Mobil Oil Nigeria Plc.

Equity Research PZ Cussons Nigeria Mobil Oil Nigeria Plc. Nigeria Equities Petroleum Marketing May 09 2014 FY2013: Other income saves the day Post-tax profit increases by 20.95% y/y despite 2.55% y/y fall in revenue. In FY2013, Mobil Oil Nigeria Plc (MON) reported a 2.55% y/y decrease in sales revenue to N78.74billion from N80.80billion in FY2012. The company however posted a post-tax profit of N3.50billion in FY 2013, representing an increase of 20.95% y/y from N2.88billion reported in the same period of last year. In our opinion, the decrease in MON s revenue in FY 2013 reflects 1) the continued competition in Nigeria s downstream petroleum industry in the period, which was on the back of an increase in import licenses issued to petroleum marketers by the Petroleum Products Pricing Regulatory Agency (PPPRA) in H2 2013; 2) MON s unwillingness to engage in significant expansion of its downstream business via additions of new retail outlets despite prevailing competition. Q4 post-tax profit drops 23.40% y/y but increases 4.45% q/q. Despite recording 2.63% y/y growth in revenue to N20.01billion in Q4 2013, from N19.50billion in Q4 2012, MON posted 23.40% y/y fall in post-tax profit to N0.93billion, from N1.22billion in Q4 2012, this is attributable to higher overhead recorded in Q4 2013. Quarter-on-quarter performance however improved at both top- and bottom-line levels as MON recorded improvements of 0.07% and 4.45% q/q in revenue and post-tax profit respectively in Q4 2013, from N19.99billion and N0.89billion in Q3 2013, on lower overhead (fig. 1). Update on the Petroleum Industry Bill (PIB). Nigeria s Senate is in the process of concluding legislation on the Petroleum Industry Bill (PIB) even as the passage of the bill becomes increasingly likely. Already, the bill has passed the first and second readings. Currently, the committees are putting together a report for the third and final consideration of the bill. Upon successful consideration and final implementation of the bill, we believe it will, amongst others, loosen Nigeria s heavily regulated downstream petroleum sub-sector, make market forces of demand and supply become major determinants of performance in the sub-sector and consequently incentivise petroleum marketers like MON to engage in significant retail expansion projects in a bid to capture markets and drive volumes. In our view, these will 1) improve innovation 2) improve growth, development and attractiveness of the industry 3) drive more investments into the industry 4)make petroleum products prices converge towards market determined equilibrium levels. Oyakhilome Ibhagui oibhagui@dunnlorenmerrifield.com Price: - Current N 115.00* - Target N 121.56 Recommendation: HOLD * As at Tuesday May 06, 2014 Fig. 2: Stock data FYE December Price Mov t: YtD / 52wk -3.04% / 6.09% 52-week range N 106.00 - N 125.98 Average daily vol./val. 61,315/N7.520m Outstanding Shares ( m) 361 Market Cap. (N mn) 41,468 ($259.18m) EPS, N - FY2013 9.65 DPS, N - FY2013 6.00 FCFPS, N - FY2013 11.01 Source: Bloomberg, NSE, DLM Research Fig. 3: Key ratios FY2013 FY2012 Gross profit margin 12.66% 10.15% Net margin 4.45% 3.59% Equity multiplier 4.30x 5.15x Asset turnover 1.92x 2.38x Source: NSE, DLM Research Fig. 4: Valuations P/Sales 0.52x 0.48x 0.46x 0.43x P/E 11.92x 8.68x 6.80x 5.90x PEG 0.58 0.45 0.24 0.39 EV/EBITDA 6.92x 5.21x 4.21x 3.78x P/B 4.35x 3.11x 2.29x 1.80x ROE 36.50% 35.49% 30.83% 27.75% ROA 8.55% 9.95% 10.01% 9.77% Div. Yield 5.22% 6.96% 7.83% 9.57% Fig. 5: MOBIL vs. NSE, 52-wk movement Fig 1: Quarterly results highlights Q42013 Q32013 Q42012 Q/q Y/y Revenue (N millions) 20,008 19,994 19,496 0.07% 2.63% Operating profit ( millions) 596 528 495 12.88% 20.40% Post-tax profit ( millions) 931 891 1,215 4.49% -23.37% Source: Bloomberg, DLM Research Estimates Source: NSE, DLM Research May 09, 2014 Please read the Important Disclosures at the end of this report. www.dunnlorenmerrifield.com

