A Review of the Nigerian Energy Industry

Forte Oil: Losing revenue, gaining profit

*Forte Oil.
*Forte Oil.

26 October 2016, Lagos – Forte Oil is likely to close the current financial year with the lowest sales revenue in three years but it could attain a new peak in profit. The oil marketing company lost profit growth momentum last year but it may register the only strong profit improvement in the petroleum marketing sector in 2015. The company closed third quarter operations with accelerated growth in profit from N2.53 billion at the end of the second quarter to N4.28 billion.

Unlike in the preceding two years, strong revenue growth, which provided the strength for profit recovery, is missing this year. Third quarter operations ended with sales revenue of N91.62 billion, which is a drop of 25.3% year-on-year. Based on the third quarter growth rate, full year turnover is projected at N124.2 billion for Forte Oil in 2015 – the lowest in three years. This will represent a drop of 27% from the peak sales revenue of N170.13 billion in 2014.

The company returned to profit in 2012 and a strong growth followed in 2013. It failed to sustain profit recovery in 2014 but a new strength in profit performance has been seen so far in 2015. The company stepped up profit growth from N2.53 billion in the second quarter to N4.28 billion in the third. It therefore shifted from a profit drop of 19.3% year-on-year in the second quarter to a year-on-year increase of 6.7% in the third quarter. The full year profit outlook for the company has improved with after tax profit already standing at 97% of the full year profit last year.

The company has not maintained a track record in earnings performance in the past but a new trend appears to be taking hold. After tax profit declined by about 11% to N4.45 billion in 2014 after a major advance of 432% in 2013. It posted huge losses in the preceding three years to 2011 before a virtual break-even was achieved in 2012. Its peak profit record is the N5.10 billion attained in 2008, which looks likely to be exceeded at the end of this year.

A big leap in other income is a key factor in the company’s ability to grow profit in a declining revenue situation. Other income rose by 216.3% year-on-year to N2.66 billion at the end of the third quarter. Another favourable development is a drop of over 74% in net finance cost during the same period. This is a reversal of the development last year when net interest cost multiplied more than eight times to N2.13 billion.

The high rise in interest expenses was a major factor in the profit drop the company suffered in 2014. Net profit margin has improved further from 4.1% in the second quarter to 4.7% at the end of the third quarter compared to 2.6% at the end of 2014. Forte Oil remains one of the highest on profit margin within its market segment. The company earned N2.59 per share at the end of the third quarter, improving from N2.04 in the same period last year. It is expected to earn N3.50 per share at full year. Earnings per share had declined from N4.32 in 2013 to N2.20 in 2014.

In this article

Join the Conversation