ISSN 1597 - 8842 Vol. 1 No.

99

Investing in the Oando Plc Rights Issue

Issued on January 12, 2013

Contents
Executive Summary The Rights Issue - Fast Facts The Investment Case o o o o o Companys Background and Summary Industry Review and Peer Comparison SWOT Analysis Competitive Edge Analysis Growth and Expansion Strategy 8 9 10 11 12 13 3 5

The Investment Analysis o Fundamental Analysis Management

Earnings per Share (EPS) Earnings Ration /Yield Profitability Posture Contribution of Income Stream Finance Cost

14 14 14 15 15

o Technical Analysis
Most Recent Stock Performance of Oando Plc Shares Impact of Rights Issue on Oando Plc Investors Shareholding 17 18

The Analyst Opinion

20

ISSN 1597 - 8842 Vol. 1 No. 99 Lagos, January 12, 2013

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Equity Report on Oando Plc Rights Issue ISSN 1597 - 8842 Vol. 1 No. 99

Executive Summary
The Oando's right issue offer wins our 'buy or trade' recommendation after considering the long term investment approach and strategy of the company which has continued to yield both organic and inorganic growth in recent times. Whilst we had to wrestle with adding up the numbers, we considered the state of industry, the uncertain but potential laden economic opportunity inherent in the sector the company plays in; and especially the trajectory of government initiatives and policy to conclude that the sector retains any investor interest in Nigeria and second, that the company possesses the capacity to tap into this growth trend and indeed leverage it to deliver long term value. Proshare examined the volumes of data, information, analysis and records available directly and indirectly on the quoted company as far as it could to access the investment implication of the rights issue. We equally poured through primary data provided by the Nigerian Stock Exchange and the offer prospectus which were validated with discussions with fund managers and existing investors/stakeholders. The analysis presented below therefore represents our factual examination of publicly available data (supported by market intelligence) available to evaluate an investment decision on the companys offer to existing investors. We examined the risk and mitigating factors related to the investment and found it applicable to firms operating in the sub-sector of the Nigerian Stock Exchange, save for firm-specific risks related to its diverse operations and multi-layered structure which often tends to lag behind the realities of a changed market as envisioned by Oando Plc one of rapid growth and expansion through inorganic platforms, diversification approached designed to strengthen as well as exploit opportunities, and the managements ability to navigate the business of the downstream marketing in a fiercely competitive yet troubled market place into the upstream market; where benchmarks often shifts undecidedly towards a resolution in favour of market driven economics. The Nigerian Oil & Gas Sector, of which the report is premised, albeit not detailed in this equity report, has continued to experience uncertain, yet steady cash flows on the back of a changing business model; which despite the planned changes envisioned in policy is expected to favour local entrepreneurs and first movers in the mould of Oando Plc. We have highlighted certain aspects of the offer which investors might want to note in our Fast Facts and have presented the report in the main, into three broad sections; the investment case, the investment analysis and the opinion. Our view is that though the equity has struggled to deliver an acceptable believability index based on the timing and execution of its more ambitious projections; yet has rallied the required sentiments to reposition itself to play in the upstream sector and thus become the first quoted company to play in same with all attendant benefits worthy of consideration by risk friendly investors. We encourage your feedback on this report for necessary stock updates and review. Thank you.

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2. The Rights Issue - Fast Facts

