MRS OIL NIGERIA PLC'S WAITING GAME
Presently, MRS Oil Nigeria Plc is deep in a waiting game that can test the patience of many: It is hoping and praying that the Nigerian government will soon pay backlog of petrol subsidy owed to petroleum marketers; it is hoping that the present fortunes of the downstream sector of the oil and gas industry will change and waiting too, though not quite seen as such, for the day its shareholders and executives will together appreciate the need to suspend dividend payment help build up working capital.
However, on all counts, it is a waiting game that could be threatening and ill advised.
Firstly, even though crude oil prices have behaved better in recent months with renewed OPEC and some other major crude producers common page view, the Buhari administration is not in a position yet to pay up subsidy backlog. It needs all the money it can raise to stay atop of its political promises with all eyes now fixed on 2019 elections; to steer budget 2017 on course and to pay. amongst others, unplanned for executive medical bills in pound sterling.
Secondly, MRS Oil liquidity pressure is not likely to accordingly ease soon if the hope is only on this repayment to reduce indebtedness to financiers. Yet, because its shareholders prefer cash dividend now, dividend payment has been consistent every year and rising since 2014's N0.75 per share to 2015's N0.88 and 2016's N1.10 . So, 2017, goes the forecast, will not be different.
Unfortunately, it ought to be. Cash position dived by 44.82% in 2016 even as short term loans rose by 12.96% leading to 13% increase in finance cost. And, from the 2017 first quarter figures, it is getting worse, not better. With the outstanding subsidy still unpaid, finance cost jumped by 118.6% within the quarter to N366.3m and the forecast of a possible reduction of the full year figure to N732.7m from 2016's N1635.8m now seems a dream.
So MRS oil needs cash and better cash management and conservation to ride the current tides hence it must take more seriously its desire to retain more earnings to beef up equity capital and indeed working capital. Suspending dividend payment, all things in 2017 still remaining the same, may be the surest bet to having more funds to think out of the current box shaped by troubled downstream sector.
Lastly, without stronger liquidity base, the wait for the fortunes of the sector to change could be dangerous because it will be quite a while before it will be easy to source money and be in a position to import petrol for sale in Nigeria like before. Yet, MRS oil is almost 70% dependent on petrol sales with volume heading down understandably by 14% in the first quarter because of import constraints
Business in kerosine, automotive gas oil and aviation turbine kerosine is growing very well in terms of both volume and price but together they are yet to be the main drivers of MRS oil fortunes. And you know what? All of MRS oil capital expenditure in 2017 is targetted at expanding and trying to grow more sales in the same threatened petroleum products sales business.
Mr Andrew Gbadume, the Acting Managing Director, in a Facts behind the figures, session with stockbrokers and financial journalists yesterday at the stock exchange, called it sticking to the business one knows best. Well, it could also demand having a buffer zone to absorb illwinds until they blow over.
So it is possible that the grasses that will grow under MRS Oil feet as it plays its waiting game are grossly reduced margins come 2017 year end; reduced ability to declare dividends and continued float with the tide even while scoring well with controllable cost reduction efforts and sales drive.
However, on all counts, it is a waiting game that could be threatening and ill advised.
Firstly, even though crude oil prices have behaved better in recent months with renewed OPEC and some other major crude producers common page view, the Buhari administration is not in a position yet to pay up subsidy backlog. It needs all the money it can raise to stay atop of its political promises with all eyes now fixed on 2019 elections; to steer budget 2017 on course and to pay. amongst others, unplanned for executive medical bills in pound sterling.
Secondly, MRS Oil liquidity pressure is not likely to accordingly ease soon if the hope is only on this repayment to reduce indebtedness to financiers. Yet, because its shareholders prefer cash dividend now, dividend payment has been consistent every year and rising since 2014's N0.75 per share to 2015's N0.88 and 2016's N1.10 . So, 2017, goes the forecast, will not be different.
Unfortunately, it ought to be. Cash position dived by 44.82% in 2016 even as short term loans rose by 12.96% leading to 13% increase in finance cost. And, from the 2017 first quarter figures, it is getting worse, not better. With the outstanding subsidy still unpaid, finance cost jumped by 118.6% within the quarter to N366.3m and the forecast of a possible reduction of the full year figure to N732.7m from 2016's N1635.8m now seems a dream.
So MRS oil needs cash and better cash management and conservation to ride the current tides hence it must take more seriously its desire to retain more earnings to beef up equity capital and indeed working capital. Suspending dividend payment, all things in 2017 still remaining the same, may be the surest bet to having more funds to think out of the current box shaped by troubled downstream sector.
Lastly, without stronger liquidity base, the wait for the fortunes of the sector to change could be dangerous because it will be quite a while before it will be easy to source money and be in a position to import petrol for sale in Nigeria like before. Yet, MRS oil is almost 70% dependent on petrol sales with volume heading down understandably by 14% in the first quarter because of import constraints
Business in kerosine, automotive gas oil and aviation turbine kerosine is growing very well in terms of both volume and price but together they are yet to be the main drivers of MRS oil fortunes. And you know what? All of MRS oil capital expenditure in 2017 is targetted at expanding and trying to grow more sales in the same threatened petroleum products sales business.
Mr Andrew Gbadume, the Acting Managing Director, in a Facts behind the figures, session with stockbrokers and financial journalists yesterday at the stock exchange, called it sticking to the business one knows best. Well, it could also demand having a buffer zone to absorb illwinds until they blow over.
So it is possible that the grasses that will grow under MRS Oil feet as it plays its waiting game are grossly reduced margins come 2017 year end; reduced ability to declare dividends and continued float with the tide even while scoring well with controllable cost reduction efforts and sales drive.
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