Event: 11 Plc ( formerly Mobil Oil Nigeria) reports Q2 2017 results
Implications: Negative reaction by the market expected
Positives: Q2 sales up 13% y/y to N31.0bn
Negatives: PBT and PAT both declined by around -5% y/y to N3.6bn and N2.5bn respectively
This morning, 11 Plc (11) reported Q2 2017 results which showed that while sales grew 13% y/y to N31.1bn, PBT and PAT both declined by around 5% y/y to N3.6bn and N2.5bn respectively. A gross margin contraction of -694bps y/y to 12.2% more than offset benefits coming through from topline growth, a double-digit opex decline and a doubling in other income y/y. Sequentially, sales and PBT were both up 23% q/q and 60% q/q respectively. However, PAT was up more significantly on a q/q basis. Unlike in Q1, there were no acquisition-related costs. In Q1, 11 posted an actuarial loss of c.N2.0bn following the migration of a significant portion of the firm’s Defined Benefit Scheme to a Defined Contribution Scheme. During the quarter, NIPCO (parent) opened a tender offer to acquire minority interests for an offer price of N417.12 per share. This offer applies to 40% of the firm’s outstanding shares.
Compared with our estimates, while sales beat our N23.5bn forecast by 32%, PBT was broadly in line with our forecast. A negative surprise on the cogs line offset positives coming through from topline growth. On an annualised basis, 11’s H1 PAT of N2.5bn tracks well behind consensus earnings estimate of N7.9bn. As such, we expect downward revisions to consensus 2017E estimates on the back of these numbers. At current levels, on our published estimates, 11 shares are trading on a 2017E P/E multiple of 16.2x for an EPS growth of 13.1% in 2018E. Year to date, 11 shares have shed -9%, underperforming the NSE ASI by 48%. We rate the stock Underperform.