Share analysis: Ghana Oil Company – limited Distribution

The Company

Ghana Oil Company Limited (GOIL) was incorporated as a private limited liability company on June 14, 1960 as AGIP Ghana Company Limited with the objective of marketing petroleum products and related products – particularly fuels, liquefied petroleum gas, lubricants, bitumen, and specialty products in Ghana. The shareholders were the Italian companies AGIP and Snam. On December 16, 1968, Snam transferred its 10% shareholding, representing 95,000 shares to Hydrocarbons International Holdings of Zurich, Switzerland.

In 1974 the Government of Ghana acquired the shares of AGIP and Hydrocarbons International Holdings in AGIP Ghana Company Limited and by a special resolution in 1976 changed the name of the company to its current name, GOIL. By a shareholder resolution passed on August 1, 2007 the company adopted new regulations and was converted into a public company.

The company’s main business is the marketing and distribution of petroleum products in Ghana. GOIL has the largest retail network and numerous customer outlets throughout the country. The consumer outlets include companies, schools, hospitals, factories, hotels, banks and major parastatals. In addition, GOIL has a number of other retail outlets established to market pre-mix fuel and kerosene to rural areas. Gas filling plants have also been installed at some of the filling and service stations and at other locations. Currently, GOIL’s technical partner is ENI of Italy.

The company increased its sales volume by 6% and hence increased gross margins by 57% and operating profit by 48.6%. Earnings per share went up by 45% from GHS0.055 ($0.015) to GHS0.080 ($0.022) in FY14. The total assets of the company have increased 54% to GHS341m ($94.6m) in FY14 from GHS222m ($61.6m) in the previous year. Return on assets has declined marginally from 6.20% in 2013 to 5.92% in FY14 and return on equity for the same period has increased from 23.20% to 26.23%.

Development Strategy

The company has a clear growth path to become the dominant company in the downstream oil industry. Some of the key expansion strategies of the company are the provision of an aviation fuelling facility at Kumasi airport, to enable the local airlines to operate between Kumasi and other parts of Ghana, and a continuation of capital investments in areas where there is potential for higher margins.

The company incorporated its own bulk oil distribution company that goes by the by name GOENERGY to ensure the availability of fuel for the company’s own stations, hence also stabilising the fuel supply in the country. GOIL achieved the ISO 9001:2008 certification and approval to build a fuel storage tank farm at Sekondi Naval Base to boost its bunkering business. The company increased its stations from 185 to 204 by adding 14 fully-owned and five joint-venture stations in FY14.

Forecast

We estimate that revenues for FY15 will increase by about 38.0% due to the various interventions to stabilise fuel supply, working with the Bulk Oil Storage and Transport Company, and the certification and construction of a fuel storage tank farm to boost the bunkering business. GOIL’s strategy is to strengthen internal control structures and to guard company assets to enhance profitability. EBITDA is expected to rise about 40.1% in 2015 compared with 56.7% for FY014. Net income is also expected to increase by 32.1% and the price competitiveness of the company’s products will be a major factor in this increase in earnings. We also expect the long-term debt stock to increase as the company continues to expand, with the provision of an aviation fuelling facility at Kumasi airport and in other parts of the country.