Oando: How far can resilience, innovation and growth go?

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Oando

Ibikunle olorunyomi

Lately, the Nigerian stock market has been going through some roller-coaster and we can infer, as reflected in the market indices that most investors are treading with caution, waiting for a decisive market direction. Some major technical indicators buttress this claim as they revealed that the money flow into the market is slowing down. Like we said last week, such occurrences are not alien to our market as this is just a phase and a fairly routine market vacillation caused by sentiments, bias and expectations.

Going forward, investors should smartly position themselves in fundamentally sound a stock that has potentials to bounce back, and scale the test of ‘waters and fire’. Prices of some equity are currently low, relative to prices they’ve traded in the past. Imagine stocks like Guarantee Trust Bank surpassing the highs of the 2008 market boom of N22.39, touching a new high of N42 as at July 2017. Just few days ago, I called attention to the Stanbic Ibtc shares that was bought at just N12 around 2009, the equity price hit N40 this year August. Some stocks are yet to recover and some would definitely do.

OANDO:

Oando, unarguably is one stock on the floor of the Nigerian stock exchange that is much dreaded by investors because of their past experiences and encounters with the petroleum marketing company’s shares. The oil and gas giant had recorded a successive bottom-line distress in a couple of years, reporting huge loss for some quarters and very lean success in some. In all, Oando has proven its resilience by reporting a fantastic comeback performance in its second quarters result.

History:

From available record, Oando’s earliest roots can be traced to the formation of Esso Africa in 1956. Esso Africa was a petroleum marketing company, a subsidiary of the Exxon Corporation of USA. In 1976, the Nigerian government purchased a controlling stake in the company and rebranded the company as Unipetrol Nigeria. On 1 March 1991, Unipetrol became a Public Limited company. Later on in the same year, the Nigerian government sold 60% equity to the Nigerian public in an Initial Public Offering. By February 1992, Unipetrol was listed on the Nigerian Stock Exchange.

In 1990 Benedict Peters became the co-founder of Ocean and Oil Limited, known today as Oando

In 1999, Unipetrol acquired a 40% stake in Gaslink Nigeria Limited, a gas utility company. The acquisition was motivated by a desire to utilize its exclusive gas sale and purchase agreement with the Nigerian gas company. In 2001, the company increased its stake to 51 per cent. So far, Gaslink has developed 250 km of gas pipeline infrastructure.

In 2000, Ocean and Oil, a private investment company led by Nigerian entrepreneurs Adewale Tinubu and Omamofe Boyo acquired a 30% controlling interest in Unipetrol Plc. In 2001, Ocean and Oil increased its stake in Unipetrol to 42% via an irredeemable convertible loan stock issue.

In 2002, Ocean and Oil led Unipetrol’s bid for a 60% stake of Agip Nigeria Plc, a rival petroleum marketing firm, owned by Agip Petroli BV, an Italian-based oil company. The merged company was named Oando PLC in 2003, making the company the largest downstream petroleum marketing company in Nigeria.

In 2005, Oando Energy Services was incorporated as an integrated Oilfield Services company to achieve the group’s objectives in the upstream services industry.

In 2007, Oando Energy services acquired two oil drilling rigs in Nigeria’s Niger Delta. In 2008, the company emerged Nigeria’s first indigenous oil company with interests in producing deep water assets through the acquisition of equity in two oil blocks. By 2009, the company had acquired 5 swamp rigs and in 2010, the company launched its first Independent Power Plant for the Lagos Water Corporation. The project involved the construction of a 12.5MW power plant to provide uninterrupted power supply to the Lagos Water Corporation.

In 2011, Oando Gas and Power commissioned 128 km EHGC Pipeline, the pipeline was built under a joint venture arrangement with the Nigerian Gas Company (NGC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC)]. The gas infrastructure has the capacity to deliver up to 100 million standard cubic feet per day (mmscf/d) of natural gas and will deliver an initial 22mmscf/d of gas to its maiden customer, United Cement Company (UNICEM), to fuel its new 2.5million metric tonnes per annum cement plant, located in Mfamosing, Akampka Local Government Area of Cross River State.

In 2012, Oando Exploration and Production Limited (“OEPL”) signed a farm-in agreement with Network Exploration & Production Nigeria Limited (“NEPN”) for the acquisition of 40% participating interest in the Qua Iboe field (OML 13) subject to the consent of the Minister of Petroleum.

