August 2, 2022/Cordros Report
Ardova Plc (ARDOVA) published its Q2-22 unaudited financials on Friday (July 29), reporting a Loss Per Share of NGN1.02 in Q2-22 standalone numbers (vs EPS of NGN0.70 in Q2-21). Accordingly, H1-22 Loss Per Share settled at NGN0.88 (vs EPS of NGN0.38 in H1-21). The loss was driven by the company’s ballooning costs (+50.9% y/y) which masked the growth in revenue (42.3% y/y).
Revenue grew by 42.3% y/y in Q2-22 (H1-22: +46.0% y/y), primarily driven by substantial growth in the Fuels (+45.4% y/y | 86.3% of revenue), Lubricants and greases (+19.0% y/y, | 12.1% of revenue), LPG and cylinder sales (+8521.5%, | 0.8% of revenue) business segments, amid declines in the, Solar system (-3.5% y/y, | 0% of revenue), and Haulage and transportation services (-30.2%, | 1.8% of revenue)) segments. The outturn reflects the higher prices (PMS: +4.3% y/y; AGO: +186.6% y/y and DPK: 85.4% y/y) for petroleum products. On a q/q basis, revenue grew by 1.2%, supported by growth in the fuels (+0.6%), lubricants and greases (+1.4%), LPG and cylinder sales (+103.2%) and Haulage and transportation services (+10.0%) segments.
Gross margin (-550bps) declined to 3.5% in Q2-22 (Q2-21: 9.0%) as the uptick in crude oil prices (Average Brent price: USD114.42/bbl in Q2-22 vs USD68.48/bbl in Q2-21) led to a faster increase in the cost of sales (+50.9% y/y) relative to revenue (+42.3% y/y). Consequently, EBITDA and EBIT margins came in lower at 0.1% (Q2-21: 3.6%) and 1.3% (Q2-21: 2.7%), respectively, further pressured by a 68.8% y/y increase in operating expenses.
Net finance costs came in at NGN536.75 million (vs net finance income of NGN210.52 million in Q2-21), primarily influenced by the significant 135.2% y/y increase in finance costs and a 96.9% y/y decline in finance income. The higher finance cost is mainly due to a 630.0% y/y increase in interest expense on bank loans and overdrafts (NGN694.27 million in Q2-22 vs NGN95.10 million in Q2-21).
Overall, the company recorded a loss before tax of NGN1.34 billion (vs profit before tax of NGN1.42 billion in Q2-21). Eventually, the company’s loss after tax settled at NGN1.34 billion (vs PAT of NGN0.92 billion in Q2-21), in the absence of tax charges.
Comment: ARDOVA’s Q2-22 performance remains underwhelming in our view. Its numbers highlighted the effects of the rally in crude oil prices and the high inflationary environment on the company’s costs and, in turn, its margins and earnings. Taking a cue from the performance in H1-22, we are pessimistic about ARDOVA’s ability to turn the tide and return to profitability in the H2-22, seeing as the factors that inhibited its earnings still exist. Our estimates are under review.
