1 August 2022

GOIL 1H2022 Results: Performance Lingers on Stronger Volume Growth

In brief

Ghana Oil Plc. (“GOIL” or the “Group”) released its unaudited 1H2022 financial results on 28th July 2022, posting a profit of GHS 87.1m which reflects a 57.5% improvement from the previous comparable year. GOIL reported strong triple-digit growth in revenue on account of stronger volume growth and pricing increases. According to our on-the-ground research, GOIL continued its strategy of cushioning consumers from the soaring fuel prices in 1H2022, by pricing lower than its arch competitors – TOTAL and SHELL. This strategy improved sales, market share, and profitability.

Performance: Strong earnings outturn on higher volume growth and price increases

  • Profit-after-tax increased by 57.7% y/y on the back of a strong revenue outturn
  • Revenue increased by 153.5% y/y to GHS 8.2b, owing to increases in fuel prices and higher volume sales
  • GOIL’s ex-pump prices for its petrol and diesel increased by 65.9% and 102.3% respectively in 1H2022, mainly driven by a 56.7%* increase in global crude oil market prices and a 16.9%* USD/GHS depreciation in 1H2022
  • The rise in global crude oil prices is attributed to the geopolitical uncertainty, the ongoing impact of the pandemic and OPEC’s decision to reduce its oil supply in response to global happenings amid soaring demand
  • Consequently, GOIL’s BDC – Go Energy’s ex-refinery price also increased by 139.7% for petrol and 156.1% for diesel in 1H2022
  • Revenue growth was also supported by a 27.0% increase in retail fuel consumption and a 24.7% rise in Go Energy’s sales volume from January to May 2022 compared to the same period last year
  • GOIL recorded strong sales volumes on the back of its competitive pricing strategy, as consumers are shifting to OMCs with relatively cheaper prices given the current economic environment
  • As a result, GOIL’s market share increased by 4.3pp to 19.48% from January to May 2022*, compared to the same period last year
  • In 1H2022, GOIL’s cost of sales accounted for 95.6% of revenue, compared to a 3-year average of 93.4%. This reflects the increased inflationary pressures experienced in 1H2022, which caused gross profit margin to fall by 2.1pp y/y to 4.4%
  • OPEX also increased by 48.9% y/y mainly driven by inflationary and forex pressures
  • Resultantly, operating margin and net profit margin slipped by 1.1pp and 0.6pp to 1.6% and 1.1%, respectively, in 1H2022

Outlook: Sales and margins to expand on bitumen production

  • With GOIL executing its strategy of pricing competitively on the market, we expect the advantage in pricing to continue to drive the Group’s sales volume and market share in the coming quarters
  • Our outlook is hinged on the fact that, given the upside risks to inflation and the elevated energy prices, consumers’ incomes have been constrained, causing them to shift to OMCs with relatively cheaper fuel prices
  • We also expect the Group to register positive growth in revenue and earnings on the back of increased consumption, rising crude prices and diversification into bitumen production
  • Management indicated that the Group’s bitumen plant will begin commercial production in August 2022. As a result, we expect the project to help expand margins from exports to neighbouring countries in the sub-region

Valuation: Under Review 

  • GOIL is currently trading at a P/E of 8.1x and EV/EBITDA of 2.7x
  • We are in the process of re-initiating coverage on GOIL and have therefore placed our recommendation under review