C and I Leasing Plc needs the continued momentous rally in crude oil price this year to give it the leeway to earn reasonable earnings capable of shrinking risk to shareholders and reducing operating costs.
This is because the leasing company’s balance sheet and operations are funded mainly through debt, but there is no threat to its going concerns.
Debt to equity ratio stood at 260.74 percent in September 2021, albeit lower than 2020’s 261.09 percent the previous year, according to MoneyCentral calculations.
The debt-to-equity (D/E) ratio compares a company’s total liabilities to its shareholder equity and can be used to evaluate how much leverage a company is using.
It is noteworthy that the ratio has been above 200 percent in the past five years as the leasing firm borrows to fund the acquisition of new fleets and other expansion plans.
There were debt binges in the last two years as companies took advantage of the low interest rate environment to tap the debt market to finance working capital and retire existing debts.
C and I leasing total debts (long and short term) hits N35.85 billion as at September 2021, that is 1.86 percent increase from 2020’s N34.82 billion the previous year.
It posted a loss after tax of N181.91 million as at September 2021, and revenue was down 10.58 percent to N13.94 billion.
The company attributed the loss and mounting operating expenses to the negative impact of the coronavirus pandemic that undermined energy prices and tipped the country into a short recession in 2020.
“We know that 0ver the past two and three years the oil and gas industry has gone through some challenges such as the downward trend of prices and the impact of the coronavirus pandemic. This has affected some of our cost metrics,” said Ugoji Lenin Ugoji, the Group Managing Director/CEO, C&I Leasing.
“We have responded by trying to manage our costs internally, finding places where we can cut costs. We are also reeling from the daily rates of the IOCs,’’ Ugoji.
The company’s total cost of N10.29 billion is 73.85 percent of total sales, according to MoneyCentral.
Analysts say the leasing firm’s cash flow will get a boost from the recent rally in oil price and the reopening of the economy.
Brent crude, the global oil benchmark, rose to $88 a barrel on Tuesday, on tighter supply by the Organisation of Petroleum Exporting Countries (OPEC) and its allies.
Morgan Stanley, a multinational investment bank, had predicted that Brent crude would climb $90 a barrel in the third quarter of this year.