Eterna Oil and Gas

Eterna Oil and Gas is a petroleum marketing company listed on the Nigerian Stock Exchange. This company has experienced some tremendous capital appreciation over the past 18 months from around N2 to about N35.

They gave a bonus of 1 for 5 recently after their year end results for December 2007, which effectively increased their outstanding number of shares to 575.81 million. Their first quarter results for the period ended March 2008 showed a significant loss in all the indices, which has been attributed to the fact that they are expanding their frontiers in the oil and gas business. To me, that excuse does not justify the results but I believe that the company is a growth stock and a long term project.

The first quarter results released showed a 53% drop in turnover from N2.713 billion to N1.275 billion and the profit before tax also dropped by 62% from N59.847 million to N22.557 million. They did not pay any tax because of the decline in figures, which mitigated the after tax profits to a drop of 45% from N40.696 million to N22.557 million. The loss margin experienced in the profit before tax was higher than that of the turnover, which suggests a poor cost control or maybe they are really investing in expansion.

Based on this result, the earning per share for the first quarter is 4K and the projected year end figure will come to 12K. At the current price of N31, the forward price earning multiple will come to 258.33x. Now, that is pretty huge, because this means that Eterna Oil and Gas is selling at about 1000% above its fair value of N2.64. What can I say? There are times the market can be quite irrational and whether Eterna Oil and Gas will reflect its true value is a debatable conjecture.