Opening Date Closing Date Authorised Share Capital Number of Shares on Offer Offer Unit Price Method of Offer Now being issued: Purpose Of The Issue And Use Of Proceeds Friday, 28 December, 2012 Wednesday, 06 February, 2013 N5,000,000,000 comprising 10,000,000,000 Ordinary Shares of 50 kobo each 4,548bn Ordinary Shares of 50 Kobo each at N12.00 Per share N12.00 per share (In full on acceptance) Offer by way of rights to existing shareholders 4,548,236,276 Ordinary Shares of 50 kobo each The Rights Issue is a critical step for Oando towards the execution of its strategic expansion plans; optimising its balance sheet and improving its leverage position. The net issue proceeds, estimated at N52,938,527,935.78, after deducting the total cost of the Issue, estimated at N1,640,307,376.22 (representing 3.01% of the Issue), will be applied as follows: DESCRIPTION BREAKDOWN AMOUNT % PERIOD (N) Part-repayment of First City 19 Immediate N60 billion Monument Bank 9,969 bn syndicated loan led PLC by First City Bank of 6,396 bn 12 Immediate Monument Bank to First Nigeria PLC fund the acquisition of upstream assets Guaranty Trust 9,220 bn 17 Immediate and swamp drilling Bank PLC rigs Stanbic IBTC PLC 2,189 bn 27,776 bn Part financing of acquisition of upstream and midstream assets Oando, through its subsidiary, Oando Energy Resources (OER) has been selected as the preferred bidder to enter into exclusive negotiations on the sale and purchase agreement of Conoco Phillips Nigerian business which comprise of: i) 20% stake in OMLs 60, 61, 62 and 63; ii) 17% stake in Brass LNG; iii) 95% stake in OML 131; and iv) 20% stake in OPL 214. Both OML 131 and OPL 214 are deep offshore assets, while the remaining assets are part of COPs onshore portfolio. Investment in working capital, to support increased level of business 23,700 bn 4 52 45 9 months Immediate

UTILIZATION Upstream Refinancing Assets

Working capital Total

1,461 bn 52,938 bn

3 100

Ongoing

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Utilization Proceeds (%)

of

Market Cap: Pre Offer Post Offer Preferential Allotment

N27,289,417,656.00 N81,868,252,968.00 Two (2) new ordinary shares for every one (1) ordinary share of 50 Kobo each held as at the close of business on Friday, 19 October 2012 for those shareholders whose names appear on the Register of Members and transfer books of the Company which are maintained in Nigeria and shareholders whose names appear on the Register of Members and transfer books of the Company which are maintained in South Africa as at the close of business on the last business day prior to the Issue opening date in South Africa N12.00 per share In full on Acceptance The ordinary shares being issued shall rank pari passu in all respects with the existing issued Ordinary Shares of the Company and shall qualify for any dividend (or any other distribution) declared for the financial year ending 31 December, 2012, in so far as the qualification date for the dividend (or any other distribution) declared is after the allotment of the ordinary shares now being issued.

ISSUE PRICE: PAYMENT: Status

Group Structure

Surplus Subscription Monies Supplementary Allotment

Despatch Share Certificate

of

If any subscription for additional shares is not accepted or is accepted for fewer shares than the number applied for, a cheque for the value of the additional shares not accepted will be returned with accrued interest by registered post within 5 (five) working days after the date of allotment. Ordinary shares which are not taken up by Wednesday, 06 February, 2013, will be allotted on a basis to be determined by the Directors of Oando and cleared by SEC, to existing shareholders who have applied and paid for additional shares by completing item (2) of box B. Ordinary shares not taken up by shareholders after allotment will revert to the unissued authorised share capital of the Company. The CSCS accounts of Nigerian Shareholders will be credited not later than 15 working days from the date of allotment. Nigerian Shareholders are thereby advised to state the name of their respective stockbrokers and their Clearing House Numbers in the relevant spaces on the Acceptance Form. Certificates of Nigerian Shareholders that do not provide their CSCS account details will be dispatched by registered post not later than 15 working days from the date of allotment. Allotment of shares to JSE Shareholders will be distributed through Computershare Investor Services (Proprietary) Limited in accordance with the relevant laws and practice of the

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Republic of South Africa. Listing The JSE has granted listings for the letters of allocation and rights offer shares as follows: 4,548,236,276 letters of allocation Commencement of listing: Last day to trade for letters of allocation: JSE code: ISIN: 4,548,236,276 rights offer shares Commencement of listing Indebtedness Non-current Syndicated gas project facility Project finance Other long term loans Current portion of long term loans Total Current Import finance facilities Commercial papers Overdraft Current portion of long term loans Total Claims Litigations and

Friday, 28 December, 2012 Wednesday, 30 January, 2013 OAO NGOANDORIHT0 Wednesday, 22 May, 2013 N000 16,240,596 2,947,927 84,672,215 -18,268,967 85,591,771 N000 39,670,265 36,692,376 25,361,628 18,268,966 119,993,235

The Company is, in its ordinary course of business, involved in nine (9) pending cases, three (3) of which are at the trial court and the remaining six (6) at the Court of Appeal. Cases 3 6 2 2 Description The Company instituted three (3) cases as Plaintiff/Appellant Cases were instituted against the Company Cases against the Federal Board of Inland Revenue Cases against the Federal Inland Revenue Service (FIRS) Total monetary claim

