Goddy Egene writes that high demand for the stocks of Forte Oil Plc due to its improved financial fortunes and diversification into power generation has led to a record growth of 1,321 per cent of its share price
When the share price of Forte Oil Plc (former African Petroleum Plc) was N7.73 at the beginning of 2013, an investor was advised to take advantage of the price and buy into the company given its future prospects.
The investor, based on the performance of the petroleum products marketing firm the previous year, was sceptical and failed to buy the shares. At the time the investor was given the advice, the shares of Forte were the third lowest priced among the nine stocks in the sector.
Looking back 11 months after, the investor is regretting that they rejected that advice because the shares of Forte Oil have given its holders the highest capital gain in the market. As at the close of the last Friday, the shares have soared by 1,321 per cent from N7.75 to N109.86 each.
The equity has become the toast of investors in the past months as enthusiasm about the future prospects of the company continues to drive demand for the shares.
Apart from returning into profitability in 2012, Forte is set for better results in the years ahead as the firm has diversified into the power sector through the acquisition of Geregu Power Generation Plant, Kogi State.
The company was formerly known as African Petroleum but the name was changed after Zenon Petroleum acquired 28.7 per cent equity stake in the company in 2007.The shares were divested by Nigerian National Petroleum Corporation (NNPC), which had acquired them in a N10 billion debt swap in 2005.
Following the acquisition, Femi Otedola took over as chairman and he changed the name after the approval of the company’s shareholders in December of 2010. Although AP was a household name, Otedola told shareholders that the brand was tired, hence a new name.
The company consequently transformed into Forte Oil. It also embarked on rebranding of its retail stations across the country. Forte has Mr. Akin Akinfemiwa as the group chief executive officer.
Other members of board include: Julius Babatunde-Owotuga (group chief financial officer); Mrs. Grace Ekpenyong, Layi Bolodeku; Christopher Adeyemi, Philip Akinola and Korede Omolaja (directors); and Akinleye Olagbende (company secretary/legal adviser).
Forte Oil’s vision is: “To be the preferred energy company, delivering unbeatable benefits to our stakeholders”, while its mission is: “To provide quality products and services using high safety standards and global best practices while remaining profitable and socially responsible.”
Returning to Profitability
For some years, Forte Oil went a rough patch, posting losses. For instance, in 2009, the company recorded a loss of N9 billion, a performance Otedola attributed to the tough operating environment, pointing out the cut in crude oil as some of the problems.
He added that the credit squeeze also made fuel importers unable to source for funds to import products.
“Official delays in the issuance of import allocation and the delay in payments to downstream operators under the Petroleum Support Fund (PSF). This eventually led to the cessation of importation by oil marketers. We therefore, experienced months of lingering fuel scarcity. These issues were, however, resolved with the payment of all outstanding PSF claims and the subsequent introduction of a Sovereign Guarantee Scheme to provide security for private sector imports,” Otedola said.
According to him, the liquidity squeeze and reluctance of banks to lend, resulting in increased inter-bank lending rates, also created difficult in gaining access to credit facilities for business operations.
“Since we are highly dependent on credit financing to run our operations, sourcing funds and the high interest rates became major hurdles to scale throughout year 2009,” he said.
The negative trend persisted and resulted in a loss of N19.9 billion in 2011. But a bright light appeared at the end of the dark tunnel as the company ended 2012 with a profit before tax of N1.149 billion.
Although Forte Oil ended 2012 with lower revenue, it was able to wipe out the loss and bounced into profitability. The company recorded a turnover of N90.9 billion in 2012, down from N116.9 billion in 2011.
It reduced cost of sales from N108 billion to N81 billion in 2012. Gross profit was, consequently raised to N10.14 billion, compared with N8.72 billion in 2011.
Distribution expenses were also reduced by 63 per cent from N13.8 billion to N5 billion. This boosted the performance to a profit before tax of N1.149 billion as against the loss of N19.94 billion. Total assets stood at N42.5 billion, down from N45.2 billion in 2011.
However, its heavy reliance on bank borrowings seriously affected its performance. Forte Oil ended with loans and borrowings of N2.314 billion while bank overdraft rose from N6.37 billion to N9.87 billion.
Commenting on the 2012 performance Akinfemiwa, said it marked the beginning of the company’s three-year transformation plan to a lean, talent-based and technology-driven organisation.
“As we move into 2013 and beyond, we are positive that we shall consolidate the gains of 2012 to achieve exceptional performance as we move towards our vision of becoming Africa’s No 1 energy solutions provider
According to him, Forte Oil carried out a complete restructure of its business with the objective of transforming it into a lean, talent- based and technology-driven organisation that will be more responsive to the needs of its customers.
Akinfemiwa said: “As part of its now improved operational efficiency; controls have improved across business lines, stronger corporate governance and compliance are being ensured at all levels as well as the introduction of the foremost business enterprise solution-SAP. The results released today, is an indication that the company has finally turned the corner towards full recovery.”
Consolidating with Impressive Q3 Results
In line with promise to consolidate on the 2012 performance, Forte recorded impressive results for the nine-month ended September 30, 2013. The company posted revenue of N92.125 billion, up by 28.9 per cent from N71.429 billion. Gross profit stood at N8.527 billion as it rose marginally by 4.5 per cent from N8.158 billion. However, cost and management strategy and reduction in overdraft from banks impacted positively on the firm’s bottom-line.
Finance income of the company rose by 214 per cent from N82.6 million to N259 million, while financing expenses declined by 44 per cent from N1.293 billion to N725 million. Forte also reduced banks’ overdrafts from N9.878 billion to N1.939 billion. This led to a growth of 306 per cent in profit after tax from N656 million to N2.669 billion.
Akinfemiwa said the strong performance was a testimony of the clear focus on business transformation initiatives which include solid corporate governance and business ethics, enhanced safety health and environmental practices across all business lines and superior customer service delivery.
“We remain committed to our mission of building a long-term successful company; boosting investor confidence by making Forte Oil PLC the investment of choice in Nigeria and globally; and creating and sustaining robust returns to our shareholders,” he said.
Speaking in the same vein, Omodayo-Owotuga said: “With a return on equity of over 26 per cent and a 317 per cent increase in PAT, it is clearly a new dawn at Forte Oil as we consolidate the gains of our business restructuring efforts. Our financial and overall business performance as at end of Q3 is a clear demonstration that Forte Oil is on a clear path to dominate our primary market; the downstream petroleum marketing sector. We shall continue to pursue initiatives that will spur business growth and efficiency, liquidity management and aggressive diversification into related high margin business that would continue to increase shareholder value.
Geregu Power Plant
The CFO said the Forte’s recent acquisition of the 414 megawatts (MW) Geregu Power plant was one of the high margin businesses that would continue to increase shareholder’s value. The power plant was handed over by the federal government to Forte early this month. Forte Oil, which acquired Geregu Power as part of its diversification from its primary business of petroleum products marketing.
According to Forte, it plans to carve a niche for itself in power generation by increasing the current capacity of the plant to over 600MW in the short to medium term. The optimisation, Forte Oil said, would be a demonstration of its commitment to help bridge the current power deficit in Nigeria and help actualise the expectations that Nigerians have of the power sector.
Ahead of the operation of the plant, Forte Oil had to build a partnership with seasoned and competent entities in the global power sector and has entered into technical partnership arrangement with the Shanghai Municipal Electric Power Company (SMEPC), China.