Economy
Forte Oil Liquidity Position Relatively Weak—GCR
By Dipo Olowookere
A local credit rating agency, Global Credit Ratings (GCR), has described the liquidity position of an indigenous energy firm, Forte Oil Plc, as “relatively weak.”
In a statement issued by the rating company, the short term rating of Forte Oil was downgraded to A2(NG), with the outlook accorded as stable.
GCR explained that the weak liquidity as well as the company’s low debt service coverage and significant budget underperformance contributed to the one-notch downgrade of the short-term rating.
However, a long term national scale ratings were assigned to Forte Oil at A-(NG), with its issue rating of A-(NG) concurrently affirmed and the outlook accorded as stable.
It was explained that the ratings factor Forte Oil’s strong market presence in the Nigerian downstream oil industry as the firm owns significant assets across the value chain with an extensive distribution and retail network, supported by long-term relationships with suppliers, and an experienced management team.
In the first half of 2019, Forte Oil successfully divested from its power business and other subsidiaries and given the persistent cash flow challenges, the subsidiaries were a substantial drain on the core business and were partly responsible for the elevated gearing.
GCR said excluding the power business, gross debt from continuing operations fell to N18.7 billion in FY18 (FY17: N34.8 billion). This translated into a much lower net debt to EBITDA of 423 percent at FY18, but still well above forecasts.
The metrics deteriorated further to 662 percent in 5M FY19. Without the power business working capital pressure is also expected to ease, which will contribute to lower gearing.
In addition, Forte Oil plans to utilise proceeds from the sale to reduce debt. GCR said the assigned ratings are thus premised on a sustained reduction in earnings based gearing to below 70 percent over the medium term and reach a net ungeared position by FY21.
GCR stated in the released that the high short-term maturities (70 percent of total debt), are reflective of the short-term nature of fuel inventories, but cash holdings are very low, offering no buffer against debt maturities.
“Some comfort is taken from Forte Oil’s strong banking relationships, and the N13 billion unutilised credit facilities.
“The imminent maturity of the federal government’s irrevocable unconditional promissory note should also somewhat bolster liquidity,” the rating agency said.
It noted that excluding the power business (28 percent of revenue in FY17), Forte Oil still demonstrates strong revenue generating capacity, underpinned by the ongoing retail expansion and aggressive marketing initiatives.
However, the remaining business reports an inherently lower profit margin, due to the high cost environment, amid tight regulation of premium motor spirit (PMS) (70 percent of total revenue).
“This, coupled with high finance costs, saw net interest coverage narrow to a low 1.6x in FY18 (FY17: 3.1x), which shrank further to 0.5x in 5M FY19,” the statement obtained by Business Post said.
In the medium to long term, Forte Oil plans to strengthen its margins through increased fuel volumes and a focus on higher margin lubes and greases.
GCR stressed that a rating uplift is dependent on demonstrated reduction in debt and a significant ramping up of volumes and margins (in line with targets).
“Conversely, persistently high gearing metrics post the sale, as well as poor interest coverage, could negatively impact the rating,” it noted.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange rallied by 1.48 per cent on Monday, March 9, spurred by six price gainers at the close of business.
The sextuplet was led by Nipco Plc, which added N28.00 to trade at N313.00 per unit versus the previous price of N285.00 per unit, FrieslandCampina Wamco Nigeria Plc appreciated by N8.65 to sell for N133.85 per share versus last Friday’s closing value of N125.20 per share, Central Securities Clearing System (CSCS) Plc increased by N2.43 to N83.78 per unit from N81.35 per unit, Afriland Properties Plc gained 75 Kobo to close at N19.50 per share compared with the previous N18.75 per share, UBN Property Plc jumped by 21 Kobo to close at N2.38 per unit compared with the preceding session’s N2.17 per unit, and Industrial and General Insurance (IGI) Plc rose 5 Kobo to sell at 52 Kobo per share versus 47 Kobo per share.
As a result, the market capitalisation added N37.22 billion to settle at N2.556 trillion versus the preceding session’s N2.519 trillion, and the NASD Unlisted Security Index (NSI) went up by 62.20 points to 4,273.12 points from 4,201.57 points.
Yesterday, the volume of securities decreased by 67.6 per cent to 1.1 million units from 3.4 million units, the value of securities depleted by 24.3 per cent to N47.3 million from N62.4 million, and the number of deals went down by 18.2 per cent to 36 deals from 44 deals.
The most traded stock by value on a year-to-date basis was CSCS Plc with 37.6 million units valued at N2.3 billion, trailed by Okitipupa Plc with 6.3 million units sold for N1.1 billion, and MRS Oil Plc with the sale of 3.4 million units for N506.8 million.
