MRS Oil: High Q3 growth may thin down at full year

MRS Oil posted one of the strongest profit advances among listed companies in the third quarter but the high growth is expected to thin down at full year. On year-on-year basis, the company lifted after tax profit by almost 529% at the end of September but a windfall in other income in the final quarter of the preceding year isn’t going to let that growth rate run to full year. While the big profit leap in the third quarter is against the preceding year’s figure of under N92 million, the company closed 2013 operations with a net profit of N634 million.

The final quarter windfall isn’t expected to be repeated in the 2014 operations and the uneven growth rate in profit in the preceding year can be expected to lead to only a moderate improvement in 2014. A slow but stable growth in sales revenue is expected to be maintained for the third year in 2014 and a little gain in profit margin is likely as well.

At best, the company will make a further headway in returning to its previous profit highs but this isn’t going to be a big step forward. It isn’t expected to be even half way close to its peak profit of N1.85 billion in 2010. Weakness in converting revenue into profit is the problem. Its net profit margin of 0.83% at the end of the third quarter is well down from the peak of 2.5% in 2010. It is however slightly better than the 0.72% with which the company closed its 2013 operations. This is the lowest profit margin among petroleum marketers.

Mr. Paul Bissohong, the company’s managing director/chief executive officer, appears limited by slow growth in sales and tight margins in driving the company’s recovery process. He doesn’t seem to have much cost cutting space, which leaves him with the only option of jerking up sales revenue. That is what he has been struggling to do since 2012 but the challenge is that sales revenue isn’t growing strong enough to provide the momentum needed to speed up a recovery journey that is still far ahead.

Sales revenue slipped by 0.7% to N69.24 billion year-on-year at the end of the third quarter. Based on the third quarter growth rate, turnover is estimated at N93.6 billion for MRS Oil in 2014. This will be an increase of 6.6% over the turnover figure of N87.74 billion the company reported in 2013. It will be a slow but stable growth for the third year running though growth is expected to keep decelerating from 11.5% in 2012 and 10.1% in 2013. Slow growth in sales revenue is the general trend in the petroleum marketing group.

MRS Oil grew after tax profit by 528.8% to N577 million year-on-year at the end of the third quarter. Its full year position is estimated at N790 million, which will be an increase of 25.4% over the full year profit of N630 million the company posted in 2013. Profit growth may be stronger than estimated should the final quarter surge in other income in the preceding year be repeated in 2014.

The company lifted profit margin on year-on-year basis from 0.13% to 0.83% over the review period. It is however the lowest on profit margin within the petroleum marketing sector, which is led by Mobil Oil at 9.9%, followed by Forte Oil with 3.9% and Oando 3.2% at the end of the third quarter. Total Nigeria closed third quarter operations with a net profit margin of 1.5% and Conoil showed a net profit margin of 1.4% during the same period.

There were slight moderations in cost of sales and distribution/administrative expenses during the review period. This was reinforced by a rise of 98.4% in other income to N1.08 billion. Against a drop of 10.6% in net finance costs at the end of the second quarter, interest expenses increased by 7.1% in the third. An upsurge of 1687.7% in tax provision also affected the bottom line.

The company earned N2.27 per share at the end of the third quarter, up from 36 kobo in 2013. Earnings per share of N3.13 is expected from MRS Oil at full year against N2.48 in the 2013 full year. It paid a cash dividend of N74.96 kobo per share for 2013 operations.

Major developments in the balance sheet from the end of 2013 position include a drop of 88.8% in cash and bank balances to N1.46 billion, a drop of 60.3% in short-term borrowings to N6.28 billion and a drop of 41.5% in inventories to N4.51 billion.