Forte Oil Plc on Friday reported an outstanding growth in profit and total assets at the third quarter (Q3) unaudited result and accounts for the period ended September 30, 2017 despite struggling revenue.
The indigenous oil company experienced major drop in cost of sales and prudent management of operating expenses that leverage on increased profit after tax.
Meanwhile, the company should be commended being the first listed company to have submitted third quarter results, re-affirming its position as one of the strongest companies to the adhere to Nigerian Stock Exchange (NSE) corporate governance.
Remarkable, the company’s struggle to improve on its revenue despite stability in Premium Motor Spirit price, others as federal government strives to stabilize the oil and gas sector.
For the period under review, Forte Oil’s revenue dropped by 19.98 per cent to N96.89 billion from N121.08 billion as sales in PMS dropped significantly by 41 per cent to N60.8 billion in Q3 2017 from N103.5 billion in Q3 2016.
However, Forte Oil’s sales in Production chemicals rose by 4.5 per cent to N1.5 billion from N1.46 billion while, Lubricants and greases increased by 10.9 per cent to N9.09 billion as against N8.2 billion recorded in Q3 2016.
Also, revenue generated from Power generation hits N25.5billion, an increase of 220.9 per cent from N7.9 billion recorded in Q3 2016.
The company’s profit after tax thus gained 81 per cent to N5.07 billion in Q3 2017 from N2.7 billion in Q3 2016 while profit before tax dropped by 0.8 per cent to N5.59 billion in Q3 2017 from N5.6 billion in Q3 2016.
During the period under review, the Forte Oil received N400 million dividend from Forte Upstream Services Limited, one of its subsidiaries. Amperion Power Distribution Limited also received N2.27 billion from its subsidiary Geregu Power Plc.
The Group’s basic earnings per share of N0.50 kobo in Q3 2017 from N2.27 kobo in Q3 2016 based on the profit attributable to ordinary shareholders of N337 million.
In September this year, the board of directors of Forte Oil has decided to suspend the energy group’s bid to raise new equity funds. Forte Oil had earlier secured regulatory approval to float a supplementary capital raising through a book building.
Company Secretary, Forte Oil, Akin Olagbende, in a statement released at the NSE, stated that the board had taken a strategic decision to put the offering on hold pending the conclusion of an ongoing corporate restructuring.
According to him, the company is currently exploring opportunities to maximize emerging opportunities in the Nigerian energy sector, which will be to the ultimate benefit of all stakeholders.
Forte Oil had started the book building for its N20 billion offer for subscription with main consideration for qualified institutional investors and high net worth individual investors.
The company had planned to raise N20 billion in new equity funds under its new capital raising, after it successfully raised N9 billion in debt issue.
The indigenous energy company has approval to raise up to N71 billion under a N100 billion capital raising programme approved by the shareholders of the company.
Increase in cost of sales, finance charges trim profitability
Forte Oil for the Q3 unaudited financial statement recorded weak revenue but effectively managed its cost of sales and finance charges that cut down its profit before tax.
Cost of sales dropped by 24.3 per cent to N79.98 billion in Q3 2017 as against N105.6 billion in Q3 2016, primarily driven by 41 per cent drop in fuels cost of sales to N54.66 billion in Q3 2017 from N93.2 billion in Q3 2016.
The drop in cost of sales impacted positively on gross earnings that gained 9.1 per cent to N16.9 billion compared with N15.49 billion in prior third quarter of 2016.
However, total operating expenses dropped by 17.5 per cent to N8.2 billion as against N9.9 billion recorded in Q3 2016. Effective management in total operating expenses thrust operating income by 23.3 per cent to N9.7 billion in Q3 2017 from N7.87 billion in Q3 2016.
Finance income rose by 18.3 per cent to N1.5 billion from N1.28 billion while finance cost gained 60 per cent from N3.5 billion to N5.6 billion in Q3 2017.
The significant increase in finance cost forced the company’s net finance income growth of about 84.5per cent from N2.23 billion in Q3 2016 to N4.1 billion in Q3 2017.
The underlying fundamental of the company remained strong, unlike prior third quarter performance.
Gross profit margin moved from 12.8 per cent to 17.5per cent while profit margin moved from 4.7per cent to 5.8 per cent in Q3 2017.
Return on asset thus dropped from 4.1 per cent to 3.8 per cent while return on equity stood 11.1 per cent in Q3 2017 as against 6.5 per cent in Q3 2016.
Cost of sales/ Revenue increased from 87.2 per cent in Q3 2016 to 82.5 per cent in Q3 2016.
Trade and other receivable aids total assets growth
The company’s balance sheet has grown significantly over the years as the company continued to invest in power, downstream sector, among others.
Trade and other receivables continued to grow, contributing 43.9 per cent (N65 billion) to the total assets of the company.
The company’s total assets improved by 6.9 per cent to N148.2 billion as at September 30, 2017 compared to N138.56 billion recorded in 2016.
Key contributors to total assets include short-term assets that gained 15.3 per cent from N69.26 billion to N79.8 billion while long-term assets closed the period at N68 billion from N69.2 billion recorded in 2016 financial year.
Remarkably, the total equity rose by 5.6 per cent to N45.7 billion in Q3 2017 as against N43.3 billion in 2016..
Total liabilities up by 5.1 per cent to N102.4 billion in Q3 2017 compared to N97.4 billion last year.
Long-term liabilities dropped by 6.7per cent from N28 billion to N26 billion while current liabilities gained 9.9 per cent from N69.4billion to N76.28 billion as at September 30, 2017.
Operating business environment last year was challenging, characterized by heightened business risk. The company has recorded decline in profit before tax due to increased finance expenses on interest..
Meristem Securities Ltd has upgraded the recommendation to investors on Forte Oil Plc to buy from hold.
Meristem Securities raised the target price to N77.41 from N64.09, implying a 68 per cent increase from the last close. The target matches the consensus average of N77.41.
According report, Meristem Securities had before now advised investors in the equities market to hold shares of Forte Oil.
In the past three years and four months, Meristem Securities has rated Forte Oil hold once, buy once and sell once.
Analysts raised their consensus one-year target price for the stock by 4.8 percent in the past three months. Forecasts range from N61.44 to N202.87.
Foremost ratings and research agencies, Agusto & Co. and Global Credit Rating Co. (GCR), had recently affirmed Forte Oil Plc investment grade rating.
Both agencies stated that the long term outlook for the oil and gas company remained stable.
The credit ratings were accorded to Forte Oil based on the company’s top-tier position in the Nigerian downstream sector, underpinned by a strong and visible brand, significant assets across the energy value chain, and strong relationships with suppliers, strong corporate governance framework, and an experienced and stable management team.