CONOIL pays dividend while stock lacks liquidity

Okey Onyenweaku

Investors in Conoil, a legacy oil company (formerly known as AP) acquired by billionaire Mike Adenuga, Chairman of Nigeria’s third largest telecommunications service provider Globacom have expressed delight at the company’s recently approved dividend payment of N3.10 per share for year ended December 31^st 2016. This brings the company’s dividend yield to 7.32 per cent which rides on the back of a 19 per cent rise in the company’s share price since the beginning of the year. According to analysts this should give investors a potential total investment yield of 26.32 per cent or 52 per cent above the rate of domestic inflation (currently 17.24 per cent).

In recent weeks investors have expressed relief that the company has turned a major corner as it skidded past a loss of N944 million in the first quarter (Q1) 2016 to a profit of N174.458m in Q1 2017.Conoil Plc, grew its gross profit by 67.66 per cent in Q1 2017 to N3.318bn from N1.979bn posted in the corresponding period of 2016. Its revenue also rose 28 per cent to N24.47billion compared with the N19.042billion posted in 2016.

At the end of 2016, the petroleum marketer announced an increase in its profit after tax (PAT) by 23 per cent from N2.397bn in 2015 to N2.837bn in the corresponding period of 2016. Industry analysts are keenly interested in the company’s evolution from a loss leader to a profit champion.

The company equally posted gross revenue of N85bn in 2016, up 3 per cent from N82.919bn recorded in the contemporary period of 2015. Cost of sale dipped somewhat from N71.381bn in 2015 to N70.8bn in 2016, bringing gross profit to N14.14bn in 2016 compared to N11.53bn in 2015.

The oil marketer explained it reduced distribution expenses to N2.534bn, from N2.69bn while its operational cost fell significantly from N3.75bn to N1.76bn. In the same vein, earnings per share also increased by 23 per cent from 333kobo in 2015 to 409kobo in 2016.

The company had claimed that a culture of financial discipline, efficiency in execution of projects and plans, aggressive product development and marketing, supported by improved customer service delivery were responsible for the improved performance.

“Amid the challenging economic environment, our team proactively identified potential business risks and suggested quick fix solutions to optimally manage and minimise the risks, which helped in achieving efficiency in the way we do our business,” said Conoil

The Chairman of Conoil Plc, Dr. Mike Adenuga had promised shareholders of better days in the future despite the dismal disposition of the economy.

“We will drive our business to greater heights by re-establishing commanding presence in retail business, lubricants, aviation, liquefied petroleum gas, specialised products and non-fuel retail services ,” Adenuga also said.

A critical observation of the company’s performance margins show that Gross margins improved from 13 per cent to 16 per cent, while net profit margin stood at 3.3 per cent in 2016, compared with 2.8 per cent in 2015.

Returns on equities increased from 12.9 per cent in 2015 to 15.1 per cent in 2016, while shareholders’ fund also increased to N18.47billion from N17.01 billion.

Analysts has given the company’s performance good ratings given its quick recovery from the red region in the first quarter 2017.

‘’The company’s dividend is well received by the market’’, said a Lagos based analysts, Mr. David Adonri who explained, ‘’for any company to pay dividends in this weak economy is welcomed. The dividend is 8% of its share price. Conoil has constantly paid dividend but it does not have liquidity. So, if you buy Conoil shares it is usually difficult to sell. However, it is good for those who invested in it for income’’,

‘’The company has been paying dividend and its shareholders are happy’’, Chairman Progressive Shareholders Association of Nigeria (PSAN), Mr Boniface Okezie said.

Oil and Sector

Oil and gas sector stocks had taken a mauling on the Nigerian stock exchange since the beginning of the year prompting investors to dump them for other hidden value opportunities. Festering recession (the economy has witnessed its fifth straight quarter of negative national income (GDP) growth) had taken its toll on the stock market which is just gradually recovering.

The sector which was down index by 0.2 percent was not seen as a significant drop, has reversed and surged 3.1 per cent year to date. The shares of Conoil which had lost -11 per cent from N37.48 per share on January 3, 2017 to close at N33.25 per share on May 23, 2017 is now looking bullish. Similarly, forte Oil shares had plunged by -43 per cent, MRS Oil declined by 9 per cent and stocks of Total Nigeria Plc had also slid by -13 per cent.

Analysts are of the view that since Nigeria is mainly an oil and gas based economy, the market performance of the sector represents the most accurate indicator of the overall health of the economy. It’s sluggishness therefore, reflects the depth of the malaise affecting the economy. The price of crude which slid to about $46 per barrel a few weeks ago now stood at $47.61 per barrel on Thursday June 29, 2017.

Apart from the apprehension in the market, foreign investors have not fully returned to the market as they still fear that the market may dive into deeper losses.

After performing significantly well in 2010, the Oil & Gas subsector of the capital market took a bad hit. Investigations by Business Hallmark (BH) last week revealed that the worst may not be over for the beleaguered sector. Regretfully, this sector closed last year on a negative note and is not doing any better now. However, it has gained 3.1 per cent in the last since months.

Investors do not seem carried away as they suspect ‘a flash in the pan’ disposition. Some of them are not confident that the price of crude can return to the giddy height it attained in June 2014 at $114 per barrel. Whereas the market is gradually returning to a bullish trend, experts are not sure about its sustainability. The market had closed at the negative position of -6% and investors had migrating to the more viable sectors with higher returns. Perhaps the fixed income securities appear to be the toast for investors currently. Individual stocks of the Oil & Gas companies have also lost significant weight. The economic atmosphere is wearing a hopeful look again but there may not be any magic to the price of crude hitting the roof top in the near future.

Whereas the Nigerian currency ‘the Naira’ is weakening against other currencies of the globe, Broad street analysts blame the economic crunch for the major challenge in the market.

Nevertheless, Mr Abiye Membere, the former Executive Director (Exploration and Production) in NNPC, noted that the focus of the stakeholders’ attention should be on mode of operations in the oil and gas sector.

“The oil and gas industry didn’t start well; basically, what we are doing in the last decade is to correct the anomalies.

“We started the oil and gas industry in Nigeria only looking for oil as if the gas aspect was not important.

“What has been happening in the last 50 years is that there is a major oil infrastructure in place but the gas infrastructure is still lagging behind,’’ he said.

They noted that the sector is also affected by inadequate finance, poor policy implementation, professional knowledge gaps and low capacity building.

Stakeholders have also listed some of the challenges as crude oil theft and pipeline vandalism. They underscored the need for the sector to surmount the challenges and maintain its position as Africa’s leading gas and oil producer.

Industry observers believe the remote determinant of the sector’s fortunes is linked to the performance of crude oil in the international market. They explained that the sector performed its best in 2008 when crude oil price stood at over $147 pbd.

With the oil sector still marching gainfully, even if unsteadily, towards a semblance of profitability, shareholders in companies like Conoil may still squeeze value from the sector despite unending hiccups.

 
^{Source: NSE/Business Hallmark}