9 August 2021

GOIL 1H2021 results

In brief

Ghana Oil Company (“GOIL”) released its unaudited 1H2021 results last Friday. Overall, GOIL posted sterling results with earnings largely in line with our expectations as bottom line benefitted from improved margins following an upward adjustment in ex-pump prices

Performance: Upward price adjustment aids sales growth

  • The Group’s revenue came in strong at 33.1% y/y, a little above Total Petroleum Ghana’s (“TOTAL”) 31.2% y/y, mainly supported by an increase in fuel prices and consumption
  • The increase in fuel prices resulted from tax adjustments implemented in 2Q2021 and an uptick in global oil market price by ~88.2% y/y
  • As a result, GOIL experienced ~32.9% y/y increase in ex-pump prices while its Bulk Distribution Company (“BDC”) experienced ~41.1% increase in ex-refinery rates y/y
  • A 6.5% y/y rise in retail fuel volume and a 13.9% y/y increase in bulk distribution sales volume also contributed to revenue growth
  • The Group’s gross profit increased by 28.8% y/y to ~GHS 208.3m, surpassing TOTAL’s 13.0% y/y increase
  • However, gross profit margin declined by 2ppts to 6.5% y/y in 1H2021, pressured by the 33.4% increase in cost-of-sales
  • Despite heightened inflationary and forex pressures, which drove operating costs higher by 13.8% y/y, operating profit grew 52.4% y/y to GHS 91.4m, propelled by revenue growth
  • Consequently, operating margin improved by 4ppts to 2.8% y/y
  • The Group’s net profit jumped 75.7% y/y to GHS 60.3m, posting a Net Profit Margin (“NPM”) of 1.9% (+5ppts)
  • GOIL’s NPM, however, trailed behind TOTAL’s, which increased by 94ppts to 4.2% due to better efficiency

Outlook: Diversification and price to contribute to topline in the years ahead

  • We expect the Group to continue to register positive growth in revenue and earnings on the back of increased consumption and diversification into higher margin products
  • The introduction of bitumen production in 3Q2021 is expected to support margin expansion as well as FX inflow from sales within the sub-region
  • GoEnergy, GOIL’s bulk oil distribution business is expected to be the key driver of growth and provide margin insulation going forward
  • Currently, GOIL is the only player in the downstream sector with a bulk oil distribution license, giving the OMC a competitive advantage
  • We are however concerned about the OMC’s CAPEX given its investments in the construction of the Bitumen plant as well as a new Head Office

Valuation: Under Review

  • We are in the process of re-initiating coverage on GOIL and have therefore placed our recommendation under review
  • GOIL is however trading at a PE of 5.1x and PB of 1.0x