MON begins 2014 on a strong note, posting a strong performance at top and bottom line levels in Q1 2014. The company posted revenue and post-tax profit of 22.41billion and 3.86billion respectively in Q1 2014. This represents an expansion of 17.03% and 522.58% y/y in revenue and post-tax profit respectively compared to 19.14billion and 624.19million posted in Q1 2013. The reported revenue and post-tax profit translate to an increase of 11.94% and 315.05% q/q compared to the revenue and post-tax profit of 20.01billion and 930.72million reported in Q4 2013 (Fig 6). Fig 6: Q4 Revenues ( millions) and growth The reported revenue and post-tax profit translate to an increase of 11.94% and 315.05% q/q compared to the revenue and post-tax profit of 20.01billion and 930.72million in Q4 2013. Fig 7: Quarterly revenues ( millions) and growth (%) Fig 8: Quarterly cost of sales ( millions) and growth (%) May 09, 2014 2 www.dunnlorenmerrifield.com

Fig 9: Q4 Cost of sales ( millions) and growth (%) Fig 10: Q4 post-tax profit ( millions) and growth (%) Fig 11: Quarterly post-tax profit ( millions) and growth (%) May 09, 2014 3 www.dunnlorenmerrifield.com

Decrease in cost of sales lifts gross profit margins. In FY 2013, MON recorded a 5.22% y/y reduction in cost of sales (COS) to 68.80billion from 72.59billion in the same period of 2012. Consequently, the firm s COS/revenue ratio declined to 87.38% in FY 2013, from 89.25% in the same period of 2012. On the back of the decreases recorded in the COS, gross profit moved up 21.07% y/y to 9.94billion in FY 2013 from 8.21billion in the same period of 2012. Accordingly, gross profit margin improved to 12.62% in FY 2013, from 10.16% in the same period of 2012. Fig: 12: Cost of sales/revenue and gross margin On the back of the decreases recorded in the COS, gross profit moved up 21.07% y/y to 9.94billion in FY 2013 from 8.21billion in the same period of 2012. Fig 13: Gross profit and gross profit margin May 09, 2014 4 www.dunnlorenmerrifield.com

Operating expenses records double-digit growth. MON s operating expenses moved up by 11.46% y/y to 7.37billion in FY 2013 from 6.62billion in the same period of 2012. The increase in operating expenses came in higher than Nigeria s average headline inflation rate of 8.50% in 2013, implying that MON in the review period was unable to implement its strategy of keeping growth in operating expenses below inflation. Fig 14: Gross profit and gross profit margin The increase in operating expenses came in higher than Nigeria s average headline inflation rate of 8.50% in 2013, implying that MON in the period was unable to implement its strategy of keeping growth in operating expenses below inflation. The increase in operating expenses led to an increase in operating expenses/revenue ratio to 9.36% in FY2013, compared to 8.19% in the same period of 2012. Despite the growth recorded in operating expenses, MON s overhead/revenue ratio decreased to 96.74% in FY2013 from 98.02% in the same period of 2012 (fig 8) on the back of the decrease in cost of sales/revenue ratio. Fig 15: Cost ratios May 09, 2014 5 www.dunnlorenmerrifield.com

