Eterna Plc reported an encouraging improvement in profitability in Q1:2025, with the company posting a profit after tax (PAT) of NGN0.69bn compared to a loss of NGN4.06bn recorded in Q1:2024. This notable turnaround was largely driven by the absence of significant foreign-exchange losses that severely impacted prior-year performance, alongside impressive growth within its lubricants segment. Despite robust revenue growth, pressures from rising costs continued to weigh on operating margins.

Total revenue for the period grew by 8.07% YoY, reaching NGN73.27bn compared to NGN67.79bn in Q1:2024. The increase in revenue was predominantly propelled by the sales in the lubricants segment, which surged by 106.91% YoY, delivering NGN14.35bn compared to NGN6.93bn a year ago. This strong growth reflects targeted market penetration, improved pricing strategies, and increased volumes driven by higher demand within the industrial and retail channels. Conversely, revenue from the fuels segment exhibited a modest decline of 1.20%, down from NGN59.37bn in Q1:2024 to NGN58.66bn in Q1:2025, indicating persistent margin pressure and restrained demand growth amid regulatory pricing caps. Revenue from “other products” sharply decreased by 81.79% to NGN0.27bn, consistent with management’s strategic refocus on core business segments.

Gross profit contracted significantly by 59.12% YoY to NGN4.31bn from NGN10.54bn in Q1:2024, as cost of sales grew disproportionately by 20.49% to NGN68.96bn, driven primarily by higher costs of imported petroleum products, elevated logistics costs, and increased raw material expenses.

Consequently, the gross margin deteriorated from 15.57% to 5.89%, highlighting the continuing
challenge of input cost inflation in the downstream sector. Despite gross margin pressures, the company demonstrated prudent expense management, with selling and distribution costs  declining sharply by 45.31% to NGN0.04bn due to strategic logistics improvements and efficiency gains.

General and administrative expenses rose moderately by 5.28% to NGN2.43bn, reflecting necessary investments in staffing, technology infrastructure, and compliance-related costs. Operating profit stood at NGN1.90bn, representing a significant 76.82% YoY reduction from NGN8.19bn in the comparable quarter last year, primarily due to narrower gross margins.

However, the company’s ability to deliver positive operating profit in the face of challenging market conditions underscores resilient cost discipline and strategic pricing efforts. One of the most impactful drivers of Eterna’s improved profitability was the substantial reduction in foreign exchange-related losses. The company recorded zero foreign exchange loss in Q1:2025, compared to a sizeable loss of NGN10.69bn in Q1:2024. This stabilisation was critical to the company’s return to profitability.

Finance costs also trended positively, decreasing by 41.46% YoY to NGN0.47bn due to lower reliance on expensive short-term debt and efficient treasury management. As a result, profit before tax (PBT) returned to positive territory at NGN1.43bn, reversing the prior year’s loss of NGN3.30bn. After accounting for taxes of NGN0.74bn, the company recorded a net profit of NGN0.69bn. From a balance sheet perspective, total assets expanded by 26.03% to NGN84.93bn compared to FY 2024, driven significantly by a 36.82% increase in current assets (NGN67.60bn).

This growth largely reflects increases in inventories (+28.17%) and receivables (+64.27%), indicative of intensified working capital utilisation. Total liabilities increased by 26.88% to NGN79.39bn, primarily due to higher trade and other payables associated with greater inventory procurement activities. Equity improved by 14.18% to NGN5.54bn, reflecting positive earnings retention. The net debt position shifted from a net cash stance of NGN1.28bn at FY:2024 to a modest net debt of NGN0.68bn in Q1:2025, taking the net debt-to-equity ratio to 12.29%, reflecting heightened short-term working capital demands.

Outlook

Eterna’s sustained performance improvement hinges on its continued growth in its higher-margin lubricants sales, disciplined cost management, and ongoing forex stability, providing crucial support amid persistent fuel-margin pressures and regulatory uncertainties. Effective liquidity management, particularly addressing increased working capital demands and short-term borrowing pressures, remains essential to sustaining profitability. Therefore, given the demonstrated operational resilience in Q1:2025, we maintain a cautiously optimistic stance. As such, we place a BUY recommendation for Eterna.

Eterna s sustained performance improvement hinges on its continued growth in its higher-margin lubricants sales, disciplined cost management, and ongoing forex stability, providing crucial support amid persistent fuel-margin pressures and regulatory uncertainties. Effective liquidity management, particularly addressing increased working capital demands and short-term borrowing pressures, remains essential to sustaining profitability. Therefore, given the demonstrated operational resilience in Q1:2025, we maintain a cautiously optimistic stance. As such, we place a BUY recommendation for Eterna.

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