EUR 3.26 For Business Accounts Only

MRS Nigeria Plc: Core earnings yield to materially lower income

• MRS Nigeria Plc (MRS) full-year result showed a 6% YoY increase in earnings with EPS printing at N5.45 (2016: N5.77). The positive earnings, when compared to other downstream players who reported lower earnings YoY, was solely driven by a surprise tax credit of ~N2.4 billion which masked the loss before tax position of N997 million. The board of directors proposed a bonus shares issuance in the ratio of 1 for every 5 shares held by shareholders, which implies newly issued share of 51 million to bring shares outstanding (SHO) to 305 million units.
• Going into 2018, we are of the view that performance will be largely like 2017 as supply challenges remain evident and continue to impact on volumes and margins. Furthermore, we think other income will remain depressed, albeit slightly higher than 2017 levels. On the positive, an improved debt position, given N18 billion short term debt repayment and fuel sourcing from NNPC guides to lower payables, which will provide some support. Elsewhere, given our view on stable currency, we rule out the possibility of further FX loss on its payables. Overall, the impact of a material decline in other income and finance income, as well as margin pressure, will drive a loss before tax position of N191 million in 2018. However, a possible recovery of N16 billion receivables from PPPRA may salvage earnings in 2018.
• Farther out, beyond 2018, we expect the company to return to profitability, as improved supply picture and benign cost pressure is expected to drive earnings, wherein we forecast a 50% CAGR in earnings over 2019F – 2022F. Net Impact of our adjustment informs a FVE of N35.81 – a 26% upside from last closing price. MRS trades at a P/E of 5.2x compared to its industry peers of 9.79x