EUR 56.22 For Business Accounts Only

MOBIL OIL NIGERIA PLC 9M'16 - Subdued Q3 but still up for record FY

• MOBIL reported subdued earnings in the traditionally weak Q3. Despite a sizeable jump in retail prices following the liberalization of the PMS market, Q3 revenue came in below previous quarters (including a price-regulated Q1) suggesting to us that volumes must have been very weak during the quarter. Q3 revenue of ₦21.6 billion missed our ₦23.4 billion estimate. Beyond the traditional weakness in Q3 (due to rains), we believe that the tight currency situation may have capped MOBIL’s volumes. We recall that in Q1, management said it engaged in some PMS imports (after a long lay off) which supported revenue growth in H1. However, we think management could have scaled back importation due to the overall tight currency situation and despite the fact that Majors get priority allocations from related upstream companies. Nonetheless, 9M’16 revenue still came in at a record ₦71.9 billion, up 59% y/y due to strong prior quarters. We have thus adjusted our FY’16 revenue estimate to ₦96 billion (Previous: ₦109 billion), taking into cognizance the possible impact of a weak naira on import costs.
• Whilst we expect traditionally strong Q4 to show some improvement over Q3, we are cautious over any material margin improvement given the yet to improve currency situation. As a result, we cut our FY’16 gross margin estimate from 18% to 17%. With 9 months OPEX tracking in line with our estimate, our FY’16 assumptions for that line item remains intact. Following from these and a downward revision to our revenue line, we cut our FY’16 EPS to ₦22.01 (Previous: ₦25.50). Our FY’16 DPS estimate now stands at ₦15.00 (Previous: ₦17.85), an 8% yield on current market price. Despite our downward revision to earnings, MOBIL will still report record profits for FY’16. However, with 23% rally since the liberalization of the market in May and limited upside to our target price of ₦206.30 (Previous: ₦214.82), we downgrade MOBIL shares to HOLD (Previous: BUY).