Operating profit and margin improve on tempered overhead/revenue. In FY 2013, MON s operating profit rose by 60.90% y/y to 2.57billion compared to 1.60billion in the same period of 2012. Consequently, operating profit margin improved to 3.26% in FY 2013 from 1.98% in FY 2012. In our view, the favourable operating profit and margin in the period are reflective of gains from the decrease recorded in overhead/revenue ratio and indicate that MON s core operation, which is petroleum products marketing, is profitable despite the prevalent industry-wide challenges in Nigeria s petroleum downstream. Fig 16: Operating profit and margin Our view is that the favourable operating profit and margin in the period are reflective of gains from the decrease recorded in overhead/revenue ratio and indicate that MON s core operation, which is petroleum products marketing, is profitable Other income and favourable net finance charges lift post-tax profit and net margin. In FY 2013, MON s other income - which are earnings generated from its real estate business - decreased by 2.14% y/y to 2.75billion, from 2.81billion in the same period of 2012. Despite the decline, MON s post-tax profit and margin improved significantly on the back of a 61.51% y/y decrease in net finance charges to 101.35million in FY 2013, from 263.31million in the same period of 2012. Specifically, post-tax profit and net profit margin improved to 3.48billion and 4.42% in FY2013 respectively, from 2.88billion and 3.56% in the same period of 2012. Fig 17: Post-tax profit and net margins May 09, 2014 6 www.dunnlorenmerrifield.com

We maintain our HOLD recommendation on MON. Our revised valuation yields a target price of 121.56 for each share of MON. Relative to the company s current market price, our target price estimate shows that MON is fully priced and commands a capital appreciation of 5.70%. This informs our HOLD recommendation on the stock. In arriving at the target price, we employed an equal-weighted combination of absolute and relative valuation techniques. Fig 18: Share price- Our recommendation history Relative to MON s current market price, our target price estimate shows that MON is fully priced and commands a capital appreciation of 5.70%. This informs our HOLD recommendation on the stock. May 09, 2014 7 www.dunnlorenmerrifield.com

Fig. 19: Statement of Profit or Loss, N mn Assets Property, plant & equipment 7,111 7,324 7,544 7,770 Cash & Near Cash Items 962 1,251 1,501 1,801 Trade & Other Receivables 5,311 5,258 5,205 5,153 Inventories 4,509 3,742 3,106 2,578 Total Current Assets 10,910 11,892 12,962 14,129 Total Noncurrent Assets 29,817 35,780 42,936 51,524 Total assets 40,727 47,672 55,899 65,653 Liabilities & Shareholders' Equity Revenue 78,744 86,505 90,739 93,462 change -2.55% 9.86% 4.90% 3.00% Cost of sales 68,804 74,019 76,436 77,381 change -5.22% 7.58% 3.27% 1.24% Gross Profit 9,940 12,486 14,303 16,081 change 21.07% 25.61% 14.56% 12.43% Operating Expenses 7,372 8,182 8,855 9,509 change 11.44% 10.99% 8.22% 7.40% Operating profit 2,568 4,304 5,449 6,571 change 61.00% 67.60% 26.60% 20.60% Interest Expense 102 112 110 123 change -61.22% 10.00% -2.00% 12.00% Profit before tax 5,123 6,975 8,232 9,435 change 25.66% 36.14% 18.02% 14.62% Income Tax Expense 1,642 2,232 2,634 3,019 Profit after tax 3,481 4,743 5,598 6,416 change 20.95% 36.25% 18.02% 14.62% Basic EPS 9.65 13.14 15.51 17.77 Estimates Fig. 20: Statement of Financial Position, N mn Trade & Other Payables 7,913 7,834 8,069 8,311 Short-Term Borrowings 0 15 20 21 Total Current Liabilities 14,380 15,818 17,400 19,140 Long-Term Borrowings 1,086 1,195 1,314 1,445 Total Non-current Liabilities 16,810 18,491 20,340 23,391 Total Liabilities 31,190 34,309 37,740 42,531 Total Equity 9,537 13,363 18,159 23,122 Total Liabilities & Equity 40,727 47,672 55,899 65,653 Fig. 22: DuPont Analysis Total assets turnover(x) 1.93 1.81 1.62 1.42 Net margin 4.42% 5.48% 6.17% 6.86% Equity multiplier (x) 4.27 3.57 3.08 2.84 ROE 36.50% 35.49% 30.83% 27.75% Fig. 23: Efficiency ratios Fixed assets turnover (x) 11.07 11.81 12.03 12.03 Current assets turnover (x) 7.22 7.27 7.00 6.61 Equity turnover (x) 8.26 6.47 5.00 4.04 Total assets turnover (x) 1.93 1.81 1.62 1.42 Fig. 24: Liquidity ratios Working capital (N 'millions) -3,470-3,926-4,438-5,011 Current ratio (x) 0.76 0.75 0.74 0.74 Quick ratio (x) 0.45 0.52 0.57 0.60 Cash ratio (x) 0.07 0.08 0.09 0.09 Fig. 24: Activity ratios Inventory turnover (x) 15.26 19.78 24.61 30.01 Receivables turnover (x) 14.83 16.45 17.43 18.14 Payables turnover (x) 8.70 9.45 9.47 9.31 Days inventory outstanding 24 18 15 12 Days sales outstanding 25 22 21 20 Days payables outstanding 42 39 39 39 Cash conversion cycle 7 2-3 -7 Fig. 18: Leverage and solvency ratios Equity multiplier(x) 4.27 3.57 3.08 2.84 Debt-to-equity (x) 0.11 0.09 0.07 0.06 Total debt-to-assets (x) 0.03 0.03 0.02 0.02 Total assets-to-liabilities (x) 1.31 1.39 1.48 1.54 Interest coverage (x) 16.89 26.53 34.06 37.95 Cash coverage (x) 19.70 29.24 36.89 40.64 Fig. 21: Profitability Margins Gross margin 12.62% 14.43% 15.76% 17.21% Operating margin 3.26% 4.98% 6.00% 7.03% Net margin 4.42% 5.48% 6.17% 6.86% Returns ROE 36.50% 35.49% 30.83% 27.75% ROA 8.55% 9.95% 10.01% 9.77% ROCE 9.75% 13.51% 14.15% 14.13% Estimates May 09, 2014 8 www.dunnlorenmerrifield.com

