THE repositioning ofoil marketing operations by some going concerns may have started to yield results despite the harsh economic realities, as a leading indigenous petroleum marketing company, Conoil Plc, has grown its turnover for the third quarter of the year by 85.6 per cent.The rise in the sales volume is a pointer that all the growth strategies put in place after the company's last Annual General Meeting are beginning to add value and increase in its operation, even as investors are bound to reap increased dividend in the next financial year.The oil marketing company had earlier posted a remarkable result in the first quarter of 2011, where profit before tax rose by 714 per cent to N1.7billion, over the N214.3million recorded in the corresponding period last year. Also, Profit After Tax witnessed a similar trend with a sharp rise from N145.7 million in 2010 to N1.2 billion in the quarter, while the turnover jumped by 77 per cent to N37.3 billion in 2011 from N21.1 billion in 2010.Conoil, which engages in the marketing of refined petroleum products, manufacturing and marketing of lubricants, household and industrial chemicals, recently completed the expansion of its depot in Port Harcourt. The facility is expected to increase storage capacity by 50million litres and will enable it meet the needs of its customers in the South-South, South-East and Northern part of the country more efficiently. The company is also expanding its retail outlets from 250 stations to 550 stations by year 2014.A peep into the company's unaudited third quarter result for 2011 in the period ended September 30, 2011 showed that its turnover improved by 85.59 per cent to N120.33billion, compared with N64.84billion in the corresponding period of 2010. This performance has been variously attributed to the increased storage capacity in southern part of the country.Further review showed that for the period under review, the company's Profit Before Tax (PBT) increased by 78.39 per cent to N4.55billion in 2011 from N2.55billion in the corresponding period of 2010. The tax provision also increased by 78.39 per cent from N816.18billion in 2010 to N1.456billion in 2011, while Profit After Tax increased to N3.09billion in 2011 from N1.73million in 2010, representing an increase of 78.39 per cent.Notwithstanding, the company's profit margin decreased marginally in the period under consideration. An investment and analyst company, Apel Trust Limited, has said that the increase in turnover has fully compensated for the decline.'The PBT margin decreased to 3.78 per cent in third quarter, 2011 from 3.94 per cent in the same corresponding year of 2010. This shows that the company's total costs as a percentage of TO stand at 96.22 per cent, higher than 96.06 per cent recorded in the corresponding period of 2010. PAT margin currently stands at 2.57 per cent, down from 2.68 per cent in the corresponding period of 2010.Commenting on the company's financials, specifically on the deregulation impact, Apel Trust Limited said that till date, the prices of PMS and HHK which accounted for 74 per cent and 5 per cent of product consumption respectively in 2010 remained fully regulated.It noted that the Federal Government expenditure on petroleum product subsidies in 2010 was equal to 70 per cent of the capital budget for 2011. 'Clearly, with ongoing move toward fiscal consolidation, subsidies represent a significant burden on the government. To this end, the government recently hinted at likely deregulation in 2012 as a means to address the structural deficiencies which have plagued the industry, though planned industrial actions by labour unions, which are not fully on board with the deregulation, remain a major hurdle. Post-deregulation, we expect a further consolidation across the sector which will allow major marketers to optimise scale and operational efficiency.'In our opinion, we believe that Conoil, having invested in logistics optimisation and network expansion, is best placed to benefit from deregulation.Conoil is undervalued based on expected cash flows. The company's fair value of N45.70 is well above current market price of N35.00, which appears to be ignoring improving cash flows associated with expansion in the company's capacity, improved operational efficiency and improved earnings potential.Using Discounted Free Cash Flow Method, the company's share fair value will be N45.70 per share.The analyst said that with the buying of the stock at the current market price of N35.00 and holding it to the fair value of N45.70, coupled with the present value of the 5-year forecast dividends, investors will earn a total return of 30.57 per cent.
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