August 2, 2021/Cordros Report

ARDOVA published its Q2-21 unaudited results at the close of business last week Friday (July 30), reporting EPS of NGN0.70 (Q2-20: NGN0.39), bringing H1-21 EPS to NGN1.36 (H1-20: NGN0.77). The higher EPS was driven by top-line growth and a reduction in net finance cost. On an annualized basis, the company’s H1-21 EPS is 91.4% ahead of the 2020FY EPS of NGN1.42 and 64.7% above our 2021E EPS forecast of NGN1.65.

Revenue grew by 27.0% y/y, underpinned by substantial increases in its fuels (+19.3% y/y; 84.5% of revenue) and lubricants and greases (+81.7% y/y; 14.5% of revenue) segments. We believe the growth in the major business lines was supported by (1) the improved demand given that the economy has effectively reopened and (2) the higher prices (Average PMS price: NGN166.68/litre in Q2-21 vs NGN137.60/litre in Q2-20; Average AGO price: NGN239.48/litre in Q2-21 vs NGN222.54/litre in Q2-20; Average DPK price: NGN277.65/litre in Q2-21 vs NGN267.68/litre in Q2-20). Also, we highlight that the stronger growth in the lubricants and greases segment signals that the company’s exclusive lube sales partnership with Shell has begun to yield fruits. Across the other business lines (1.1% of revenue), the LPG & cylinder sales segment grew by 350.3% y/y, while revenue from the solar system business grew by 41.6% y/y. ARDOVA’s recently established haulage and transportation services subsidiary reported revenue of NGN467.53 million and contributed the bulk of the revenue from the other business lines.

On a q/q basis, revenue increased by 6.7%, with all business segments – Fuels (+121.4%), Lubricants and greases (+36.1%), LPG & cylinder sales (+100.9%) and Haulage and transportation services (+41.3%) – save for the solar system segment (-40.9%), recording growth.

Gross margin (+172bps) printed higher at 9.0% in Q2-21 (Q2-20: 7.3%), with the fuels business (+196bps to 6.6%) unsurprisingly contributing the bulk of the margin expansion, following (1) the higher price for PMS as initially mentioned, and (2) a 172bps y/y decline in the cost-to-sales ratio to 91.0% (Q2-20: 92.7%). We highlight an increase in cost of sales (+24.6% y/y), influenced by the rally in crude oil prices (Average Brent price: USD69.08/bbl in Q2-21 vs USD33.39/bbl in Q2-20). Stemming from the preceding, EBITDA (+204bps) and EBIT (+217bps) margins came in higher at 3.6% and 2.7%, respectively, despite a 47.1% y/y increase in operating expenses.

Net finance cost remained positive at NGN210.52 million in Q2-21 (Q2-20: NGN408.52 million), translating to a decline of 48.5% y/y, driven by a 31.3% y/y decline in finance and other income. As of HY-21, the company’s total debt increased slightly by 4.5% to NGN5.36 billion (FY-20: NGN5.14 billion).

Overall, PBT grew by 139.6% y/y to NGN1.42 billion in Q2-21 (Q2-20: NGN591.09 million). Following a surge in tax charge (NGN493.72 million in Q2-21 vs NGN76.16 million in Q2-20), the company recorded a PAT of NGN922.57 million (Q2-20: NGN514.92 million).

Management call on Wednesday, August 4, 2021, at 2.00 pm Nigerian time. Click here to register.

Comment: ARDOVA’s Q2-21 performance came in line with our expectations, with the top-line recovering from Q1-21’s slump. However, we suspect that the company may have lost some of the market share gained in 2020FY, especially in the PMS product line, given the marketer’s slower growth relative to peers, in the face of increased demand. We look to see how the finalization of the Enyo Retail and Supply Limited acquisition later in the year (Management guidance: Q3-21) may solve this. Going forward, we expect the company to maintain positive earnings over the rest of the year. Our estimates are under review.