Equity research methodology employed in this report Views documented in this equity research report stem from conclusions reached through the use of multiple valuation methodologies, industry-wide knowledge, company specific information and our near to medium term expectations of industry and company performance, as well as market outlook. Our forecasts are based on a combination of top down and bottom up analysis, alongside historical trends in industry and company financials. Where appropriate, we factored in available forecasts and business direction provided by company management. This equity research report qualifies as an initiation research report on the company whose stock has been analysed, hence the level and depth of details documented herein. Further updates on this company, or its stock, or both, will be communicated to investors via brief research notes or earnings-flash emails, as occasion demands. Our recommendation is slightly biased towards value investing. Therefore, our investment rank gauge a customized scale we use to judge how well a firm under coverage has performed is determined using major value parameters as well as relevant ratios and multiples computed with figures from the company s most recent financials. The investment rank or grade given to a company is an alphabet which falls in the set {A+, A, B, C+, C, D, E, F}, where Grade A+ means the company has done excellently well on all fronts that form the basis of our consideration, and has a strongly positive performance outlook. Grade A means the company s performance is of high quality, but can be made better. Outlook for the company is positive. Grade B means the company performed marginally above average, at least relative to its peers, but faltered on some fronts. Outlook is weakly positive. Grade C+ means the company s performance is exactly average; outlook is neither positive nor negative. Grades C and D indicate that dwindling performance is the company s fate at the current time. Outlook for the company is mildly negative. Grades E and F mean the company is headed for towards jeopardy, which might impair its ability to continue as a going concern. Outlook for the company in this case is alarmingly negative. The variables used to arrive at the company s investment rank cover a wide range of measures which characterize liquidity, operational efficiency, profitability, profitability margins, growth, economic profitability, gearing, relative valuation ratios, capital structure and management performance. Our investment recommendation is underpinned by the upside or downside potential of a stock under coverage. This potential is estimated by comparing the stock s current market price to its price target and fair value, on a percentage increase or decrease basis as summarized below: Deviation from current price Recommendation >30% STRONG BUY 10% to < 30% BUY -10% to < 10% HOLD <-10% SELL In our analysis, we distinguish between fair value and price target. Fair value is our opinion of the actual fundamental worth of a stock, irrespective of what the market thinks of the stock or what investors are willing to pay for it. Value investors purchase stocks way below their fair values, while income investors might purchase stocks at their fair values at the very maximum. Price target, on the other hand, is the estimated price we opine the stock will trade in the near to medium term. It is the price that, if realized, could result in the best investment returns, given prevailing market conditions. It gives an idea of the price other investors might be willing to pay for a stock regardless of its actual worth. We employ fair value, price target or both to determine a stock s upside or downside potential. A BUY recommendation directly means what it says; purchase the stock according to your wallet and appetite for risk. A SELL recommendation prompts investors to exit their positions in the stock, as the analyst believes the stock is not worth investors time and capital commitment. A HOLD recommendation generally tells investors to do nothing; if you have not bought the stock, do not buy it and if you have bought it, do not sell it. May 09, 2014 9 www.dunnlorenmerrifield.com

