Oando shares hit three-month low amid profit decline, auditor warning

Oando PLC’s stock price has fallen to its lowest in three months, trading at N62.40 by midday today—a 4.59% drop from its previous close at N65.40.

It marks a significant decline from the mid-September high of N95.50, when investor sentiment surged after the company, owned partly by President Bola Tinubu’s nephew, completed a major acquisition of onshore assets from Italy’s Eni.

The stock has seen substantial growth since Tinubu’s assumption of office in May 2023, when shares traded below N6, representing a dramatic rise. The company earlier planned to delist.

The recent decline reflects concerns following Oando’s 2024 half-year report, which revealed a 44% year-on-year profit drop to N62.6 billion from N112.45 billion in H1 2023. Oando attributed the decrease to higher administrative expenses and net finance costs driven by exchange rate fluctuations.

However, revenue for the period increased by 51% to N2 trillion, aided by currency adjustments and increased crude oil volumes, though offset by lower trading volumes and reduced sales in natural gas and natural gas liquids.

Auditor’s Concerns

Last week, Oando announced a N60.28 billion profit after tax for the year 2023 in its audited financial statements. However, despite this positive result, the company’s independent auditor, BDO Professional Services, reiterated significant concerns regarding Oando’s financial health and sustainability.

BDO highlighted substantial funding gaps and a negative asset position, raising doubts about Oando’s ability to continue as a going concern. These issues echo similar warnings raised in the 2022 financial year.

According to the audit, Oando faces considerable liabilities that exceed its current assets, indicating a substantial financial imbalance that may impact its operations if not resolved.

The auditor’s report pointed to a need for urgent action to address these financial pressures, with specific concerns about Oando’s ability to meet its funding requirements and stabilize its balance sheet.

According to BDO, the company recorded a total comprehensive loss of N216.2 billion in 2023, with current liabilities surpassing assets by N469.2 billion. The group-level losses were also notable, with a net liability of N267.2 billion and current liabilities exceeding assets by N1.6 trillion as of December 2023.

BDO cautioned that Oando’s continued operations depend on successfully refinancing debts to address its N3 trillion funding gap.

The auditor noted that even with planned debt refinancing, only 53.6% of the funding gap for 2024 would be covered. Management aims to address the remaining 46.4% through equity raises, although the timing and success of this plan remain uncertain.

Additionally, the audit flagged transactions that raised concerns, including a $20 million loan between an Oando subsidiary and a company tied to its Group Chief Executive.

Another highlighted issue was the purchase and sale of four petroleum cargoes from Russia, potentially contravening sanctions from the U.S., EU, and UK. This matter was noted as an “Emphasis of Matters,” underscoring the complex regulatory landscape Oando operates within.