Oando plc stock price is at 3 year high – time to buy – investment – nigeria online electricity bill payment


Dec 27 (Lagos) – Share of Oando Plc closed at a new one year high today of N 19.97 per unit at the Nigerian Stock Exchange in Lagos. The stock hit these levels on almost volume of 6.9 million units which is less than half the volume as its a daily average 90 day volume. OANDO was higher by 5.11% today adding to gains of this week.

The last time this stock saw these levels was on April 12 2012 when it declined from N 21 per unit to N 19 per unit. Shareholders of this company has long suffered and only now they seem to be recovering a little bit. That is specially true for long term investors of this company who have seen their stock continuously decline from N 120 levels in April 2010. The value destruction in this stock over the past 3 years has been huge.

There is a new momentum in this stock backed by the anticipation of the completion of the Connoco Phillips acquisition deal which is expected by the end of January 2014. This deal could create the biggest Nigerian owned oil company that is fully diversified in the oil and gas sector.

There is also optimism from the Oando Marketing subsidiary which has signed a deal with a German bank to provide capital to micro finance banks in the country to lend to low income householders to enable them to buy Oando’s N 800 LPG cooking gas cylinder and shift millions of householders away from cooking on kerosene fuel.

There is also big optimism the gas to power sector that OANDO operates in. The company already owns a gas fired power plant in Lagos with a huge pipeline across the state. Company is also completing a huge pipeline in the eastern part of the country. The Oando Energy Resources could emerge a power company in future as there is plenty gas supply in Nigeria that can be used to provide electricity to people of the country. While some argue that cost of gas power is significantly higher compared to traditional sources, it is also a fact that the traditional sources of power have failed to consumers for so long.

While all this seems good for the company, many analysts continue to doubt all the progress that the company is saying that it is making. Maybe the dilution that occurred during the rights issue is playing on the minds of some of those analysts. It may also be the reason different analysts in the country have opposing views of the stock of this company.

Based on current market price, trading multiples and present value of future performance expectations, we are of the opinion that the stock of Oando is oversold at the current time as it trades at a risk-adjusted discount of 25.01% to our estimate of its target price of N14.75, is cheaply priced and has a strong medium-to-long-term growth potential. With the stock down 10.48% and 15.38% year-to-date and year-on-year respectively, we believe the broader market is displaying dissatisfaction of unmet expectations given the firm’s recently released financial results. Whilst we accept that the firm’s broad financial performance in the first two quarters of the year leaves room for doubt and has made investors panic, lose some confidence and consequently price in pessimism into the stock, we are of the view that a turnaround is imminent. In our experience, all stocks have their ‘downtime’ which precedes a strong fundamental mean-reversion to intrinsic value. Although Oando is currently passing through its downtime and has thus attracted negative market sentiments, we believe this period is temporal and the stock will eventually mean-revert to its intrinsic value which we have estimated as being above its current market price. We view current levels as providing a buying opportunity into sub-Saharan Africa’s second largest integrated energy provider that not only has the strongest presence in Nigeria’s midstream and downstream petroleum subsectors, but also possesses the potential to surprise the market to the upside when its various investments begin to yield positive returns.

Taking forward prospects into cognisance, we are of the opinion that the recent drop in the stock’s price does not exactly reflect the quality of the firm’s fundamentals. We believe the time to take a BUY position in the stock is now, given its depressed price. In our view, any attempts to completely exit the stock at current levels will amount to substantial regret in the future. Using behavioural analysis, with probabilistic combinatorial optimization, we estimate such regret coefficient to be in the open-bounded neighbourhood of (0.63, 1.0). A regret coefficient estimates the degree of irrationality that captures the likelihood that a regret-averse investor who prematurely exited a previously undervalued stock will take substantial positions in that stock at a future time, even when the stock is no more undervalued. A coefficient between 0.60 and 1.0 signals that investors are almost sure to pay an unjustifiable premium at a future time for an undervalued stock they once exited.