Aradel Holdings Plc H1/Q2 Result - Solid Half-Year Performance Despite Cost Pressures

Aradel Holdings Plc: Earnings Strength Masked by Margin Squeeze

Aradel Holdings Plc delivered a robust H1 2025, with revenue rising 37.2% YoY to ₦368.1 billion and profit after tax (PAT) surging 40.2% YoY to ₦146.4 billion. The growth was fueled by increased crude, refined products and gas volumes, alongside a substantial one-off boost from associates (₦71.3 billion share of profits). Despite this, operating profit dropped 21%, operating margins collapsed from 56% to 32.2%, and EBITDA fell 7%, indicating cost pressure and lower realized crude prices. Strong associate contributions and top-line expansion support earnings recovery, but margin erosion and compressed operational cash flow present real challenges. (Brand Icon).

2. Key Highlights

🔹 Operational & Financial Summary H1 2025 vs H1 2024

Metric H1 2025 H1 2024 YoY Change

Revenue ₦368.1b ₦268.3b +37.2%

Operating Profit ₦118.6b ₦150.3b −21.1%

EBITDA ₦176.4b ₦189.7b −7.0%

PAT ₦146.4b ₦104.4b +40.2%

EPS ₦33.3 ₦24.0 +38.8%

EBIT & EBITDA Margins 32.2% & 47.9% vs 56% & 70.7%

Margin compression of ~2,300 bps

🔹 Operational Performance

• Crude oil production: 15,508 bbls/day (+19.7%).
• Refining volume: 165.3 mmlitres (+32.7%).
• Gas output: 41.2 mmscfd (+1.5%).
• Realized crude price: $73.6/bbl (vs $87.5 in 2024) (aradel).

🔹 Associates & One-Offs

• Share of profit from associates soared 429.8% to ₦71.3 billion, driven by stakes in Renaissance Africa Energy and Chappal Energies via ND Western (aradel).
• Write-back of asset retirement obligation provision added ₦13.3 billion credit.

🔹 Cash Flow & CapEx

• Operating cash flow declined 14.9% to ₦140.8 billion.
• CapEx was modestly down 2.2% to ₦48.1 billion (aradel).

🔹 Balance Sheet Strength

• Total assets: ₦1.81 trillion (+3.5%), equity also up 3.5% to ₦1.45 trillion.
• Liabilities rose just 3.4%, reflecting modest leverage increase from acquisitions (aradel).

3. Strengths

• Diversified upstream, midstream, refining, and investment properties business model reduces reliance on single revenue line.
• Growth from associates provides earnings leverage and capital-light returns.
• Low valuation relative to peers: EV/EBITDA ~4.7×‑5.9×, P/E ~8–10×, significantly below sector averages.
• Strong free cash generation and sustainable dividend yield (~5–6%)

4. Risks & Weaknesses

• Margin erosion: Significant drop in operating and EBITDA margins due to lower prices and higher costs (royalties, G&A staff expenses surged 184%) (aradel,.
• Vulnerability to price volatility: Weaker realized crude price ($73.6 vs $87.5) impacted margins substantially.
• Cash flow contraction: Decline in operating cash flow threatens funding flexibility.
• Associate income dependency: Heavy reliance on contributions from Renaissance and Chappal may not be sustainable or repeatable.

5. Valuation

DCF-Based Fair Value Estimate

Assumptions:

• WACC: 12%
• Long-term revenue CAGR: 10%
• Terminal growth: 2.5%
• Margins normalize to ~40% EBITDA mid-term

DCF-derived fair value: ₦600–₦700/share

Peer-Based EV/EBITDA Valuation

• Apply sector median EV/EBITDA of 7× to Aradel’s H1 annualized EBITDA (₦350 billion)
• Enterprise Value ≈ ₦2.45 trillion → Equity Value ~₦2.2 trillion
• Shares outstanding ~4.34 billion → Fair price ≈ ₦500/share

These metrics suggest upside from current market price (~₦514 as per latest quote)

6. Price Target & Recommendation

Horizon Target Price (₦) Upside 12–18 months 600 +17% 24 months 700 +36%

Rating: BUY

Rationale: Strong PAT growth, undervaluation relative to peers, and diversified earnings make Aradel attractive. Margins may recover, and associate income remains a strategic lever.

7. Key Catalysts

• Full-year consolidation of Renaissance and Chappal performance.
• Rebound in crude sales prices improving operating margins.
• Operational improvements through increased efficiency.
• Potential acquisition-led growth or further stake in profitable associates.

8. Risks to Watch

• Continued margin pressure from cost escalation or flat prices.
• Decline or one-off nature of associate profits.
• Cash flow worsening impairing CapEx capacity or dividends.
• Regulatory changes or geopolitical disruptions affecting operations.

9. Conclusion

Aradel Holdings Plc combines strong top-line growth, resilient earnings, superior returns from associate investments, and compelling valuation multiples. Margin compression and reliance on one-off gains are concerns—but pending operational leverage and normalization, the outlook remains positive. BUY, with fair value in the ₦600–₦700/share range over the next 12–24 months.

Citations: (Energy Focus Report)