Group 1

Financial Analysis of Mobil Oil Nigeria Plc

MOBIL OIL NIG. PLC. COMPANY BACKGROUND

Mobil oil, a subsidiary of ExxonMobil, has its head office in Apapa- Lagos. The company began in 1907, with the sale of Sunflower Kerosene. Over the years the company has grown and deployed capital investments in various businesses. Today, Mobil oil is the pacesetter in innovation and efficiency in the retail fuels market and also with a business in vibrant lubes and specialties. ExxonMobil owns 60% of Mobil oil Nigeria Plc.

PRODUCT PORTFOLIO• Lubricants• Petroleum products• Insecticides• Real estate

MOBIL OIL NIGERIA-INDUSTRY OVERVIEW

• The oil sector is divided into the downstream and the upstream sector. The upstream sector is basically oil exploration, while the downstream sector involves the transportation of finish crude products. Mobil Oil Nigeria (MON) plays in the downstream oil sector.

• The downstream oil sector is made up of major marketers and independent marketers. Mobil Oil Nigeria limited is a major marketer and plays behind Oando as the second major player in the industry. As at 2010, the major oil marketers accounted for 61% of petroleum product supply, the independent marketers accounted for 32%, while NNPC had 7%.

MOBIL OIL NIGERIA-INDUSTRY OVERVIEWcont’d

• The NNPC came into the market of recent in order to the reduce the powers of the major oil marketers in the distribution of petroleum products. In order to achieve this, the NNPC as at 2010, had 12 floating stations, 37 mega stations, and 469 affiliate stations.

• The industry is a volume industry and is highly import dependent as majority of the refineries in Nigeria are operating below capacity. The industry is still regulated with indications of it being deregulated by January 2012

Macroeconomic Environment• Progress in the power and downstream petroleum

sectors has been slow and reforms are urgently needed with 2006 being one of the most difficult years for the downstream sector. Federal government continues to regulate gas prices and margins thereby controlling supply. To avoid fuel shortages while maintaining the pump price, Government encourages marketers to buy at world parity price and sell at set domestic price with an assurance to claim the difference under the Petroleum Subsidy Fund scheme. There are still long delays in refunding fuel subsidy payments under the PSF even though it has been partially solved via the use of Sovereign Debt notes by the government.

• There is no fundamental change in the ownership structure of refineries, pipelines and depot infrastructure and the privatization initiatives have so far been unsuccessful. The country continues to be heavily dependent on imports. The government continues to affirm its commitment to deregulating the downstream sector; however it is unclear when this will happen.

• In 2008, the price of crude oil rose to unprecedented levels and later in the year started to fall rapidly as the economy of many countries around the world slid into recession.

• The economy has witnessed changes in the financial market, however global economies and financial markets are working hard to reduce their indebtedness and get back to the path of growth.

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Liquidity Ratios

CurrentAcid test

Better performance on credit collection and restructuring of bad debts enhanced the company’s liquidity.

2006 2007 2008 2009 20100

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

Profitability Ratios

Net marginGross margin

The growth in profit was as a result of the growth in volume of the lubricant business and the insecticide business.Mobil’s profitability was also boosted by rental inflows from its real estate in Lekki , which it rents out to its sister company – Mobil Producing Nigeria Unlimited.

The steady decline in the asset turnover is as a result of the company’s inability to capture adequate sales volume relative to their asset utilization because of the reduction in fuel volume sales. The reduction in sales volume was a result of the reduction of imports by the Nigerian National Petroleum corporation.

2006 2007 2008 2009 20100

2

4

6

8

10

12

14

16

18

ACTIVITY RATIO

Inventory turnoverAsset turnover

2006 2007 2008 2009 20100

2

4

6

8

10

12

Asset turnover

Leverage ratios

2006 2007 2008 2009 20100

1

2

3

4

5

6

7

8

Long term debt to equityTotal debt to equity

Borrowing increased till 2008 mainly due to restructuring cost, pension funding and capital investment (relocation). However, it declined in 2009 and subsequent years because the company had to borrow less as it had begun to reap the benefits of restructuring.

Growth ratios

2006 2007 2008 2009 2010

-40

-20

0

20

40

60

80

TurnoverProfit before taxProfit after tax

• The decline in turnover in 2006 was due to the federal government decision to keep the pump price of gasoline at 65 naira per litre. reduction in sales volume by 15% as a result of fuel subsidy.

• Profit after tax however reduced due to the cost of training staff to use the SAP software.

• In 2008, turnover increased basically due to a rise in oil prices.

• Revenue increased due to organisational restructuring, new technology and relocation of head office to Apapa. Profit after tax increased due to a reduction in operation cost (specifically abour) by 40%.

• In 2009, turnover reduced because Mobil depended on the federal government for products due to the ban on importation. PAT however increased as a result of operating efficiencies generated from implementation of the SAP technology.

Valuation ratios

2006 2007 2008 2009 20100

2

4

6

8

10

12

14

Valuation Earnings per shareDividend per share

Dividend payout is really attractive for Mobil regardless of the rate of earnings they have ,they ensure that they pay out a large portion of their earnings to their parent company (Exxon Mobil).

Conclusion • The industry within which Mobil does business is

highly regulated. The rate of profit is directly affected by changes in government policies in relation to petroleum.

• To mitigate this risk however, the company’s dividend payout is high as indicated in the dividend per share calculation.

• Despite the high returns, investment in such an industry is quite risky and we wouldn’t advise any risk averse investor to invest in Mobil Oil plc.

•Vetiva Research

•Company Reports

•The Economist intelligence unit.

Sources

Thank You

Group Members

Agoha May PAU/LBS/MBA/10/008Ajibola Azeezat PAU/LBS/MBA/10/009Asaolu Temijopelo PAU/LBS/MBA/10/014Awoniyi Bola PAU/LBS/MBA/10/015Enobakhare Ibude PAU/LBS/MBA/10/020Ezeani Chika PAU/LBS/MBA/10/021Oshodi Oluwafunmilola PAU/LBS/MBA/10/045Momah Obianuju PAU/LBS/MBA/10/030Nwagbara Chukwuka PAU/LBS/MBA/10/031Nyong Olusola PAU/LBS/MBA/10/032Suberu Mustapha PAU/LBS/MBA/10/051