N200, 500,000.00 and US$175,000.00

N891, 951,479.60

The Companys actual liability in the cases instituted against it will be as eventually determined by the courts upon conclusion of the matters. The Solicitors to the Issue are of the opinion that the liability that may be incurred by the Company from the cases instituted against it should not have any material adverse effect on the Issue. The Companys directors are also of the opinion that the cases mentioned above are not likely to have any material adverse effect on the Company and or the Issue, and are not aware of any other pending and or threatened claims or litigation involving the Company. Additional information can be obtained at http://www.oandoplc.com/wpcontent/uploads/Oando-AR-2011.pdf First Registrars Nigeria Limited PRICEWATERHOUSECOOPERS FIRST BANK OF NIGERIA PLC FIRST CITY MONUMENT BANK PLC GUARANTY TRUST BANK PLC
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Prospectus Registrars Auditors Bankers

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Activity Table/Time Table

ACTIVITY The ZAR/Naira exchange rate determined by the close of business on Finalization data and declaration data announcement released on SENS The exchange rate announced on SENS on Last day to trade in Oando shares in order to settle trades by the record date and to qualify to participate in the rights issue on the JSE (cum rights) Listing and trading of letters of allocation on the JSE while Oando shares trade ex- rights commences at 09h00 on Record date for the rights offer for purposes of determining shareholders entitled to participate in the rights issue at the close of business on Rights offer circular posted to JSE shareholders and form of instruction issued to certificated shareholders Dematerialized shareholders will have their accounts at their CSDP or broker automatically credited with the letters of allocation. Certificated shareholders provisional allotment will be created in electronic form and held in Computer Share Rights offer opens in South Africa at 09h00 CAT on Last day to trade in letters of allocation in order to settle trades by the close of the rights offer and participate in the rights offer at the close of business Record date for the letters of allocation Rights offer closes at 12h00 CAT in South Africa and payment to be made Payment to be made and held in Escrow CSDP/Broker accounts in respect of the dematerialized shareholders credited with the rights issue shares and debited with any payments due in respect of rights issue shares on or about. Dispatch of share certificates to certificated shareholders. Listing and trading of rights offer shares on the JSE commenced at 09h00 on Results of the rights offer and basis of allocation of excess rights offer shares announced on SENS on or about Results of the rights offer and basis of allocation of excess rights offer shares published in the South African press on or about

Date 20-Dec-12 21-Dec-12 21-Dec-12

27-Dec-12

28-Dec-12

4-Jan-13 7-Jan-13

7-Jan-13 7-Jan-13

30-Jan-13 6-Feb-13 6-Feb-13 6-Feb-13

22-May-13

22-May-13

23-May-13

Adjustments to the number of rights offer and excess rights offer shares listed effected on the JSE, on or about 23-May-13 Sponsor to Oando PLC MACQUARIE FIRST SOUTH CAPITAL (PTY) LIMITED in South Africa Solicitors to the BANWO & IGHODALO Company TEMPLARS (Barristers & Solicitors) Solicitors to the Issue

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3. The Investment Case Companys Background & Summary

Ticker Sector Date of Incorporation Date of Listing Year Ending Number of Shares Outstanding Market Capitalization % of Market Capitalization 52 Weeks High 52 Weeks Low YTD Return 52 Weeks Average Traded Volume
Source: NSE/TheAnalyst

OANDO Oil and Gas 2003 27th February, 1992 31-Dec 2,274,118,138.00 30,928,006,676.80 0.33% 24.8 10.94 10.12% 2.85 million

