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Tuesday, March 28, 2023

Conoil out of the Woods as Profit Margins Hit Three- year High

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Conoil Nigeria Plc is out of the difficulty caused by foreign exchange scarcity and lack of transformation policies on the part of the government as profit margins have hit a three-year high.

The downstream oil and gas major has recorded the fastest margin expansion in the last four years as it turns each Naira invested in sales into higher profit.

Analysts are sanguine that the company will maintain the growth momentum into the four quarters, and they added that a stellar performance means shareholders will be getting their reward in the form of dividend payment.

A rebound in economic activities added impetus to earnings as there has been strong demand for petroleum products by companies and households.

For the first nine months through September 2021, Conoil’s net profit margin increased to 1.56 percent from 1.26 percent in 2020, and 1.51 percent in 2019, according to data gathered by MoneyCentral.

Interestingly, net income surged by 43.24 percent to N1.59 billion in September 2021, and that compares with a reduction at the bottom line (profit) in 2020, an uptick of 7.59 percent and 1.80 percent in 2018.

Sales were up 14.60 percent to N100.97 billion in September 2021 from N88.10 billion the previous year.

However, Conoil and other downstream players have the lowest margins compared to their manufacturers and service firms. The Nigerian Petroleum Corporation (NNPC) still remains the sole importer of petroleum products because oil marketers are unable to access foreign currency that is scarce, and the central bank does not seem to have a solution yet to the insidious scarcity that undermines economic growth.

Analysts say total liberalization of the downstream oil and gas sector will enhance competition and attract foreign investors. It will be recalled that there was a defector deregulation when there were upward adjustments to pump price to accommodate the rally in crude oil price, but the move by the regulator was met with criticism by labour union, and the government always fears backlash from the already beleaguered consumers who live in an environment where over 5o percent of a population of 200 million people live on less than $1.90 a day.

“We note that the price liberalisation witnessed in 2020 had started to bear fruits as the margins of sector players, which was historically subdued, inched higher,” said analysts at Cordros Securities Limited.

“However, due to kickbacks from labour unions, considering the already pressured consumer wallet, the government cannot entirely remove its hands from the products’ price. Thus, PMS pump prices currently do not reflect the higher crude oil price in 2021,” said the analysts.

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