In 2013, Oando Plc succeeded in raising over N55.2 billion from the capital markets as its Rights Issue recorded 101 per cent subscription. The company issued 4.548 billion shares to existing shareholders at N12 per share between December 2012 and February 2013 with the intention of raising N54.6 billion. Oando Gas and Power commissioned 10.4 MW Alausa Independent Power Plant to provide electricity to the Lagos State Secretariat Complex. Following the decommissioning of OES Professionalism in 2013, OES currently has a fleet of 4 rigs; OES Teamwork, OES Respect, OES Integrity and OES Passion.

In 2014, Oando divested the 128 km Eastern Horizon Gas Company (EHGC) franchise in a $250 Million transaction with Seven Energy.

In 2014, Oando Energy Resources (“OER”) listed on the TSX an affiliate company of Oando PLC entered into agreements with ConocoPhillips (“COP”) to acquire its entire business interests in Nigeria for a total cash consideration of ~ $1.5 Billion.

In June 2015, Oando entered into an agreement with HV Investments II B.V., (“HVI”), a joint venture owned by a fund advised by Helios Investment Partners (“Helios”) and The Vitol Group (“Vitol”), for a cash investment of US$461 million in Oando’s downstream business.

In 2016, Oando PLC completes strategic US$115.8 million gas and power agreement with Helios. Oando PLC.

What a trajectory of massive deals, farm-in, farm-out, alliances and complex transnational structure requiring deep diligence to understand, scrutinize and judge.

Overview

The indigenous mega energy brand operates in the upstream, midstream and downstream, with a primary listing on the Nigerian Stock Exchange and Johannesburg Stock Exchange.

The 2014, ConocoPhillips’ Nigerian business acquisition boosted investors optimism and positive sentiments as Oando Energy Resources, became the country’s largest indigenous oil and gas producer. But alas, the equity price fell to an epic low of N2.97 in February 2016, haven traded as high as N38 in June 2014.

Oando Q1 2017 performance reflected a return to normalcy and growth, weathering all the prevailing economic challenges and instability. Ravaged by an alarming debt profile, Oando remained focused and committed to boosting its shareholder’s value even through the turbulent times, as it has significantly reduced its debt profile by 29% to N225.9billion as at March 2017, against N316.6billion in March 2016, following a successful restructuring.
It was also reported in June 2017 that Oando Plc concluded a debt-to-equity conversion, with the listing of about 396.8 million ordinary shares on the floor of the Nigerian Stock Exchange (NSE). The transaction was valued at N3.17 billion at the closing value of the integrated energy group.

Financials

Oando Plc reported N4.5billion as profit after tax for second quarter 2017 compared to N26.9 billion loss reported same quarter of 2016, which represents 117% QnQ growth in the corresponding period.

The company second quarter turnover hits N266.9billion from 116.2 billion it ended the previous year.

Its total assets at the end of the period was N1trillion against the N991.5billion of the year 2016, while total liabilities stood at N830.4billion against N799.2billion in the corresponding period of 2017.

The oil and gas giant grew its shareholders’ earnings per share by 117%, recovering from a N2.26k loss per share to arrive at 37kobo per share as at the end of June 30th 2017.

The PE Ratio stood at 21.08x.

Oando 30 Jun. 2017 30 Jun. 2016 YoY
N’000 N’000     Change
Turnover 266,977,663 116,236,571 129.68
Profit/(loss) after Tax 4,561,629 -26,991,210 -116.90
EPS(N) 0.37 -2.26 -116.37
PE Ratio 21.08
Total Assets N1trillion N991.5billion
Total Liability N830.4billion N799.2billion

 

 

Outlook

Someone once said that most Investors fail not because the stock market has delivered bad returns, but because they get scared at the wrong times and get excited at the wrong times.

We have seen the good, bad and the ugly of Oando, even at this current price level, but the fact still remains that, hoping that Oando would yet see a good time of 2014 not as a tall order, as always, the issue will be the timing. Oando is liquid enough for short-term trade, but I believe more that the current price to earning ratio at 21.08x might equate the equity price on the long run.

Going forward, we expect an improved Q3 performance, hoping for a more stable economy and operating environment.

At it’s 40th Annual General Meeting held at the Ibom Hall in Uyo, Akwa Ibom State, the managing director of the oil giant, Wale Tinubu assured the shareholders of the managements commitment to protect the interest of all Oando shareholders and continue with it’s aggressive debt reduction programme.

His words are as well assuring and comforting: “As your management team we assure you that our main focus will continue to be geared towards sustaining your Company’s profitability and ensuring adequate return for you our esteemed shareholders. Our story has always been one of resilience, innovation and growth. I assure you that we are fully committed to positioning your Company to achieving sustained growth moving forward.”

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