Oando plc, through its subsidiaries, provides integrated energy services in Nigeria and internationally. The company markets a range of refined petroleum products, including premium motor spirit, automotive gas oil, dual purpose kerosene, aviation turbine kerosene, low pour fuel oil, lubricating oils and greases, insecticides, bitumen, chemicals, and liquefied petroleum gas. Year 1956 Feb 1992 Description Oando commenced operations as a petroleum marketing company in Nigeria under the name ESSO West Africa Incorporated The Companys shares were listed on the NSE Ocean & Oil Investments Limited (OOI) acquired a 30% stake in Unipetrol from the FGN and thus became the core investor, while the remaining 10% was sold to the Nigerian public. Unipetrol acquired a 60% stake in Agip Nigeria Plc (Agip). The US$86 million acquisition was the largest ever of a quoted Nigerian company as at the date thereof Unipetrol subsequently merged with Agip, and the combined entity was re-branded Oando PLC Oando consolidated its affiliate and subsidiary companies into an integrated energy group Became the first African company to accomplish a cross-border inward listing on the JSE. Undertook a corporate restructuring in which it carved out its downstream petroleum marketing business into Oando Marketing Limited, a new wholly-owned subsidiary. Acquired OOIs entire holding in jointly-owned subsidiaries via a Scheme of Arrangement, making these companies wholly-owned subsidiaries of Oando. Completed a Reverse Takeover (RTO) involving the former Exile Resources Inc. to become Oando Energy Resources Inc. (OER). ..An integrated energy solutions company with operations geographically spanning several jurisdictions of Europe, North America and West Africa and primarily in Nigeria.
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2000

August, 2002 Dec 2003 2004 25 Nov, 2005

2007

2007 July, 2012

Oando Today

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Industry Review and Peer Comparison

The Nigerian Oil Sector is presently regaining consciousness as improved moderate patronage continues to boost the sector performance ahead of the general market performance. Oando Plc and two others remain the leading drivers among the oil giants. The Q312 earnings report and figures presented in the sector reveals strong indications of mounting challenges in the industry, categorised by a weak earnings profile and sustained weak liquidity challenges as reflected in the state of working capitals and cash positions of the industry leaders. The weak earnings profile of the industry leaders in the Nigerian Oil & Gas may continue till a resolution of the industry practices is resolved through an agreed upon PIB and until such a time, we envision mounting challenges within the industry as the Q3'12 turnover posture suggests. Though, the sector average turnover gained slight weight against previous average posture; it will not be unlikely that this will improve in 2013. Recall that three out of the six oil giants recorded negative growth with their turnovers. See tables below. Oando and Total Plc are the companies recording earnings above sector average of N157.64 billion while Oando Plc led the pack with N487.76billion, translating to 24.3% performance against sector performance growth of 10.5%.

Furthermore, majority of the Oil Giants continued to battle unhealthy working capital scenarios on the back of sustained weakness in their inventories and Cash at Bank & InHand - a pointer to an illiquidity trend in the industry as most of the firms recorded negative working-capital-to-sale ratio, though Oando Plc stayed above the sector average despite its negative posture. (See below)

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This remains the major reason for the sustained weak net assets posture that dominates the industry - an evidence of growing liability, emanating from mounting finance charges and other interest liabilities which appears to be the key burden on the profitability and earnings potentials of the companies under review. The continued negative growth of operating profit in the industry buttressed this further. Basic Ratios: Digging Deep

SWOT Analysis
Strength Strong brand and Goodwill Active and major dealer in Downstream sector Competent and experienced Team of professionals Global Operations : Active dealings in Europe, North America and Nigeria Leading Integrated energy solutions provider within industry Economies of scale and well diversified portfolio Strong exploration technological capability. Opportunities Growing dependency on oil by nations Increased exploration incentives Acquisition of oil Assets in Nigeria and Canada Increased demand for liquefied natural gas Weakness Weak financing capacity to sustain growth rate Cost of growth and expansion Unstable Government Regulations
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Possible legal proceedings

Threats The growing of renewable energies Alternative source of oil or energy Impact of Global Crisis Increased competitive challenges due to Deregulation of the industry New Government reforms and polices Foreign exchange volatility Environmental regulations

Competitive Edge Analysis

Leader in Downstream sector: Oando is a competent indigenous company with increasing energy services potential, positioned as the leading preferred domestic oilfield services partner and provider of high value oilfield services Economies of Scale and scope: Oando is focused on improving the margins of the marketing business through cost management and operational efficiency- The company has secured an exclusive rights to market natural gas to industrial customers in the Greater Lagos area until 2019 and is currently in the process of increasing its retail outlets by up to 100 in order to spread and grow its geographic reach, market share and profitability. Strong brand & Goodwill: Oandos focal point is on operational excellence and best in class health, safety, environment and corporate social responsibility standards to pursue its objectivesgrowth and opportunities consistent with its business lines. Reviews its strategies, policies and procedures: The Company considers acquisition of oil and gas assets for sale by other participants whilst exploring strategic partnerships with international oil and gas companies if deemed profitable. Diversified Portfolio:
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Oando pursues expansion of its oil and gas portfolio through organic and inorganic means. The Company intends to continue further exploration of its existing portfolio (OPL 278 and OPL 282).

