Sunday, November 23, 2020, / 11:00 AM / by ProshareResearch/Header Image Credit: Conoil Plc

Conoil Plc recorded a decline in its financial performancein Q3 2020 as the impact of a liquidity squeeze, economic contraction, the risingcost of funds and scarcity of foreign exchange weighed in on its profitability.Conoil Plc recorded a dip in its PBT by -33.47%, declining from N2.45bn in Q3 2019 to N1.63bn in Q3 2020. While its revenue dipped by -21.84%, declining from N112.72bn in Q3 2019 to N88.10bn in Q32020.

Highlights

•  Revenue declined by -21.84% to N88.10bn in Q3 2020.
• PBT declined by -33.47% to N1.63bn in Q3 2020.
• Administrative and distributionexpenses declined by -15.55% and -21.20% in Q3 2020, respectively.
• Equity rose by +10.56% to N20.58bn in Q3 2020.

A Squeeze on Profits

Profit

Conoil Plc recorded a decline in its profit before tax by -33.47% in Q3 2020. Its profit before tax declinedfrom N2.45bn in Q3 2019 to N1.63bn in Q3 2020 (see Chart 1).

Chart 1: Conoil Plc PBT (N'bn)

Source: Conoil Plc,Proshare Research

Revenue

Thedownstream retailer recorded a decline in its revenue by -21.84% in Q3 2020. Its revenue dipped from N112.72bnin Q3 2019 to N88.10bn in Q3 2020 (see Chart 2).

Chart 2: Conoil Plc Revenue (N'm)

Source: Conoil Plc,Proshare Research

Trimming Expense Cost

AdministrativeExpenses and Distribution Expenses

The company sawa slide in both its administrative and distribution expenses in the thirdquarter of 2020. Its administrative and distribution expenses slumped by -15.55% and -21.20% respectively.The company's administrative expenses dropped from N5.1bn in Q3 2019 to N4.30bnin Q3 2020, some of the reasons for the reduction in administrative expensewere the reduction in litigation claims, depreciation of property, plant &equipment, employer's contribution, legal & professional charges, etc. Whileits distribution expenses tumbled from N1.77bn in Q3 2019 to N1.39bn in Q2 2020(seeChart 3).

Chart 3: Conoil AdministrativeExpenses and Distribution Expenses (N'bn)

Source: Conoil Plc,Proshare Research

Keeping the Equity Chest Filled

Equity

Despite thedecline recorded in PBT and revenue, Conoil Plc recorded an improvement in itsequity in Q3 2020, as its equity increased by +10.56%.Its equity rose from N18.61bn in Q3 2019 to N20.58bn in Q3 2020 (see Chart 4).

Chart 4: Conoil Plc ShareholdersFund (N'm)

Source: Conoil Plc,Proshare Research

The Upside to Liquidity

CurrentRatio

Conoil Plc current ratio improved from 1.39 in Q3 2019 to 2.3in Q3 2020. This suggests that the company's current assets could cover N2.3 ofevery N1 current liabilities (see Chart 5).

Chart 5: Conoil Plc Current Ratio

Source: Conoil Plc,Proshare Research

Acid-testRatio

Its acid-testratio equally improved from 0.85 in Q3 2019 to 1.72 in Q3 2020. This impliedthat Conoil's liquid assets after adjusting for inventories could cover N1.72of every N1 of current liabilities (see Chart 6).

Chart 6: Conoil Plc Acid-testRatio

Source: Conoil Plc,Proshare Research

A Cloudy Oil Future

The future of the oil industry inNigeria remains uncertain as the impact of the COVID-19 pandemic has savagedConoil's financial performance. The problem with the oil business in 2020 isnot unique to downstream operators (see illustration 1 below).

Illustration 1 Faces of The Oil Carousel

Furthermore, Nigeria oil companiesstill battle with high operational cost, scarcity of FX, liquidity squeeze, andan unfriendly business climate which has affected operational efficiency acrossoil market segments and created a cloudy outlook for the industry.

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