As for the most traded stock by volume on a year-to-date basis, it was Resourcery Plc with 1.05 billion units worth N408.7 million, followed by Geo-Fluids Plc with 123.1 million units traded for N481.6 million, and CSCS Plc with 37.6 million units transacted for N2.3 billion.
By Adedapo Adesanya
Oil prices fell in the later session of Monday after initially crossing the $100 per barrel mark as the escalating Iran war by the United States and Israel squeezed world energy supplies, boosted the Dollar, and dampened hopes of interest-rate cuts.
Earlier, Brent crude futures climbed to a high of $119.50 per barrel, and the US West Texas Intermediate (WTI) to $117.48 a barrel. However, it dropped later after US President Donald Trump suggested that the US conflict with Iran could soon wind down.
Data gathered by Business Post showed that the price of the Brent crude grade dropped 5.4 per cent to $87.68 per barrel, and the US WTI lost 7.4 per cent to trade at $84.21 a barrel.
President Trump is expected to review a set of options to tame oil prices, reflecting White House worries that the surge in oil prices will hurt US businesses and consumers ahead of the November midterm elections, when the ruling Republicans are hoping to retain control of Congress.
Reuters reported that the US is discussing with counterparts from the Group of Seven major economies a possible joint release of crude oil from strategic reserves. It also reported they are weighing other options, including restricting US exports, intervening in oil futures markets, waiving some federal taxes and lifting requirements under a US law called the Jones Act that domestic fuel must move only on US-flagged ships.
The Trump administration officials are also exercising diplomatic pressure on Gulf allies to help restore production and shipping of oil.
Market analysts have warned that Gulf producers are only able to sustain normal production for roughly 25 days if the Strait is completely blocked.
The expanding US-Israeli war with Iran led some major Middle Eastern oil producers to cut supplies due to fears of prolonged disruption to shipping through the Strait of Hormuz chokepoint.
Oil-driven inflation fears and delayed rate-cut expectations likely strengthened US yields and the Dollar, outweighing safe-haven demand.
The recent 10-day conflict in Iran is beginning to ripple through the global aviation industry, threatening what had been a strong outlook for aircraft demand.
JP Morgan has warned that Iran’s oil production could be slashed in half and oil exports could virtually stall if the US-Israel seize Iran’s Kharg Island, worsening the ongoing global oil shock. The island is regarded as the backbone of Iran’s oil infrastructure, handling approximately 90 per cent of its crude exports.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited ended its first trading session of this week on a positive note after it improved by 0.12 per cent on Monday.
Buying pressure across key sectors of Customs Street influenced the growth achieved yesterday despite the global instability triggered by the war in Iran by the United States and Israel.
Energy stocks on the local bourse have continued to benefit from the crisis, which has raised the price of crude oil above $100 per barrel.
The energy index was up by 2.07 per cent during the session, and the consumer goods sector appreciated by 0.58 per cent, while the insurance and banking indices depreciated by 3.05 per cent and 0.99 per cent, respectively.
When the closing gong was struck on Monday, the All-Share Index (ASI) increased by 228.82 points to 197,196.97 points from 196,968.15 points, and the market capitalisation garnered N147 billion to settle at N126.584 trillion compared with last Friday’s N126.437 trillion.
The trio of Conoil, Legend Internet, and Omatek advanced by 10.00 per cent each to N185.90, N7.04, and N2.42 apiece, as NGX Group chalked up 9.97 per cent to trade at N166.00, and Oando appreciated by 9.96 per cent to N54.65.
Conversely, Aluminium Extrusion shrank by 10.00 per cent to N13.95, SCOA Nigeria declined by 9.90 per cent to N30.95, RT Briscoe lost 9.87 per cent to finish at N10.87, Sunu Assurances crashed by 9.81 per cent to N4.32, and Union Dicon lost 9.76 per cent to settle at N14.80.
The most active stock for the session was Fortis Global Insurance with 120.4 million units worth N174.1 million, Access Holdings exchanged 32.2 million units valued at N818.5 million, Chams traded 28.3 million units for N110.5 million, Zenith Bank transacted 25.3 million units worth N2.4 billion, and Japaul sold 21.6 million units valued at N82.1 million.
At the close of trades, market participants bought and sold 762.5 million shares for N31.2 billion in 86,488 deals during the session, in contrast to the 586.2 million shares valued at N30.6 billion traded in 62,699 deals in the preceding session, implying a spike in the trading volume, value, and number of deals by 30.08 per cent, 1.96 per cent, and 37.94 per cent apiece.
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