5 November 2021

GOIL 9M2021 Results

In brief

Ghana Oil Company (“GOIL” or the “Group”) released its unaudited 9M2021 results last Friday. While the Group posted fairly impressive results with revenue sustaining its growth momentum, the heightened cost of sales and Opex hindered bottom-line from growing significantly as earnings slightly increased by 2.3% y/y.

Performance: Revenue increases as margins compress

  • The Group’s bottom-line increased marginally by 2.3% y/y to ~GHS 79.0m in 9M2021
  • Top-line was the primary driver of growth, increasing by 41.6% y/y to GHS 5.1b, owing mainly to an increase in fuel prices and higher volume sales
  • GOIL’s ex-pump price for the period increased by 34.3% y/y, as did its BDC – Go Energy’s ex-refinery refinery price also increased by ~60.6% y/y, evoked by the rise in global crude oil price by ~88.6% y/y
  • Revenue for the period was also supported by a ~8.4% y/y increase in GOIL’s retail fuel consumption and a ~17.6% y/y increase in Go Energy’s volume of petroleum products distributed
  • Despite the strong growth in revenue, gross profit margin dipped by 2.1ppts to 6.0% in 9M2021, owing to forex and inflationary losses as well as an increase in purchases for the period, evident from the 176.3% y/y increase in inventory
  • Cost of sales and Opex increased by 44.8% y/y and 14.1% y/y respectively
  • Resultantly, operating margin compressed by 120bps to 2.4% and net profit margin decreased by 60bps to 1.5%

Outlook: Diversification to expand margins

  • We continue to expect the Group to register positive growth in revenue and earnings on the back of increased consumption and diversification into higher-margin products
  • With bitumen production scheduled to start in 4Q2021, we anticipate margins to be expanded as well as FX inflow from sales within the sub-region
  • Go Energy, GOIL’s bulk oil distribution business is expected to be the critical driver of growth and provide margin insulation going forward as well as offer the OMC a competitive advantage in pricing and fuel availability at pumps

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 P/E of 7.1x and EV/EBITDA of 7.2x