn't included in their list of subsidiaries? Is it dead?
And why isn't Forte Oil playing in the LPG and CNG supply areas of the gas sector?
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