AN ENTIRELY CHEAP ETERNA???

AN ENTIRELY CHEAP ETERNA???

                                Eterna Plc, a quoted public limited integrated energy company engages in the manufacturing and sales of lubricating oils importation and bulk /retail sales of petroleum products including PMS ,AGO, LPFO, Base oils Bitumen, and export of lubricant/Fuels, Bunkering, Gas distribution and marketing (LPG and NG), Offshore and Onshore oil services, Gas processing , equipment supply services and other engineering and technical services for the energy industry.

                                                                                     CULLED FROM www.eternaplc.com 22-05-12

The above should give us an insight of the company Eterna…but eeh don’t allow us to get swayed by the by their description, if I am in their shoe I will also give a boom picture of my myself, I as an aspiring financial analyst and other host of analyst will prefer a mind-blowing analytical analysis to be swayed, so the above carries no major weight in the investing world.

After much anticipation which was almost causing an undue apprehension, Eterna Plc finally released it 2011 audited financial statement to the investment public and without much ado or prejudice I can say the result is fair and balanced. I would have love to base this analysis on the reported final year figures but I do not think the full published report is ready this would have been able to allow me carry out to the best of my knowledge a full and comprehensive analysis. But for reference purpose the result is attached below.

PROFIT AND LOSS INFORMATION Turnover 31-12-11 N41.068b 31-12-10 N14.138b Cost of Sales 11 (N38.628b) 10 (N12.585b) Other Income 11 N1.001b 10 N1.217b Admin Expenses 11 (N1.290b) 10 (N1.010b) Interest Expense (Net) 11 (N360.456m) 10 (N601.215m) Profit before Tax 11 N1.789b 10 N1.159b Taxation 11 (N578.726m) 10 (N436.979m) Profit after Tax 11 N1.211b 10 N722.751m

BALANCE SHEET INFORMATION Fixed Assets 31-12-11 N1.262b 31-12-10 N1.107b Long term Prepayments 11 N4.831b 10 N5.134b Stocks 11 N1.058b 10 N340.533m Trade Debtors 11 N2.164b 10 N1.448b Cash and Bank Balances 11 N1.155b 10 N261.798m Other Debit Balances 11 N4.240b 10 N985.657m Trade Creditors 11 N495.350m 10 N787.164m Short term Borrowings 11 N669.814m 11 Nil Other Credit Balances 11 N7.711b 10 N3.867b Working Capital 11 (N18.308m) 10 (N465.517m) Net Assets 11 N5.834b 10 N4.623b

STILL NO DIVIDEND? It is like yesterday when Eterna brought out it 2010 Financial statement without backing it up with dividends or bonus, a host of us was jolted, well that’s bygone by now, but to one amazement again the above result was not also backed up with dividends or bonus, can we then conclude STILL NO DIVIDEND??? I can’t answer that but what I noticed is that neither AGM nor other important dates has been provided so hopefully investors might still smile home. 

To resolve my puzzle of an ENTIRELY CHEAP ETERNA??? I will be focusing attention on the recent released quarter1 2012 result recently released, find it below-

Unaudited Results (March, 2012) Statement of Comprehensive Income Turnover 31/03/2012 N41.240b 31/03/2011 N3.837b 31/12/2011 N41.068b Cost of Sales 12 (N40.292b) 11 (N3.274b) Audited 11 (N38.628b) Other Income 12 N16.196m 11 N343.274m Audited 11 N1.001b Admin & Other Expenses 12 (N281.319m) 11 (N262.719m) Audited 11 (N1.290b) Interest Expenses 12 (N76.683m) 11 (N79.983m) Audited 11 N(360.456m) Profit before Tax 12 N605.646m 11 N563.115m Audited 11 N1.789b Taxation 12 (Nil) 11 (Nil) Audited 11 (N578.726m) Profit after Tax 12 N605.646m 11 N563.115m Audited 11 N1.211b

Statement of Financial Position Plant, Property & Equipment 31-03-12 N1.360b 31-12-11 N1.262b Long term Prepayments 12 N4.804b 11 N4.831b Stocks 12 N3.059b 11 N1.058b Trade Receivables 12 N1.944b 11 N2.164b Cash and Bank Balances 12 N977.836m 11 N1.155b Other Debit Balances 12 N1.873b 11 N4.240b Trade Payables 12 N3.012b 11 N495.350m Short Term Borrowings 12 N446.206m 11 N669.814m Other Credit Balances 12 N4.120b 11 N7.711b Working Capital 12 N753.222m 11(N18.308m) Net Assets 12 N6.440b 11 N5.834b

Though the above result is what was been culled and confirmed from various sources, but should we go by this it will implies that Eterna oil has made in one quarter(Q1,12) more than it earned  for the entire 2011 year!!! Well in the business world nothing is impossible but for now let’s assume this is impossible so I shall re-adjust for this analysis sake the TURNOVER and COST OF SALES as shown below-

Turnover 31/03/2012 N4,1240b 31/03/2011 N3.837b 31/12/2011 N41.068b Cost of Sales 12 (N4,0292b) 11 (N3.274b) Audited 11 (N38.628b)

Starting from the topline, the firm increased its turnover from N3,837b in q1,11 to N4,124b q1,12 representing a 7.5% increment, though minute yet gives an indication that the management is not yet complacent in its effort in expanding it business frontiers ever since it returned to profitability in 2010.

