Aradel Plc Earnings Report: Pricing Adjustment Powers Revenue Surge

Image Credit: www.aradel.com

February 3, 2025/InvestmentOne Report

Aradel Holdings Plc’s impressive financial performance in 2024 was driven by several key factors. The substantial revenue growth of 162.79%, from NGN221.14bn in 2023 to NGN581.02bn in 2024, was primarily due to increased hydrocarbon production and enhanced sales from refinery operations.

The successful re-entry of Well 2ST in the Omerelu Field, achieving first oil on May 31, 2024, and the completion of Wells 14 and 15, concluded the company’s Phase 1, four-well turnkey drilling campaign with favorable results. These developments significantly boosted production levels.

However, the company faced challenges with rising costs. The cost of sales increased by 231.60%, from NGN78.81bn in 2023 to NGN261.21bn in 2024, outpacing revenue growth and leading to a decrease in the gross profit margin from approximately 64.30% in 2023 to around 55.00% in 2024. This was primarily due to higher crude handling charges, increased depreciation from new wells, and elevated royalties resulting from higher production levels.

Despite these cost challenges, operating profit grew by 160.87%, amounting to NGN297.47bn in 2024, up from NGN114.06bn in the previous year. This growth was bolstered by a significant increase in finance income, which rose by 141.42% to NGN15.96bn, and an exceptional increase in the share of profit from associates, contributing NGN31.20bn in 2024.

Finance income increased by 141.42%, reaching NGN15.96bn in 2024 compared to NGN6.61bn in 2023, while finance costs nearly doubled up by 96.48% from NGN11.72bn to NGN23.03bn. The net effect was a 38.27% increase in net finance cost. A standout metric was the share of profit from associates, which soared by 868.30%, from NGN3.22bn in 2023 to NGN31.20bn in 2024.

These improvements contributed significantly to the bottom line, with profit before tax jumping 186.70% from NGN112.16bn to NGN321.60bn, and profit after tax surging by 360.90% from NGN53.74bn to NGN247.79bn. This dramatic improvement was also reflected in basic earnings per share, which increased from NGN12.37 to NGN57.03, marking a 361.00% rise.

Outlook: Looking ahead, we expect Aradel Holdings Plc to continue leveraging its expanded production capacity and diversified asset base to sustain its revenue growth. We believe that enhanced operational efficiencies and tighter cost controls will be critical in addressing the rising cost pressures and finance expenses observed in 2024. Furthermore, the exceptional performance of associate interests is anticipated to remain a key driver of future profitability.

Although, we believe that a sustained decline or heightened volatility in oil prices could exert downward pressure on revenue and profit margins, as lower prices would compress the top line and potentially necessitate tighter cost controls. We believe that the company’s diversified asset base and operational efficiencies will help mitigate some of these risks, but management will need to remain agile in adapting to price fluctuations. Consequently, we place an OVERWIGHT
recommendation on ARADEL. 

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