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Analysts attribute Oando’s growth to management commitment

By Peter Egwuatu
The impressive performance of Oando Plc in recent time has been attributed to the diversified operational strategy adopted by its management.

Vetiva Capital Management Limited and some stock brokers that commented on Oando’s first quarter result recently released on the Nigerian Stock Exchange (NSE) said that the first quarter performance was as a result of the increasing contributions from the diversified platform

According to Vetiva , “Oando’s 2010 first quarter results came in quite strongly. The 17 per cent increase in topline was driven by factors which include: the commencement of revenue generation from the Akute Power Plant commissioned for the Lagos State Water Corporation in 2009; one of the company’s rigs which had not been put to use in the first quarter of last year, but was deployed in 2009, reported earnings through the first quarter of 2010; the Company’s exploration and production division also booked relatively higher earnings on the back of increased oil production from OML 125, and the commencement of production in OML 56.”

Vetiva stressed that the company surpassed it first quarter 2010 earnings, Profit Before Tax (PBT) expectation of N3.078 billion by 65%.

“We highlight that early this year, the company received delayed interest on monies from the Federal Government, interest which had been owed for several months under the Petroleum Subsidy Fund import arrangement in 2009. We believe that this payment accounts for the significant increase in first quarter earnings, which came in far above consensus expectations and substantially improved the company’s PBT line.”
“Our views above are also supported by the fact that while the company’s turnover of N91.3 billion is well in line with our forecast of N90.6 billion, profitability margins for the first quarter results (PBT: 5.6 per cent; PAT: 3.4 per cent) topped historical average margin figures of approximayely. 2.3 per cent and 1.8 per cent for PBT and Profit After Tax ( PAT) respectively.

Similarly, relative to first quarter 2009 PBT and PAT Margins of 3.1% and 2.3% respectively, Oando’s first quarter 2010 profitability margins are also higher. Though we partly attribute the margin improvement to the interest monies received (as highlighted above), we also note that Oando recorded some improvements in cost efficiencies during the period, which led to a 44% reduction in administrative expenses, and also helped improve profit margins.

However, expenses were adversely impacted by finance costs which increased during the period, as a result of interest costs on the purchase of rigs and IPP (power plant) assets which had previously been capitalized but are now charged to the income statement, due to the generation of income from the assets in the period under review.”
Vetiva noted that Oando’s depreciation expenses also increased over the period, as this was charged on the oil rigs and Independent Power Plant ( IPP) assets deployed during the quarter.

It t would be recalled that on the 11th of May 2010, Oando’s 301,694,876 shares from the recently concluded Rights Issue were listed on the NSE bringing the total outstanding number of shares for Oando Plc to 1,206,779,504. Oando’s Trailing EPS now stands at N9.46, based on its post-rights number of shares.

Specifically, Oando’s recently announced a pre tax profit of N5.1billion for the first quarter financial results ended March 31, 2010.

The company also posted a N3.1 billion Profit After Tax (PAT)during the quarter, representing a 73% increase relative to the same period of 2009, Pre-tax profit grew 109 per cent to N5.1 billion for the same period in 2009 and turnover increased by 18 per cent to N91.3 billion.

Commenting on the result released to the Nigerian Stock Exchange (NSE) Wednesday, Mr. Wale Tinubu, Chief Executive Officer of Oando Plc said, “I am happy to announce a positive start to the year.

The first quarter’s success is attributable to the increase in earnings from the midstream and upstream businesses as new project initiatives continue to come on stream. Furthermore our downstream business has performed creditably in line with our financial expectations.”

He further declared that the quarter was heralded by the launching a major capital market transaction _ a Rights Issue exercise which received overwhelming support from their shareholders and achieved a 28 per cent over subscription, the most successful in recent times.

According to him , “ Our Gas and Power business commissioned its first captive power plant for Lagos State Water Corporation, and in so doing substantially reduced their operational costs. Furthermore, the project has major social consequences as clean potable water throughput has increased by 300%.

Our Energy Service business deployed an additional swamp rig to commence operations with a major International Oil Company and our Exploration and Production business also increased production from our producing Oil and Gas assets.

“2010 promises to be a year of tremendous growth for our company. In the downstream our ability to substantially increase revenue has been assured by the introduction of the Sovereign Debt Note Program which guarantees all Petroleum Subsidy Fund (PSF) payables. In the Upstream the Local content Policy initiative which promotes indigenous companies”.

Oando has its primary listing on the Nigeria Stock Exchange (NSE) and a secondary listing on the Johannesburg Stock Exchange


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