Growth & Expansion Strategy

Oandos corporate strategy is to create long-term shareholder value through the profitable operation and expansion of its value streams. In order to achieve this aim, Oando seeks to pursue growth and opportunities consistent with its business lines. As part of its means to achieve its objectives, Oando intends to focus on operational excellence and best in class health, safety, environment and corporate social responsibility standards, whilst pursuing growth. Oando intends to pursue its strategy across its energy value chain through the following objectives: Exploration and Development Portfolio
The Company intends to pursue expansion of its oil and gas portfolio through organic and inorganic means. The Company intends to continue further exploration of its existing portfolio (OPL 278 and OPL 282), thereby increasing its resource base. The Company will also consider acquisition of oil and gas assets for sale by other participants whilst exploring strategic partnerships with international oil and gas companies, if deemed profitable. The Company will also continue to participate in the Federal Government of Nigerias marginal field bid rounds. The Company will continue to take competitive advantage of the Nigerian Content Policy which requires oilfield services contracts to be offered first to competent indigenous companies. Oando intends to be positioned as the leading preferred domestic oilfield services partner and provider of high value oilfield services. The Company intends to secure a new contract for one swamp rig that is not currently under contract and also to expand its rig portfolio to include not only swamp rigs but also rigs for offshore and onshore drilling, as a step to achieving this objective. The Company has taken preliminary steps in respect of this expansion through Akute Power Limiteds execution of the 12.15 MW power plants serving Lagos State Water Corporation and securing exclusive rights to market natural gas to industrial customers in the Greater Lagos area until 2019. The Company intends to optimize its current gas and power footprint through growing market share. Oando intends to remain committed to its market leadership in marketing and the supply & trading of petroleum products. The Company is focusing on improving the margins of the marketing business through cost management and operational efficiency. And also intends to pursue initiative that would see improved earnings before interest, tax, depreciation and amortization in the coming years. The Company is currently in the process of increasing its retail outlets by up to 100 in order to spread and grow its geographic reach,

Energy Potential

Optimization of Gas and Power Development

Marketing Business and Operational Efficiency

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4. The Investment Analysis Fundamental Analysis:

Management and Shareholding Structure

The company operates under a group structure managed by a 15-man Board of Directors comprising of professionals with varied backgrounds applicable to the businesses.

The Group Chief Executive of the Board, Mr. WALE TINUBU, has Over 20 Years cognate Oil & Gas experience. Serves on the Board of many blue chip companies as Chairman and Director and continues to define the stability associated with the Board. The Deputy Group Chief Executive, Mr. OMAMOFE BOYO has over 20yrs Oil and Gas experience. Board member of Gaslink Nigeria Ltd, Oando PLC Togo, Oando PLC Ghana, Stallion Properties, Ocean & Oil Services, Indunmines Ltd, Quantum Voice Systems Ltd, I2I Nigeria Ltd. and Lagos Preparatory School Ltd. Other Directors: FEMI ADEYEMO - Chief Financial Officer, BOLAJI OSUNSANYA - CEO, Oando Gas & Power, PADE DUROTOYE - CEO, Oando Exploration & Production, BANDELE BADEJO CEO, OES, AWOBOKUN YOMI - CEO, Oando Marketing, AYO AJOSE ADEOGUN - CEO, Oando Terminals, AYOTOLA JAGUN - Company Secretary & Chief Compliance Officer, RAPHAEL AWOSEYIN - Chief Engineering and Technology Officer, NGOZI OKONKWO - Chief Legal Officer, THOMAS SULE - Chief Information Officer, IMA OFULUE - Chief Human Resource Officer, CHIJIOKE AKWUKWUMA - Chief EHSSQ Officer, TOKUNBOH DUROSARO Director, Oando Foundation.