IMPORTANT DISCLOSURES. This research report has been prepared by the analyst(s), whose name(s) appear on the front page of this document, to provide background information about the issues which are the subject matter of this report. It is given for informational purposes only. Each analyst hereby certifies that with respect to the issues discussed herein, all the views expressed in this document are his or her own and reflect his or her personal views about any and all of such matters. These views are not necessarily held or shared by Dunn Loren Merrifield Limited or any of its affiliate companies ( DL Merrifield ). The analyst(s) views herein are expressed in good faith and every effort has been made to use reliable comprehensive information but no representation is made as to its accuracy or completeness. The opinions and information contained in this report are subject to change and neither the analysts nor DL Merrifield is under any obligation to notify you or make public any announcement with respect to such change. This report is produced independently of DL Merrifield and the recommendations (if any), forecasts, opinions, estimates, expectations and views contained herein are entirely those of the analysts. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the recommendations, forecasts, opinions, estimates, expectations and views contained herein are fair and reasonable, none of the analysts, DL Merrifield nor any of its directors, officers or employees has verified the contents hereof and accordingly, none of the analysts, DL Merrifield nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. With the exception of information regarding DL Merrifield, reports prepared by DL Merrifield analysts are based on public information. Facts and views presented in this report have not been reviewed and may not reflect information known to professionals on other DL Merrifield business areas including investment banking. This report does not provide individually tailored investment advice. Reports are prepared without regard to individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. It is recommended that investors independently evaluate particular investments and strategies. The appropriateness of a particular investment or strategy will depend on an investor s individual circumstances or objectives. Neither the analyst(s), DL Merrifield, any of its respective directors, officers nor employees accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Each analyst and/or any person connected with any analyst may have acted upon or used the information herein contained, or the research or analysis on which it is based prior to its publication date. This document may not be relied upon by any of its recipients or any other person in making investment decisions. Each research analyst certifies that no part of his or her compensation was, or will be directly or indirectly related to the specific recommendations (if any), opinions, forecasts, estimates or views in this report. Analysts compensation is based upon activities and services intended to benefit clients of DL Merrifield. As with other employees of DL Merrifield, analysts compensation is impacted by the overall profitability of DL Merrifield, which includes revenues from all business areas of DL Merrifield. DL Merrifield does and seeks to do business with companies/governments covered in its research reports including market making, trading, risk arbitrage and investment banking. As result, investors should be aware that DL Merrifield may have a conflict of interest that could affect the objectivity of this report. DUNN LOREN MERRIFIELD Elephant House 214 Broad Street, Lagos, Nigeria Tel: 234 1 462 2683-4 www.dunnlorenmerrifield.com May 09, 2014 10 www.dunnlorenmerrifield.com