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…
