Mobil Oil rebuilding earnings as foreign shareholders pull out

Mobil Oil Nigeria is rebuilding earnings in the 2016 financial year and the oil marketing company looks good to establish new peaks in both revenue and profit at the end of the year. The company had ended last year’s operations with the lowest revenue figure in four years and a drop of almost 24% in after tax profit. A renewed growth in sales revenue and an improvement in profit margin have reinforced profit performance for the company at the end of the third quarter. It had already exceeded the 2015 full year turnover and profit figures at the end of September.

The year of an upturn seems to have presented a good opportunity for the US-based ExxonMobil Oil Corporation, the majority shareholders of the company to pull out of the Nigerian operation. ExxonMobil Oil Corporation is in the process of selling its entire 60% equity holding in Mobil Oil Nigeria to Nipco Investment Ltd.

The company, which is engaged in the marketing of petroleum products, has faced a difficult market in the past five years. Sales revenue has been stagnant in recent years, dropping back to the 2011 region at the end of 2015. Profit performance has followed a rise and fall pattern in the face of inability to grow sales revenue.

The jerk up in petroleum products’ prices has boosted revenue growth so far this year. Turnover amounted to N71.87 billion at the end of the third quarter, a growth of 58.6% year-on-year. That was already above the sales revenue figure of N64.22 billion the company reported at the end of 2015. Full year projection indicates sales revenue in the region of N97 billion for Mobil Oil Nigeria in 2016. That will be an increase of 51% over the 2015 figure and a new peak in sales revenue, beating the N80.80 billion mark in 2012.

Cost of sales rose slightly ahead of revenue at 61.5%, which reduced gross profit margin from 18.1% to 16.6% during the review period. Significant moderation of other costs however reinforced profit performance. These include selling and distribution expenses and administrative cost – which moderated considerably relative to sales revenue. The favourable cost behaviour permitted a growth of 57.7% in operating profit to N8.37 billion at the end of the third quarter.

Other favourable development are an increase of 17.7% in other income to N3.94 billion, a 242% advance in finance income to N188 million and a drop of finance cost to zero. The company has paid off its only balance sheet borrowing of N413 million.

The developments enabled the company to achieve an outstanding growth of over 56% in after tax profit to N5.74 billion at the end of the third quarter. The full year profit position is projected at N7.93 billion for Mobil Oil Nigeria in 2016. That will be a leap of 63% from the profit figure of N4.87 billion the company reported at the end of 2015.

The company’s profit had fallen from the peak of N6.39 billion in 2015. A new profit high is therefore expected from Mobil Oil Nigeria at the end of the 2016 financial year. There is an improvement in net profit margin from 7.6% at the end of last to 8% at the end of September. Profit margin is however virtually unchanged on year-on-year basis.

Mobil Oil Nigeria shows a robust cash flow position at the end of the third quarter with net cash of N5.70 billion generated from operating activities against N3.37 billion in the same period last year. Net cash used in investing activities dropped from N3.68 billion to N1.36 billion during the same period. It closed the third quarter with a net cash increase of N1.32 billion against a net cash decrease of N342 million in the same period last year.

The company earned N15.93 per share at the end of the third quarter, up from N10.12 in the same period last year. Earnings per share is projected at N22 for Mobil Oil Nigeria at full year. It earned N13.51 per share in 2015 and paid a cash dividend of N7.20 per share to shareholders.