October 31, 2022/Cordros Report
Ardova Plc (ARDOVA) published its Q3-22 unaudited financials over the weekend, reporting a loss per share of NGN2.44 in Q3-22 (vs loss per share of NGN0.41 in Q3-21), driven by a decline in gross margin (-246bps y/y) and higher net finance costs (+193.3% y/y). Consequently, the 9M-22 loss per share settled at NGN3.31 (vs EPS of NGN0.95 in 9M-21).
Revenue grew by 11.6% y/y in Q3-22, underpinned by increases across the marketer’s Fuels (+11.3% y/y), Lubricants and greases (+9.7% y/y), Solar system (+422.5% y/y), LPG and cylinder sales (+6794.7% y/y) and others (+11.6% y/y) business segments, amid a 67.0% y/y decline in Haulage and transportation services revenue. We attribute the observed growth in the listed business lines to the increased demand for petroleum products and higher fuel prices – PMS: +15.2% y/y; AGO: +209.5% y/y; and DPK: +106.7% y/y – in the period.
Sequentially, revenue declined by 12.2% q/q due to lags across the fuels (-13.3% q/q), LPG and cylinder sales (-247.0% q/q), Haulage and transportation services (-59.9% q/q), and others (-135.3% q/q) business segments.
Gross margin (-246bps y/y) printed lower at 3.8% as cost of sales (+14.5% y/y) grew faster than revenue (+11.6% y/y). The higher costs of sales can be attributed to the increased crude oil prices (Average Brent price: USD97.70/bbl in Q3-22 vs USD73.23/bbl in Q3-21). For 9M-22, gross margin declined by 213bps y/y to 5.3%.
Consequently, the company recorded an operating loss (NGN2.12 billion vs an operating profit of NGN253.08 million in Q3-21), owing to the decline in gross margin and the higher OPEX (+67.8% y/y). Accordingly, EBITDA also turned negative (NGN1.14 billion vs positive EBITDA of NGN657.73 million in Q3-21).
Net finance cost increased by 193.3% y/y to NGN1.07 billion (Q3-21: NGN364.97 million), due to a 185.8% y/y increase in finance cost, outpacing the 42.4% y/y increase recorded from finance income. Specifically, the higher finance cost was driven by increased expense on loans and borrowings (+200.1% y/y to NGN181.28 million) and bank loans and overdrafts (+214.5% y/y to NGN634.36 million).
Overall, loss before tax settled at NGN3.19 billion (vs loss before tax of NGN111.87 million in Q3-21). Consequently, loss after tax came in at NGN3.19 billion (vs loss after tax of NGN541.25 million in Q3-21) in the absence of any income tax expenses for the period.
Comment: ARDOVA’s Q3-22 performance was unimpressive, in our view, with the marketer once again struggling for positive earnings. Considering the operating headwinds in the downstream oil and gas space amid elevated inflationary pressures, we remain pessimistic on ARDOVA’s ability to turn the tide in Q4-22. Our estimates are under review.
