Investors bet on Oando after return as shares out-perform market in April

Oando Plc. Nigeria’s integrated oil and gas services provider, outperformed the performance indicator of the Nigerian Stock Exchange (NSE) to emerge the best performing stock for the month of April. The stock gained 52.8 percent in the course of the month, as against a 0.57 percent decline recorded by NSE benchmark index, the All-share Index (ASI) in April.

Oando’s shares traded fully for the first time after six months suspension at a price of N5.99 on April 12. The share price advanced by N3.16 to close the month at N9.15 per share.

Deeper investigations by business a.m. into the Wale Tinubu led organization revealed that investors attraction for the main boardlisted company was based on the technical suspension lift, coupled with improved earnings and revenue of the company.

The Securities and Exchange Commission (SEC) suspended Oando’s shares on October 20, 2017 following allegations by some shareholders of insider trading and mismanagement of the company. The SEC also ordered a probe into the firm to be carried out by an independent audit firm, Deloitte.

Oando in a note via the NSE on April 12 told investors that the “lifting of the A decline in the share prices of 67 stocks listed on the Nigerian Stock Exchange (NSE) in the month of April led to a 0.57 percent dip in the performance indicator of the NSE, the All-Share Index (ASI). Mutual Benefits and GlaxosmithKline (GSK) were the stocks that topped the list of the laggards in the review period in terms of share price performance.

The note signed by Ayotola Jagun, the company chief compliance officer and secretary, confirmed the forensic audit into the affairs of the company is currently underway by Deloitte Nigeria and that the company has been fully cooperative with both the SEC and Deloitte till date.

“In the spirit of goodwill, transparency and full disclosure, we will continue to cooperate with the SEC and its nominated parties in the discharge of their duties as the capital market regulator during this exercise. We are hopeful that the forensic audit will have limited impact on the day-to-day operations of the business and we look forward to a swift and smooth conclusion by the SEC.”

The 52.8 percent gained in April was however recorded in the space of one week after the suspension lift. However, the stock traded flat after some days because the price gain got to a point of supply meeting demand, explained Johnson Chukwu, a stock analyst in Lagos.

A review of the group’s earnings showed a 9.2 percent growth in revenue, which increased to N497 billion for the year ended December 2017 compared to N455 billion reported for the year ended December 2016.

The group’s profit after tax (PAT) for the year ended December 2017 was N19.7 billion, up 405 percent when compared to N3.9 billion reCAPITAL MARKET corded a year earlier.

A major boost to the company’s earnings going forward is the recent NNPC $727million Ajaokuta-Abuja Pipeline development project awarded to the company.

The project is a 215km gas infrastructure with associated facilities such as metering/ terminal gas station, pigging station, block valve stations etc. Meanwhile, the firm’s auditors, Ernst and Young (EY), have raised a material uncertainty relating to the going concern of the company in their note on the company’s 2017 financial year report.

The auditors noted: “The company recorded comprehensive losses of N30.6 billion during the year ended 31 December 2017 (2016: comprehensive losses N28.1billion). Quite unclear is the subsidiaries that comprise the Oando Group to make it profitable.

The released financials clearly states that Oando as a company engage in key activities such as exploration and production (E & P) through Oando Energy Resources Inc., Canada, plus supply and distribution of petroleum products through Oando Trading Dubai and Oando Trading Bermuda.

A perusal into the financials shows the company returned no revenue for the 2017 financial year, which reaffirms the losses indicated by the oil firm’s auditors. EY further noted that the company recorded net liabilities of N10.5 billion (2016: net assets N18.1 billion).

As of year-end, the group reported net current liabilities of N293.1billion (2016 net current liabilities N263.8billion), adding that Oando’s management has developed key strategic initiatives, which aim to return the company (and group) to profitability, improve working capital and cash flows.

One of the key initiatives is the restructuring the reserve based loan and corporate loan facilities at Oando Energy Resources to ensure (a) the loans are default free and fully compliant with credit agreements, (b) achieve a tenor extension of up to two years, and (c) reduce debt service requirements in the near term. The net effect of the initiative will be to reclassify up to N117 billions of current liabilities into long-term liabilities thus creating a substantial remedy to the negative working capital position.

Implementation of this initiative started in 2016 and will be completed between April 2018 and June 2018. The company also plans to refinance an approximate N9 billion credit facility provided by one of the bilateral lenders; sell its shares in Oando Energy Resources to raise up to N84 billion in 2018 in order to prepay debt across the group; sell 25 percent stake in Glover BV to raise up to N24 billion over the next 18 months, proceeds of which will be applied towards principal repayment of debts across the Group; and recapitalisation through private placement to raise up to N18 billion by December 2020.

Although the initiatives discussed are expected to improve the profitability of the group through interest savings arising from repayment of borrowings, these conditions indicate the existence of material uncertainty, which may cast significant doubt on the company’s ability to continue as a going concern and, therefore, the company may be unable to realise its assets and discharge its liabilities in the normal course of business.” EY stated.

Oando recently released its first-quarter results, which towed similar line to the 2017 full year results. PAT increased 634 percent to N4.2 billion from N571 million recorded a year earlier while revenue recorded an 8 percent increase to N150.5 billion. A much welcome idea will be the release of post forensic audit report (by Deloitte) on the dealings of Oando, which should give clarity into the affairs of the firm and propel the direction for future investment actions by investors in Nigeria and South Africa.

By Adesola Afolabi