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11 PLC FY'19 - Lower margins weaken FY’19 earnings

Turnover climbs 16% y/y
In its recently released unaudited FY’19 results, MOBIL grew its turnover 16% y/y to ₦192 billion, while its after-tax earnings declined 5% y/y to ₦9 billion. Despite the impressive growth in FY’19 turnover, gross profit came in flat at ₦16.6 billion, as gross margin worsened to 9% (FY’18: 10%)— highlighting the lean margins in the downstream space. Meanwhile, rental income from the company’s real estate property dropped 7% y/y to ₦8.0 billion, bringing FY’19 operating profit to ₦13.1 billion (down 1% y/y). That said, operating margin came in lower at 7% (FY’18: 8%). Overall, MOBIL registered an after-tax profit of ₦8.9 billion (down 5% y/y), resulting in a ROAE of 24% (FY’18: 31%). Improved margins support Q4 earnings
In Q4’19, revenue advanced 3% q/q to ₦50.2 billion, in line with our estimate. Although revenue breakdown has not been released by the firm, we presume that the growth in revenue was driven by the lubricants business, as the border closure might have weighed on fuel sales during the quarter.
Furthermore, Q4’19 gross margin moved higher to 10% (Q3’19: 8%), taking gross profit for the quarter to ₦5.2 billion (up 31% q/q). The improvement in gross margin trickled down the income statement, resulting in a 14% q/q increase in operating profit to ₦3.6 billion (Vetiva estimate: ₦3.3 billion)— this was despite a 3% q/q drop in rental income, which contributes 55% of operating profit. Overall, profit before tax came in at ₦3.7 billion (+16% q/q).