11 Plc 2019H1: Need to Review Efficiency Models, Enhance Profit & Improve Returns

Coy: 11 PLC. (MOBIL)
Rating: Hold
Current Market Price: N153.5

Latest Dividend: N8.25
Year High: N188
Year Low: N153.5
Fair Value: N165.09
By: Jeariogbe Tunde Segun (Equity Analyst)

Introduction/ Key Financials

• In this report, we have observed the half year financial statistics of 11 Plc (formerly Mobil Oil Plc), compare same with the figures released in corresponding quarter of 2018 for proper growth analysis
• Meanwhile, for projections and valuations analysis, we explored the full year financial numbers for the full year business session for the year ended 31^st December, 2018. Major risk put into consideration include the various security challenges currently ruling the company lines of business; e.g.
• Activities of insurgents in the North East as well as conflict between farmers and herdsmen which had resulted in wanton destruction of lives and property across the country, crisis of separatist agitation in the South East, and militancy in the South-South zones of the country
• The company do not have any have any direct debt, in fact as at the end of the period over draft column is empty, nevertheless, a conclusive Finance Cost to the tune of N249.88 million was reported at the end of the period against N3.27 million in corresponding period
• On the strength of the above, one can conclude investors’ good stand in the company, safe the major risk noted above. Kindly note that, major item in the Liabilities column of the half year report are Trade & Other Payables and Deferred Income.

Company figures

• The management of 11 Plc achieved 8.02% growth in its Revenue within the two periods compared in this report. The current Turnover stood at N92.80 billion as against N85.91 billion
• Cost of Sales appreciated by 11.37% to stand at N85.38 billion compared to the N76.56 billion reported at the end of 2018 half year business session
• Operating Profit on the other hand is estimated to worth N6.38 billion down from the N7.76 billion achieved in the corresponding quarter of 2018
• Operating Expenses adjusted down by 17.77% at the current N5.20 billion compared to N5.98 billion
• As noted above, a total of N249.88 million was reported as Finance Cost through the six (6) months reported, this is far above the N7.61 million used in similar period
• Profit before Tax dipped by 23.24% to stand at N6.18 billion as against N8.05 billion in 2018 half year result
• Having made allowance for the income tax for the period, the management of 11 Plc reported N4.17 billion as the Profit for the period, this is 23.41% above the N5.44 billion made at the end of the first six (6) months of 2018

• Current Assets builds above corresponding period by marginal 1.28%, as it is currently valued at N36.98 billion against N36.52 billion
• Non-Current Assets equally inched north by 1.78% to stand at N37.06 billion as against the 2018 half year value of N36.41 billion
• Current Liabilities on the other hand dipped marginally by 6% from the previously reported N27.64 billion to N25.98 billion
• Non-Current Liabilities dropped to N13.42 billion same as 12.66% below the previously reported N15.36 billion
• On the strength of the above, the estimated Net Assets is N34.97 billion this is 16.87% above the N29.92 billion estimate in the similar period of 2018
• Retained Earnings equally builds by 16.98%, as it is currently valued for N34.77 billion against N29.72 billion

Financial Strength/Solvency Ratios

• 11 Plc’s Debt Ratio is fair enough at 0.53x, this is impressive when we consider the fact that it adjusted from the 0.59x estimated from 2018 half year earnings
• Nevertheless, Total reported Debt at the end of the period is confirmed higher than the Equity. We have estimated Total Debt to Equity at 1.13x as against 1.44x. Please understand that most debt in the book of the company do not attract interest since Trade & Other Payables and Deferred Income dominated the liability column
• We also estimated Equity Ratio at 0.47x up from the 0.41x in 2018 half year. This implies, a growth in equity over the company assets, and that equity is worth almost of the company’s Assets
• Due to the high price of 11 Plc shares on the exchange floor and the low shares outstanding of the company, patronage seems weak, thus we have estimated a beta value of 0.21x lower than the industrial average of 0.70x

Profitability Ratios

• EBITDA margin estimated for the period stood at 6.88%, this is same as 23.88% below the 9.04% estimated in 2018
• In the same trend Pre-tax Margin dropped by 28.95% to stand at the current estimate of 6.67% against 9.38%, this is a confirmation of a drop in profitability within the compared period
• Effective Tax Rate was stable through the period as shown in the table below
• Due to various business challenges and investment models, the Cost of Sales Ratio remains high. The Ratio stepped up from the previously estimated 89.12% to 91.88%
• Return on Equity is currently estimated at 11.39% lower than the 18.21% in 2018

Efficiency Ratios

• Measuring management efficiency we have tested few efficiency ratios,
• Operating Expenses to Turnover Ratio was confirmed to stand at 5.61% a 19.48% efficiency improvement from the previous estimate of 6.97%
• Turnover to Total Assets was also considered. Thus, the company achieved a 6.40% improved efficiency having moved from 117.79% to N125.33%
• The Working Capital Turnover of 11 Plc could be considered fair when compared to estimate from industrial peers numbers. Please note that, the ratio dropped from 9.68x to 8.44x
• Based on general standard, 11 Plc’s Working Capital Ratio is Good at 1.42x an improvement from 1.32x estimated in the last half year earnings. This is a confirmation that it will not face difficulty in settling its current liabilities. Perhaps this confirmed the reason why it has high Deferred Income

Investment/Valuation Ratios

• Compared to last half year, the management of 11 Plc earned N11.57 per unit shares, this is 23.41% drop from the N15.11 half year earnings achieved in 2018
• Since price of 11 Plc on the exchange floor was fairly stable during the two released dates, half year adjusted PE-Ratio increased to 13.65x from 11.91x
• Similarly, the half year earnings is estimated to have yielded 7.32% of the price of 11 Plc on the floor of the exchange as at the time the result was made available to the investing public
• Presently, the estimated half year Book Value of 11 Plc per share of the company stood at N96.98, same as 16.87% growth from the N82.98 of last year. Please note that the Book Value stood far below both the current market price and our fair value for 11 Plc
• Confirming the above is the estimated Price to Book Value that stood above unity.
• See below table for details

Valuation

As noted above, having considered the financial stand of 11 Plc, with conservative projections and good consideration of visible risk elements, we have fairly price each units of 11 Plc share price at N165.09 and have rated it a Hold.