Financial Analysis of Mobil Oil Nigeria Plc Group 1

MOBIL OIL NIG. PLC. COMPANY BACKGROUND

Mobil oil, a subsidiary of ExxonMobil, has its head office in Apapa- Lagos. The company began in 1907, with the sale of Sunflower Kerosene. Over the years the company has grown and deployed capital investments in various businesses. Today, Mobil oil is the pacesetter in innovation and efficiency in the retail fuels market and also with a business in vibrant lubes and specialties. ExxonMobil owns 60% of Mobil oil Nigeria Plc. PRODUCT PORTFOLIO Lubricants Petroleum products Insecticides Real estate

MOBIL OIL NIGERIA-INDUSTRY OVERVIEW

The oil sector is divided into the downstream and the upstream sector. The upstream sector is basically oil exploration, while the downstream sector involves the transportation of finish crude products. Mobil Oil Nigeria (MON) plays in the downstream oil sector. The downstream oil sector is made up of major marketers and independent marketers. Mobil Oil Nigeria limited is a major marketer and plays behind Oando as the second major player in the industry. As at 2010, the major oil marketers accounted for 61% of petroleum product supply, the independent marketers accounted for 32%, while NNPC had 7%.

MOBIL OIL NIGERIA-INDUSTRY OVERVIEW contd

The NNPC came into the market of recent in order to the reduce the powers of the major oil marketers in the distribution of petroleum products. In order to achieve this, the NNPC as at 2010, had 12 floating stations, 37 mega stations, and 469 affiliate stations. The industry is a volume industry and is highly import dependent as majority of the refineries in Nigeria are operating below capacity. The industry is still regulated with indications of it being deregulated by January 2012

Progress in the power and downstream petroleum sectors has been slow and reforms are urgently needed with 2006 being one of the most difficult years for the downstream sector. Federal government continues to regulate gas prices and margins thereby controlling supply. To avoid fuel shortages while maintaining the pump price, Government encourages marketers to buy at world parity price and sell at set domestic price with an assurance to claim the difference under the Petroleum Subsidy Fund scheme. There are still long delays in refunding fuel subsidy payments under the PSF even though it has been partially solved via the use of Sovereign Debt notes by the government. There is no fundamental change in the ownership structure of refineries, pipelines and depot infrastructure and the privatization initiatives have so far been unsuccessful. The country continues to be heavily dependent on imports. The government continues to affirm its commitment to deregulating the downstream sector; however it is unclear when this will happen. In 2008, the price of crude oil rose to unprecedented levels and later in the year started to fall rapidly as the economy of many countries around the world slid into recession. The economy has witnessed changes in the financial market, however global economies and financial markets are working hard to reduce their indebtedness and get back to the path of growth.

Macroeconomic Environment

0.9 0.8 0.7 0.6 0.5 0.4

Liquidity Ratios

Current 0.3 0.2 0.1 0 2006 2007 2008 2009 2010 Acid test

Better performance on credit collection and restructuring of bad debts enhanced the companys liquidity.

0.18 0.16 0.14 0.12 0.1 0.08

Profitability Ratios

Net margin 0.06 0.04 0.02 0 2006 2007 2008 2009 2010 Gross margin

The growth in profit was as a result of the growth in volume of the lubricant business and the insecticide business. Mobils profitability was also boosted by rental inflows from its real estate in Lekki , which it rents out to its sister company Mobil Producing Nigeria Unlimited.

ACTIVITY RATIO
18 16 14

12
10 8 6 4 2 0 2006 2007 2008 2009 2010 Inventory turnover Asset turnover

12 10 8 6
4 2 0 2006 2007 2008 2009 2010 Asset turnover

The steady decline in the asset turnover is as a result of the companys inability to capture adequate sales volume relative to their asset utilization because of the reduction in fuel volume sales. The reduction in sales volume was a result of the reduction of imports by the Nigerian National Petroleum corporation.

Leverage ratios
8 7 6

5
4 3 2 1 0 2006 2007 2008 2009 2010

Long term debt to equity

Total debt to equity

Borrowing increased till 2008 mainly due to restructuring cost, pension funding and capital investment (relocation). However, it declined in 2009 and subsequent years because the company had to borrow less as it had begun to reap the benefits of restructuring.

Growth ratios
80

60

40

Turnover 20 Profit before tax Profit after tax

0 2006 2007 2008 2009 2010

-20

-40

The decline in turnover in 2006 was due to the federal government decision to keep the pump price of gasoline at 65 naira per litre. reduction in sales volume by 15% as a result of fuel subsidy. Profit after tax however reduced due to the cost of training staff to use the SAP software. In 2008, turnover increased basically due to a rise in oil prices. Revenue increased due to organisational restructuring, new technology and relocation of head office to Apapa. Profit after tax increased due to a reduction in operation cost (specifically abour) by 40%. In 2009, turnover reduced because Mobil depended on the federal government for products due to the ban on importation. PAT however increased as a result of operating efficiencies generated from implementation of the SAP technology.

Valuation ratios
14

12

10

Valuation Earnings per share Dividend per share

Dividend payout is really attractive for Mobil regardless of the rate of earnings they have ,they ensure that they pay out a large portion of their earnings to their parent company (Exxon Mobil).

0 2006 2007 2008 2009 2010

Conclusion
The industry within which Mobil does business is highly regulated. The rate of profit is directly affected by changes in government policies in relation to petroleum. To mitigate this risk however, the companys dividend payout is high as indicated in the dividend per share calculation. Despite the high returns, investment in such an industry is quite risky and we wouldnt advise any risk averse investor to invest in Mobil Oil plc.

 Vetiva Research Company Reports Sources The Economist intelligence unit.

Thank You

Group Members
Agoha May Ajibola Azeezat Asaolu Temijopelo Awoniyi Bola Enobakhare Ibude Ezeani Chika Oshodi Oluwafunmilola Momah Obianuju Nwagbara Chukwuka Nyong Olusola Suberu Mustapha PAU/LBS/MBA/10/008 PAU/LBS/MBA/10/009 PAU/LBS/MBA/10/014 PAU/LBS/MBA/10/015 PAU/LBS/MBA/10/020 PAU/LBS/MBA/10/021 PAU/LBS/MBA/10/045 PAU/LBS/MBA/10/030 PAU/LBS/MBA/10/031 PAU/LBS/MBA/10/032 PAU/LBS/MBA/10/051