Ardova Loses 14% Amidst Plan to Go Private

Downstream oil and gas company, Ardova Plc, lost 14% of its market valuation last week amidst an offer to take out the company’s minority shareholders.  At the close of the trading session on Friday, its market valuation slipped to N22.50 billion on the Nigerian Exchange.

There have been major concerns about Ardova’s earnings outlook for the financial year 2023, amidst rising cost pressures and foreign exchange scarcity for the downstream sector’s operators.

Ardova Plc reported a loss per share, and analysts are of the opinion that factors that drove negative performance still exist, and high debt obligations would add additional pressure to its performance.

Recently, its major shareholders completed the final payment for the acquisition of the company to billionaire investor, Femi Otedola. The company’s stock which opened at N20.15 ended the week at N17.35 over selloffs. Except for what the market considered a weak offer price, analysts are of the view that the final payment will speed up its parent plan to delist the company from the Nigerian Exchange.

Ardova Plc recently notified Nigerian Exchange Limited that Ignite Investments & Commodities Limited has approached its Board of Directors with the intention to acquire the shares held by other shareholders of the Company at an offer price of ₦17.38 per share.

Now, the company shares trade 3 kobo below this offer price, it is unlikely that minority shareholders will pick the offer due to the marginal gain. Its major shareholder paid N66 per share to acquire 74.02 per cent stake in Forte Oil Plc, now Ardova Plc, in July 2019.

Recently, its majority shareholder of Ardova Plc completed the company’s acquisition with the settlement of the final amount of $19 million. In April, GCR downgrades Ardova Plc’s Ratings with a negative outlook.

The downgrade came following its decision to finance the acquisition with borrowings. Over the next 24 months, GCR Ratings indicated an expectation that the integrated energy company will record net losses.

It said Ardova’s earnings has deteriorated in the last 18 months.  Despite an increase in revenue, its profitability has been under pressure after large borrowings to finance the acquisition of Enyo Limited.

To strengthen its position, the management has hinted at a plan to inject equity capital in 2023 amidst low cash holdings.  The company’s debt jumped over six times to N58.6 billion in the financial year 2021 -against an expectation of around N30 billion – and remained high at N55.1 billion in financial 2022.

Whilst analysts had factored in the N25.3 billion in bonds that were issued in 2022, the additional N26 billion in bank debt pushed gross debt well above expectation, according to the rating note. The company plans an equity injection in two of the new subsidiaries of Ardova before the end of financial 2023 which may support an improvement in capital structure, according to GCR Ratings.

Cordros Capital said in its industry report that the downstream oil and gas sector remains plagued by operational challenges, such as inadequate infrastructure, FX liquidity constraints, and most recently, Premium Motor Spirit (PMS) supply shortages.

In its industry report, Cordros Capital Limited also considered the downstream oil company’s financial year 2022 performance underwhelming.

The marketer’s unaudited numbers reflect the challenges in the downstream oil and gas sector, such as cost pressures following the surge in crude oil prices, the highly inflationary environment, and the unprecedented fuel supply crisis through 2022.

As a result, the company recorded a loss-per-share of N5.80 in 2022 versus EPS of N0.38 in 2021 following a 189bps decline in operating margin and an 81.6% increase in net finance costs.