Is the alleged SEC investigation cause for shareholder alarm?
The Lagos listed stock of domestic oil and gas producer Oando Plc, tumbled by 9.58 percent on Friday after news broke of an alleged Securities and Exchange Commission (SEC) investigation into the firm.
A Channels TV report on Friday stated that Oando PLC (“the Company” or “Oando”) is under a comprehensive investigation by the Securities and Exchange Commission following petitions filed by some foreign investors in Oando Nigeria PLC, in relation to shareholding structure following the $1.65 billion Dollars cash that Oando paid in June 2014 to acquire the oil production assets of Conoco – Phillips in Nigeria.
Fig 1: Nice Chart…Oando 1 year performance
Oando paid for the assets at the peak of the last commodity super cycle and oil prices have halved since then, which led to Oando having to report a huge loss after-tax loss of N47.6 billion in 2015.
Oando responded to the reports by releasing a statement posted on the website of the Nigeria Stock Exchange (NSE).
According to Oando, “The Company understands that the SEC is in receipt of correspondence containing (in our opinion) unsubstantiated, misleading and defamatory claims with respect to various matters that had already received board, shareholder and where required SEC approval. The Company is fully co-operating with the SEC in the discharge of its duties as the capital markets regulator by providing all appropriate clarifications and rebuttals on the matters raised in the said correspondence. Oando will be happy to provide full disclosure of the outcome as soon as the SEC review is completed.”
For us at Market Intelligence the key link between both report and statement (from Channels and Oando), is the allusion to shareholder disaffection or shareholder approval of certain actions taken by Oando.
We decided to now take a look at Oando’s share performance in the short to medium term to see how shareholders are faring in what matters most, capital gains and value.
On a year to date basis Oando Stock has returned a solid 60.6 percent for shareholders but the gains collapse to 9.74 percent if you extend the timeline to a one year basis (see Figure 1).
On the extreme end of the scale if you extend the timeline to a 5 year time frame, Oando stock has lost 43 percent of its value for shareholders who bought and held at around N13.46 per share in mid-2012 (see Fig 2).
Fig 2: Not so Nice Chart…Oando 5-year performance
For investors who bought Oando at near the same period as when the Conoco – Phillips deal was announced in mid-2014, at around N29.54 per share, they have seen their stock investment return a scary -74 percent between then and today.
So what can we deduce from all these?
The fact that Oando bought the oil assets of Conoco – Phillips at near the top in 2014 and the 3 years of low oil prices that have followed probably takes a lot of the blame for the poor share price performance since 2014.
On the other hand Oando has rebounded this year (+60%), as the firm begins to look to future growth opportunities in the oil space and Nigeria.
Long term investors (people who have bought and held since 2012) will have to weigh the ability of the management to execute going forward (consistently growing profits and dividend pay-outs) which would positively impact the stock price and enable them become whole again on their investments.
For relatively new holders of the stock that have benefitted from the recent rally it may be time to grow cautious until this issue blows over.