Some analysis signal to be deuced from this includes our ATORatio (Asset turnover ratio) and RVS (RevenuePerShare). Deducing our ATORatio(Fixed assets only) gives us a ration of 3:1 while ATOR(net asset) gives us 0.64:1, this two values gives a positive indication that management is vehemently making positive use of its assets to generate adequate returns, but who says they cant improve?

            

           Also our RVS an indicator which gives us a snapshot of what a unit of share is generating in terms of Turnover or earnings, giving the current outstanding share of Eterna to be 1,249,162,828, our revenue per share give me a value of N3.3 which further implies that an investor is currently willing to use his N3.22 (Current floor Price) to generate N3.3 as earnings

             

           It is however pathetic that the firm could not do much to control it cost of sales as it jerked up more  when juxtaposed with the percentage increased in turnover, from 3,274b in Q1,11 to N4,029b in Q1,12 representing a whopping 23% compared to our earlier derived 7.5% increase in turnover. If we as managers has done well in increasing our turnover, our strenuous effort will amount to nothing if we are not been meticulous in controlling the cost of sales, with this cost of sales value we need no rocket science to show that our COST to SALES ratio will be on the high side, a ratio that optimally should not even be close to 1:1.

                Deducing our COST to SALES ratio gives me a value of 0.97:1 so close to 1:1, imagine us dividing a turnover with its cost with such turnover having the same values as that of the cost, such leaves us with nothing as profits.

                Also from the above q1 result there is a decrease in the sundry income, such been a good or bad omen is beyond my analytical intelligence but I think from a personal point of view, I will prefer to see a firm generate more from its core operation than from other sources, so as for me this plummeted sundry income should not create any phobia. We can also decide to be creative by deducing sundry to core income ratio.

                Administrative expenses though increased but was still maintained at an optimal level an about 8% increment and it makes me ponder again why the same company can’t control it turnover cost after using almost the same administrative expenses to generate such turnover!

                Also worthy of note is the INTEREST EXPENSES, can’t really fathom where such interest expenses is emanating from, either it’s from overdraft, short-term or long-term loan, but it’s exciting seeing the firm bringing down the expenses. This will definitely yield a positive impact on our ICRatio (IntrestCoverage). ICratio gives a value of 8,9:1 which implies that this firm is generating as earnings 8.9times the interest its paying for it debts, this further implies that more funds will be freed up as PBT and PAT therefore interest on its debt is in no way a burden to the firm.

                Considering our PBT and PAT, both grew by 7.6% on QoQ basis, though I believe that the company should have been able to achieve more than this had it been able to trim down its increasing cost of sales, this I believe the management should work on in subsequent quarters. However raising my own eyebrows is why the company is not taxed or why tax was not been deducted, an effect which gives us the same PAT  as PBT which also both gives rise to the same Profit Margin of 14.7% which shows no improvement compared to q1,11 of 14.7% yet we had an increase in Turnover. This can further be traced back to our huge cost of sales as I have shown that interest expenses is not a burden on this firm and at the same time tax was not been deducted. All this shows how pertinent a firm should take control of its cost of sales.

                From PAT we move on to deduce the value of our EPS and PE respectively, calculating the EPS the q1 result gives a value of 0.48k with a PE of 6.71. Judging it current value of EPS and PE shows an investor is currently making 0.48k with N3.22 or perhaps he or she is earning as final profit .48k from the N3.3 its N3.22 its generating as turnover, Shrewd or Reckless? The PE also gives us an inkling to how expensive or cheap the stock is, it must however be noted that this two valuations are better valued when juxtaposed with related companies or industry average but unfortunately this is a bottom-PAUSED analysis on Eterna and Eterna alone.

                Of tantamount importance to the above valuations is the ROA and ROE, ROA tells us in a nutshell how the management is judiciously making use of its asset while ROE tells what the management is generating in terms of returns for investor. Evaluating both ROA and ROE gives us a 10.6% and 9.4% respectively which are both something to be pleased with.

                Value investors like Graham and Buffet begins their investment decision from the Net Asset Value of their prey so its imperative we calculate our NAVper Share, from the figures above my NAV valuation gives N5.16, this above the current floor price of N3.22 shows one is not only watching his or her margin of safety but also getting a bargain, should we then conclude that our Eterna is Entirely cheap?????  With the value of NAV, My deductions for PBV give me a value of .62k

                Also worthy of note and commendation is the working capital which has moved from the negative horizon in q1,11 to a positive value of 753m in q1,12 which makes the firm more liquid in the short term.Also an important valuation is our Debt to equity ratio, a ratio that tells us more of the finance  this firm is using as a backbone for running the business  out of creditors finance or shareholders funds.

                All the above are strictly fundamentals attributes, should we then base our response of an entirely cheap Eternal to Fundamentals alone? NOPE I guess, the data below will aid some technical valuation  for us

Current  Price N3.22 as at 22-05-12

52week High-    N5.59                                                          YrHigh- 5.25                                         

52week low-      N2.62                                                          YrLow-2.62

NSE ASI- 22,232.36                                                             52wks%Change  -42%

DISCLAIMER

                This is no way an advice or recommendation and should be taking with a lighter note as the writer, 1himself is fresh graduate of Physics with no formal knowledge in the finance world. Also this is neither a Top down or Bottom up analysis which therefore cannot in anyway be use to adjudicate investing decision.  Above all the “ENTIRELY CHEAP ETERNA OIL???” Puzzle remains unsolved…