OANDO - Provides Investment

Monday 30 August 2010
- Culled from ThisdayThe investing community seems excited about news that Oando Plc, Nigerias largest integrated energy solutions company is planning a partial divestment of 49 per cent stakes in its marketing arm, Oando Marketing to prospective investors. The sale of up to 49 per cent of the Nigerias biggest fuel retailer is said to be part of Oandos enterprise refocusing to transform itself into a major upstream energy company in Nigeria.Stockbrokers and capital market analysts who commented on the development described it as a ‘win-win situation for existing shareholders of the company as well as a window of opportunity for prospective investors who have been yearning for a share of the Oando cake. This development is more interesting given the background that the offering prices are always at a discount to the actual market price.The strategy is also believed to offer long-term investment option through the companys upstream business, Oando Plc, affording investors the opportunity to maximise risks through diversification. After the divestment and sale of shares to the public, Oando Marketing will be listed separately on the Nigerian Stock Exchange (NSE), thus enabling both Oando PLC and Oando Marketing to have an independent peer-to-peer comparison. This is expected to alter the current classification of companies as the NSE will have to create a different category for Oando PLC, the oil exploration and production business.According to an investment analyst based in Lagos, “The listing of Oando Marketing will definitely create value for shareholders particularly those who missed an opportunity to get on board during the last Rights Issue by the Group. It is also a good way of leveraging on capital appreciation and returns by those who will be lucky to be shareholders in the two companies.”An analyst at Source Capital, Kwekwu Brown,  said: “The deal is good for existing shareholders since they would have the opportunity of having some stakes in the upstream sector, which is lucrative in the long term as well as the downstream, which is matured with high returns on investment. It is a good opportunity for prolific investors to benefit good returns from the two blue chip corporate.”  However, he is of the opinion that the pricing of shares of the marketing arm would determine the value that prospective investors stand to get by investing in the company. In this regard, market analysts opined that the pricing should necessarily offer some incentives to new investors. In the 2009 financial result, Oando Marketing recorded sales in excess of N149 billion and posted profit of N4.9 billion. The marketing business generates a cash flow of N640 million daily in sales and has been delivering profit yearly to the group under the leadership of Omamofe Boyo, who also doubles as the Group Deputy Managing Director. Those who are privy to the development say a new window of opportunity has been thrown open to shareholders by the alternative investment options, all from a Group with proven track record of impressive results in spite of challenging economic environment.For the marketing business, the divestment strategy will provide a credible investment option for shareholders. Towards its expansion drive, Oando Plc has progressed in a strategy of diversifying its interests and has achieved results in this regard.   Specifically, the Group had diversified into the gas distribution business and has built a 100 kilometres of pipeline in Lagos and another 128kilometres in the South East is due for inauguration by the end of the year. The company also moved into the upstream services business and has the largest swamp rig fleet company in Nigeria.  The Groups exploration and production business is the first indigenous oil and gas company to have equity in a producing deep offshore asset. These businesses have established the Group in downstream, midstream and upstream in the oil industry.Key industry operators observed that opportunities in the upstream business for indigenous companies open up with the ongoing reforms in the industry. The Petroleum Industry Bill (PIB), now in the National Assembly, is expected to give preference to Nigerian companies in buying into a substantial amount of proven reserves that have been held for 30-40 years by foreign oil companies and now have to be released.Consequently, Oandos upstream business is looking to leverage on the opportunities that are inherent in the PIB. The bill is designed in part to increase Nigerias overall oil production capacity from 2.5 million barrels per day to 4 million by boosting output in its little-developed swampy coastal areas.   Accordingly, international oil majors are looking to offload the assets because of a “use it or lose it” clause in the PIB that forces the sale of proven reserves that have not been developed for 30 years. This is the first time in Nigerias history that acreage thats been locked up for 30 years is being returned to the market and Oando is adequately positioned to take advantage of the opportunity. Besides, the industry shake-up should also result in the emergence of a major domestic oil company – a role in which Oando sees itself in only a few years time.Oando, which has its primary listing on the Nigerian Stock Exchange (NSE) and a secondary listing on the Johannesburg Stock Exchange (JSE), recently announced an increase in half year turnover by 5 per cent to N172.9 billion in relation to the same period in 2009. The Group grew pre-tax profit by105 per cent to N10.8 billion, while Profit After Tax increased 73 per cent to N6.6 billion.  Commenting, Group Chief Executive, Mr. Wale Tinubu,  said: “The first half of our financial year validates our diversified business model. Overall, positive performance was recorded in the downstream, midstream and upstream divisions of the company”.According to the half year result, the Upstream division realised additional revenue from the newly deployed swamp rig and the steady ramp up in production from the oil & gas portfolio; the Midstream division inaugurated its maiden Independent Power Plant (IPP) and additional connects on its gas pipeline network; whilst the Downstream division made the largest contributions to profitability with the recovery of outstanding payments from the Petroleum Support Fund (PSF). There was also an increase in throughput as a result of the implementation of the Sovereign Debt Note Programme by Federal Government of Nigeria (FGN), which guarantees future subsidy re-imbursements.  Going forward, Tinubu said: “Our focus for H2, 2010 will be to maximise current earnings from existing portfolio, whilst bringing on stream projects in the midstream and upstream to improve overall profitability. The Upstream division is expected to increase production as a result of the inauguration of the OML 56 pipeline and the deployment of the third swamp rig to commence operations in our oil services subsidiary; the Midstream division will be inaugurated and commence operations on its 128 kilometres gas pipeline, which traverses the South East region of Nigeria; the Downstream division will be partly divested to release equity to the Group for investment in the Upstream division, with the support of the FGNs indigenous and local content industry reforms.  â€With these initiatives and barring unforeseen circumstances, we are confident in our ability to deliver an outstanding financial year end performance,” he added.Oando Plc was listed on the floor of the Nigerian Stock Exchange in February 1992. The company currently has a market capitalisation of approximately N123 billion, with 1.8 billion shares outstanding as at June 30, 2010. It is one of the top 10 non-financial institutions quoted on the Nigerian Stock Exchange.The companys revenue has grown at a Compounded Annual Growth Rate (CAGR) of over 50 per cent per annum from 2003 to 2009. In the same period, profit before tax grew at a CAGR of 58 per cent whilst shareholders funds leapt at a CAGR of 121 per cent. By 2010 projected revenue is expected to be in excess of N574 billion.  In 2005, Oando Plc became the first African company to have a cross-border inward listing on the Johannesburg Stock Exchange. The company was listed in November 2005 with the introduction of its entire issued share capital on the main board of the JSE, in the Resources Oil and Gas Sector. A capital market analyst noted that those who invested in Oando in 2005 would have seen an 80 per cent return on their investment.  It is envisaged that Oando will become a leader in the African Energy Sector, delivering world-class service on the continent. “A proudly African Company”, Oandos exemplary standards of corporate governance was commended by the Nigerian Stock Exchange with the “Quoted Company of the Year Award” and the “Best in Downstream Petroleum Sector” for year, 2003, 2004 and 2006.