Performance: Margins compress despite strong earnings outturn

• GOIL’s profit-after-tax increased by 31.2% y/y to GHS 103.6mn on the back of a strong revenue outturn
• Revenue increased by 172.2% y/y to GHS 13.9bn, owing to increases in ex-pump fuel prices and higher sales volume
• GOIL’s ex-pump prices for petrol and diesel increased by 64.5%* and 118.0%*, respectively in 9M2022, mainly driven by the successive increases in global crude oil prices for the first three quarters of the year (+38.7% in 1Q2022, +47.6% in 1H2022, and +13.1% in 9M2022) and a 37.5%* USD/GHS depreciation in 9M2022
• Similarly, GOIL’s BDC – Go Energy’s ex-refinery price increased by 104.0%* for petrol and 199.0%* for diesel in 9M2022
• GOIL’s revenue growth was also supported by a 25.8%* y/y increase in retail fuel consumption and a 22.7%* y/y rise in Go Energy’s sales volume in 9M2022
• GOIL recorded strong sales volumes on the back of its strategy of holding prices for some time, before aligning with domestic price trends. As a result, GOIL’s market share increased by 4.8pps y/y to 20.07% in 9M2022
• Cost of sales accounted for 98.7% of revenue in 9M2022, compared to a 3-year (FY2021, FY2020, FY2019) average of 93.4%. This reflects the increased inflationary and forex pressures experienced in 9M2022 and explains the fall in gross profit margin by 2.3pps y/y to 3.7%
• Operating expenses also increased by 63.4% y/y to GHS 341.5mn, mainly driven by inflationary and forex pressures
• Resultantly, operating margin and net profit margin slipped by 1.3pps and 0.8pps to 1.2% and 0.7%, respectively, in 9M2022

Outlook: Sales and margins to expand on bitumen production

• We expect GOIL to sustain its current pricing strategy with continued benefits for the Group’s sales volume and market share in the coming quarters
• Our outlook is hinged on our view that consumers will continue to explore relatively cheaper quality fuel as the rising inflation and elevated energy prices continue to squeeze consumers’ income
• On the cost front, we expect GOIL’s input cost to remain elevated in the short-to-medium term, due to Ghana’s prevailing macroeconomic challenges such as rising inflation and forex pressures. As a result, we expect margins to decrease further in the coming quarter
• However, management’s plan to begin bitumen production in the near term should expand margins once export to neighbouring sub-regional countries commences

Valuation: Under Review 

• GOIL is currently trading at a P/E of 6.6x and EV/EBITDA of 2.7x

• We are in the process of re-initiating coverage on GOIL and have therefore placed our recommendation under review