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Stockbrokers’ okay Oando’s bid to shore up capital from duo markets

By  Peter Egwuatu
STOCKBROKERS have  endorsed the bid by Oando Plc to raise N200 billion fresh capital from both Nigeria and international market, amidst its improved six months result released on the Nigerian Stock Exchange (NSE) weekend, saying it  is a welcome development that will energise the local market and make it more competitive.

They said that Oando’s listing on the Johannesburg Stock Exchange (JSE) will place it on advantageous position to attract both local and international investors.

“ Besides, the company has gained the confidence of investors in the local market as it judiciously made use of the proceeds from the last offering it executed in 2004, where it raised over N15 billion when it needed N5 billion” brokers added.

The company has been on the forefront of initiating and implementing good corporate governance as  manifested in its annual financial reports where details of its activities were clearly stated.

Oando has been paying divided to shareholders, even as its projects have not been fully completedThey said the level of demand for the shares to be  issued by the company soon would provide an important indication of the degree of interest that has returned to the capital market.

According to stockbrokers, “ Oando has impressed investors with its performance in the 2008 year end. The first quarter and the recently released half year result for 2009 is another reason why investor will embrace the offer. The raising of funds via two markets seems to be the best thing to do since the company is listed in both Nigeria and South Africa stock exchange”

They further noted that the company had used up its resources to diversify its businesses, which is quite commendable . They allayed the  palpable fears  about the prospects of the offer, given the size of the bearish market trend and the global economic crisis.According to them, “ The investors’ confidence is gradually returning, saying a good offer will always sell either at good or bad period. Investors are now more cautious and will invest in companies that have good fundamentals . So, despite the anxiety in the market , we hope Oando’ offer will make a difference because its fundamentals are okay.”However, ince the company is yet to commence the offering, and to announce the unit price, investors are curious to know at what price it will sale. Earlier, during the boom days, companies were believed to engage in practices that would push up their share prices before coming out to fix theirs .

This has  helped most of them to have a better or higher bargain in terms of share price. But that era seems to have passed as the market remains bearish. For this reason, many believe that Oando should be more rational in determining the price of its offering, factoring in the present global financial challenges. Given that its share value presently hovers within N90 and  N95, and considering the loss of confidence in the market, it is hoped that management of the company would come with a better price .This  will make it more attractive in a period of bearishness, liquidity crisis, lack of confidence and more attractive than more reliable investment windows like bonds and money market instruments. If the company choose to do more of bonds, the response according to brokers will be higher owing to its fixed returns that is not often exposed to market vagaries.

Oando’s performance for the year ended December 31, 2008 was quite impressive.  The result however, shows that the company’s turnover grew by 82.59 per cent to N339.4 billion in 2008 from N185.89 billion in 2007. Whereas its profit before tax increased by 57.66 per cent to N10.74 billion from N6.81 billion recorded in the preceding year, profit after tax also leapt by 52.24 per cent to N8.39 billion from N5.48 billion in the review period. Its fixed assets also rose by 122.98 per cent to N89.9 billion from N40.31 billion as short-term borrowing stood at N142.3 million.

Its cash and bank balances also increased to N45.2 billion from N17.20 billion. This results compares favourably with its peers in the industry. Total Nigeria Plc, recorded turnover, and Profit after tax of N177.4 billion and N3.3 billion in 2008. Chevron Nigeria Plc recorded turnover of N48.687 billion and loss after tax of N225.4 million while Mobil Oil Nigeria recorded a decline in Turnover and profit after  tax of N14.719 billion and N360.016 million from N15.686 billion and N626.383 million respectively. Oando’s performance seems impressive going by the indices. It is leading in market capitalization with N101,065 billion. Other Oil marketing companies such as African Petroleum has a market capitalization of N57.329 billion, Conoil N36.175 billion, Mobil N33.054 billion and Chevron N22.876 billion. Brokers believe that its performance is remarkable, and are hugely impressed with its dividend of 600 kobo per share.

It is also not a surprise that its share price trades as high as N91.50 in a bearish period.  Nevertheless, before now its share price had slumped from a peak of N173.63 to close last Friday 21, August, 2009 at N90.00 per share. However, its Price Earnings Ratio (PE Ratio) and Earnings Per Share (EPS) stood at 10.14 and 9.22 respectively.The first quarter and second quarter results have been impressive as it recorded  N77.5 billion in turnover for the first quarter unaudited results ended 31 March, 2009.  This represents a 12 per cent increase from N69.4 billion same period in 2007.Oando’s half year unaudited result ended 30th June ,2009 released on the NSE, weekend shows a turnover of N165,036.0 million, as against N124,415.0 million in the comparable period of 2008. Profit after tax stood at N3,809.0 million compared with N3,673.0 million in 2008.

seems focused and proactive. The team is led by the Group Managing Director, Mr Wale Tinubu.
In an interview with newsmen shortly after its 32ND Annual General Meeting (AGM) held in Uyo, Akwa Ibom State recently, Tinubu says, “Our success lies in our vision, which is very clear. In product marketing we are number 1 in market share, number 1 in profitability and number 1 in service offering. In our gas business, we have said we want to be the leading gas distribution company. Today we have over 80 percent local distribution market shares in the country.”
Its vision is to be the leading integrated energy solutions provider. The team has in fact, catapulted the company to a leading position in the industry in terms of performance indices. “We are the first indigenous producer of crude in deep offshore and I am confident we will be the first to build an ultramodern refinery eventually.  We are also the first locally listed indigenous company to list on the Johannesburg Stock Exchange, “he explained.

Oando has spent huge funds to diversify in the upstream sector, which involves exploration. This has positioned the company to compete more effectively and it is now awaiting returns.  It is currently executing 124-kilometer pipeline construction from Uyo to Calabar and has acquired five rigs, for drilling of crude oil in the upstream subsector of the oil industry .It has also expanded to Ghana, Togo and Sierra Leone. Its plan to raise N200 billion may be effective because of the marginal risk involved in investing in Bonds.  For this reason, investors may swoop on the opportunity and even oversubscribe to the bond like others that have recorded huge over subscriptions. This is because the bond market is a fixed income securities unlike the equity market which has a heightened risk profile now.

For instance, at the re-opening of the 3-year FGN Bond auction with the CBN offering N20 billion, a total of N51.36 billion was subscribed, leading to oversubscription of 156.8 percent. The bond carried a coupon rate of 10.5 percent.

Similarly, at the re-opening of the 5-year FGN Bond auction, the CBN offered N20 billion while a total of N40.42 billion was subscribed, leading to over subscription of 102.1 percent. The Bond also carried a coupon rate of 10.5 percent.

While at the re-opening of the 20-year FGN Bond auction, the CBN offered N20 billion, a total of N46.44 billion was subscribed, leading to over subscription of 132.2 percent. The Bond carried a coupon rate of 12.49 percent.

This may be the attraction of these quoted firms including First Bank of Nigeria Plc, G T Bank Plc, Oando and Aviation Handling Company NAHco Plc  that plan to raise N903 billion through the bonds market.Many think that there is the prospect for Oando to succeed. It can raise funds from the two exchanges that it is listed.


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