Oando Plc: Q3 Financials and the Some Salient Points

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EPS (Earnings per Share): Oando recorded an improved EPS to close at N4.08k per share as against N2.90k recorded in Q212 while the EPS growth stands at 0.40k below sector average of 0.47k. The current EPS seems to have placed Oando below the sector average as regards to results presented so far in the sector. Also, the EPS growth revealed a declining trend in the earnings performance of the company. P/E (Price to Earnings Ratio): Oandos PE ratio stands at 3.29 and 2.70 in both Q212 and Q312 respectively as against the sector average of 27.03 and 11.63 for the respective periods. This shows low valuation from the investors perspective as it reflects the worth of a unit of the companys earning. EY (Earnings Yield): Oando has an above sector average of earnings yield of 26.41% and 37.07% for Q212 and Q312 respectively. This monitors the percentage of returns on unit of money the company puts into investment. To this regard, Oando has a better and growing earnings yield which seems to have contributed to its bottom-line considerably. Profitability Posture: Continued weakness observed but it stayed afloat The company closed with a healthy profitability posture in Q312 on year-on-year trend but not without the sustained quarterly weakness which recorded a 40.36% growth in Q312 against 118.31% recorded in half-year 2012. The sustained quarterly decline may not be isolated from the growing challenges in the industry. The companys PAT closed at N9.27billion against the N3.44billion recorded in Q42011, representing 169.07% performance growth in nine months revealing that some of the diversification and aggressive expansion risks are/could be paying-off.

In addition, the posture of returns on equity (ROE) of the company reveals strong commitment on the part of the management to return value to the shareholders as we have observed sustained northward trend in net assets performance.

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Contribution of Income Streams The income stream of the company is dominated by the supply and trading division with a 70.43% contribution while the marketing division contributed 37.68% into the income stream. The graphical illustration below puts the income distribution into proper perspective.

Finance Cost: The Key Burden on Profitability A cheaper funds or financing approach embraced by the company would go a longer way to ameliorate the effective cost of borrowing, giving the companys strategic decision to engage the inorganic growth model. The finance cost as at the reporting period closed at N10.72 billion. The growing finance cost remains the main burden on the profitability potential of the company as this continued to plunge and places considerable pressure on the finance income which places Net Finance Income at N7.63billion loss as against the N4.77billion loss recorded in Q32011; though, the cost appears well managed with a moderate growth of 5.10% (YoY).

Operating Efficiency: Operating efficiency stays positive - Thanks to improved margins The companys operating efficiency stayed alive throughout the last three quarters as reflected in the PAT and PBT margin, indicating improved operating cost management despite mounting challenges in the industry. This also has its downsides as payments are often delayed by the company; based on exigencies or based on arbitrary decisions by management.

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The operating profit closed at N25.03billion against N22.93billion recorded in the previous years comparable period. This represents 9.2% (YoY) performance growth while profit margin closed at 1.90% against margin of 0.59% recorded in Q42011. This is not an impressive outlook as this came in weaker against 2.24% recorded in the Q32011 but can be situated within the growing challenges faced by the industry; coupled with growing finance charges. Yet, this must be acknowledged as a model that is not able to sustain the enthusiasm and risk involved in the outlook based investment envisaged here.

Liquidity Posture: working-capital-to-sales ratio reveals rationale for the rightissue The weak liquidity posture of the company has put many investors in a cautious mood towards the companys share on the bourse while most remain concerned about the meagre working-capital-to-sales ratio of -12.67%. This may suggest the companys inability to carry out its obligations without further debts an inverse rationale for the right-issue.

That being said, the analyst view of the situation is that whether right or wrong, this rights issue represents a unique, if not the last opportunity for Oando Plc to provide a lasting solution to the investment posture that is beginning to emerge one that would also give a robust room for the company to consolidate on every growth and expansion initiatives embarked upon in the recent years; or confirm it as an obsessive risk taker.

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Technical Analysis: MOST RECENT STOCK PERFORMANCE OF OANDO SHARES

Oando Plc in the last Thirty-Six (36) months wef January 4th, 2010 to January 11th, 2013 has had a share price recording -85.53% depreciation to close at N13.60 against N93.99 it closed at the end of January 4th 2010 trading session. With this trend, Oando Plc has decreased in value significantly; and investors retail and institutional have had considerable concerns on. In the year 2010 alone, the share price of the stock closed with 29.78% depreciation, as against +18.87% appreciations recorded in the entire market in the period. This negative performance showed that the company did not recover in the period under review after the general bearish trend of the market; and against the overall value of the economic and market demand sentiments that existed then. In the year 2011, the YTD performance of the equity as at January 11th, 2012 stood at +10.12% while market performance also closed positive at +4.38%. This change in trend on a year-on-year basis provided room for optimism in 2012. The trend so far in the year based on price movements of the equity price of the stock in the current year 2012 shows that the share price of Oando Plc is among the top performing stocks in the sector.

