Mobil Oil Nigeria Plc – Another IOC Exits Downstream

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April 10, 2017/FBNQuest Research

Underperform rating maintained

In Q4 2016, Mobil Oil Nigeria’s (Mobil) results in came in better than expected, boosted by gross margin expansion and improved real estate income which grew 40% y/y to N6.0bn.

This week, NIPCO Investments, owner of NIPCO Plc – a leading Independent marketer, announced the completion of its acquisition of ExxonMobil’s majority stake (60%) in Mobil Oil for N90bn (US$301m).

Going by the transaction note we assume an exchange rate of N300/US$ was applied which works out as an agreed sale price of N417/share, a 40% premium to Mobil’s share price of N300.00 before the announcement.

In the interim, we understand that both entities are to operate independently under the NIPCO group. However, the Mobil business will now be called Double 1 Plc (II Plc).

The new management’s focus would be to expand Mobil’s retail footprint and grow the company’s lubricants business.

Beyond the transaction price, further details of NIPCO’s acquisition were not provided to the market; as such it is difficult to determine what sort of impact the deal could have on Mobil’s operations and financial position.

There is a possibility that some level of leverage was applied. Following the positive earnings surprise in Q4 2016, we have raised our EPS forecasts over the 2017-18E period by 12%. Our new price target of N215.0 is up by a similar magnitude.

From current levels, we see an implied downside potential of -40% and retain our Underperform rating on the stock.

Notwithstanding, we appreciate that a tender offer to minority shareholders at a price similar to the acquisition deal price is a strong possibility, influencing trading patterns over the next few weeks.

Year-to date Mobil shares have appreciated +29%, outperforming the NSE ASI by around 33%. The shares are currently trading on a 2017E P/E multiple of 17.7x for an EPS growth of 8% in 2018E.

Q4 2016 PBT and PAT up significantly, y/y and q/q

In Q4, while sales grew 18% y/y to N22.2bn, PBT and PAT were both up significantly.

The topline growth combined with a gross margin expansion of 226bps y/y to 17% and other income growth of 82% y/y led to the PBT growth of 114% y/y.

 Rental income from investment properties, which was up 42% y/y to N6.0bn following the completion of renovation works on a major investment property, was the primary driver for other income growth.

Overall, Mobil’s strong y/y performance was mainly due to strong white product unit volume sales growth.

Sequentially, while sales grew modestly, PBT and PAT were up 80% q/q and 122% q/q respectively.