FREE

ARDOVA PLC Q1'21 Earnings - Supply problems impede fuel operations in Q1

Ardova Plc recently released its Q1 results, revealing a 20% y/y fall in revenue to ₦41.6 billion (Vetiva: ₦54.5 billion), which was largely a reflection of a 23% y/y decline in fuel revenue. However, a 2ppt y/y improvement in gross margin as well as better cost management drove after-tax profit 71% higher y/y to ₦850 million (Vetiva: ₦514 million). Following Ardova’s Q1 performance, we revise our expectations for the company and project a 5% growth in revenue to ₦190.9 billion, while we expect to see a 50% rise in net profit to ₦3.1 billion. We value Ardova at ₦24.52 and maintain our BUY rating on the counter. We however note that our revised model does not reflect the intent to acquire Enyo Retail and Supply Limited, as the target company’s financial data is not yet available to the public.                                                                                  

In the coming quarters, we see sales volumes from fuel operations gaining back lost grounds. This view is largely informed by the presence of more clarity on PMS pricing, as the Nigerian National Petroleum Corporation (NNPC) has publicly announced its intent to keep the retail pump price of PMS stable at ₦165/litre in the interim. On this note, we project a 4% rise in fuel revenue to at ₦171.5 billion in 2021. For the lubricants business, we see sales increasing to ₦19.4 billion (up 14%), as improving business activities are expected to support sales volumes through the year. With a 7% expectation for gross margin and an anticipated 3% decrease in operating costs, we expect Ardova to turn in a net profit of ₦3.1 billion (up 50% y/y).