THE ASI AND Oando PLC

The All-Share Index (ASI) and Oando Plc share prices experienced a series of volatility as they traded sideways during the last year under review. Oando shares recorded a negative performance of -66.67% in 2011, just as ASI dippped by -16.55%. In 2012, Oando recorded a similar performance of -43.86% loss as ASI closed with a +36% appreciation. That being said, Oando Plcs year-to-date performance closed positive at +10.12% (January 11, 2013) as against moderate performance of the entire capital market (ASI) at +4.00%.

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As illustrated from the graph below, Oando Plc traded above its 20days and 50days MA but closed below its 200days moving averages of N12.91, N12.15, and N14.37 respectively.

Technically, Oando Plc share is currently bullish in short term period.

Impact of the Rights Issue on Oando Plc Investors Share Holdings

To showcase the impact of the rights issue on investors share holdings, we have employed the use of a simple scenario to reveal the benefit of investment costaveraging as one of the major advantages of portfolio management in deriving value from a decline value stock. Participation in this right-issue should, on this premise, provide an investor the opportunity of reducing or lowering investment cost significantly an action that should invariably or ultimately shorten profit-timing while returns on investment is positioned to gain more robustness faster than expected. From analysis conducted on two hypothetical portfolios (represented below), it was observed that an investor that participated in the previous right-issue offer put forward by Oando Plc and a current right-issue participant would have averaged down its investment cost to N19.64kobo - a range father from the current offer price of N12.00k, which we expect to increase to about N16.00k before the end of the offer.

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In the converse, an investor who participated in the previous rights issue offer but refused to take up his current rights issue would have his average investment cost at N34.93kobo thus indicating a longer time to recover the loss suffered or a further loss on the transaction if sentiments moved against the investment. The decision to take the offer or to trade will therefore bore down to a risk perception of the offer relative to the alternative open to investors in the sector. The table below puts this scenario in proper perspective.

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5. The Analyst Opinion

This will be a very easy opinion to make. A buy or trade decision will be predicated on a risk perception of the opportunities inherent n the sector relative to a discounting of the believability index, an enthusiastic outlook on the sector potentials relative to the companys positioning and, in all ramifications, a considerations of the relative safety factors i.e. earnings consistency or reasonable justifications for possible below-theexpectation performance in relation to forecast trend, the potential size of the company (organic or inorganic) and price trend as regards to market sentiments towards the stock of the company. The company's low performance against the forecast presented to the market found its justification in an equally justifiable investment strategy that favoured re-investment as an alternative option to dividends to fund/fuel growth and capital appreciation (which did not materialise); yet remains a model that the market must embrace not as a sector issue but as a market approach to engender further growth in the market. We are cautiously optimistic about the new offer forecast presented to the market; even as we encourage a low-cost evening-out approach based on the divergence between the previous offers forecast and actual performance remains significant.

While it remains plausible that the aggressive expansion, acquisition and direct investment made recently by Oando Plc should add huge value to the companys assets posture in no time, fuelled by the anticipated improved earnings profile and prospects which should translate to good returns on investment to shareholders and investors; investors in Oando plc must do so based on their convictions and value judgement on the economics surrounding the emerging landscape of the oil & gas sector which we believe the company will play a significant role.

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It is imperative however that we must equally highlight the indebtedness of the company, and in particular, its non-current (Long Term Loans) which remains high, and indicates a sustained burden on the profitability posture of the company. (See table below) INDEBTEDNESS Non-current Syndicated gas project facility Project finance Other long term loans Current portion of long term loans Total Current Import finance facilities Commercial papers Overdraft Current portion of long term loans Total Source: Proshare/Oando Rights Offer Document Thank you. N000 16,240,596 2,947,927 84,672,215 -18,268,967 85,591,771 N000 39,670,265 36,692,376 25,361,628 18,268,966 119,993,235

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Investing in the Oando Plc Rights Issue Jan 13

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