Conoil Plc Q2/H1 Result: Sharp Earnings Decline Highlights Margin Pressures Amid Revenue Contraction

Conoil Plc: Profitability Under Severe Pressure as Margins Collapse Amid Rising Finance Costs

Conoil Plc’s Q2 2025 results paint a challenging picture of declining revenues, surging finance costs, and shrinking profitability. The company has seen an 83% YoY drop in quarterly pre-tax profit and an 89% decline in H1 pre-tax earnings, primarily due to a sharp fall in white product sales and mounting cost pressures. While debt reduction and modest asset growth are positives, these do little to offset weak fundamentals in the near term. Unless there is a significant rebound in demand and better cost control, Conoil’s earnings outlook remains fragile.

Key Strengths

1. Debt Reduction Strategy Conoil has reduced total debt from ₦28.7 billion to ₦21.5 billion as of June 2025. This is commendable amid high interest rates and signals management’s focus on deleveraging.

2. Stable Asset Base & Retained Earnings Growth Despite operational headwinds, total assets grew 2.27% YoY to ₦117.56 billion, while retained earnings increased to ₦36.219 billion, suggesting some capacity to absorb shocks.

3. Sequential Improvement in Pre-tax Profit Although YoY performance is dismal, pre-tax profit improved from ₦372 million in Q1 to ₦775 million in Q2, showing tentative signs of stabilization.

Key Weaknesses & Risks

1. Severe Revenue Decline Revenue dropped 28% YoY in Q2 and 20% in H1, driven largely by weakness in the core white products segment. This signals demand softness and competitive pressure in the downstream oil market.

2. Margin Compression from Rising Costs Gross profit fell 27% YoY despite a proportional drop in cost of sales, as operating expenses rose 21% to ₦2.799 billion. This structural cost stickiness erodes profitability further.

3. Soaring Finance Costs Finance costs nearly doubled (+99% YoY) to ₦2.472 billion in Q2, mainly from bank overdrafts. High leverage cost in a tight monetary environment threatens earnings sustainability.

4. EPS and Investor Confidence Hit Earnings per share slumped 75.5% YoY to ₦1.30, with the stock price down 39.4% YTD (₦234.50 vs. ₦387.20), reflecting waning investor confidence.

Outlook and Recovery Prospects

The sequential improvement in Q2 pre-tax profit from Q1 suggests that Q1 may have been the bottom, but the recovery trajectory is uncertain. For H2 2025, Conoil needs:

• Volume recovery in white products (possible if consumer demand stabilizes)
• Better cost discipline, especially operating expenses
• Aggressive interest cost management, leveraging debt reduction gains

Absent these improvements, FY 2025 earnings could remain substantially below FY 2024 levels.

Valuation & Market Sentiment

• Current Price: ₦234.50
• YTD Decline: -39.4% The sharp price correction indicates that the market is factoring in weaker earnings and possible dividend cuts. However, the stock may find support if the company sustains sequential earnings recovery in H2.