Why investors are scrambling for Japaul Oil shares

By Chioma Obinagwam

Japaul Oil and Maritime Services Plc. seem to have become the toast of investors in recent times, having sustained leadership on the Nigerian Stock Exchange (NSE) top 10 weekly gainers for two consecutive weeks.

The companies share price recorded a significant 72.73 per cent increase from the 22 kobo opening share price for the week ended June 8, 2018 to close at 38 kobo for the week ended June 14, 2018.

Analysts attribute the sudden appetite for the stock to an under valued share price which has spurred discerning investors and bargain hunters to take position in the company.

Before ascending to the gainers’ table, the stock had clinched the eight position among the top 10 price decliners for the trading week ended May 4, 2018 after shaving 4 kobo or 8 per cent from its 50 kobo opening price to settle at 46 kobo.

The share price continued to experience decline in subsequent weeks until the week ended June 1, 2018 were it recorded a 1 kobo or 4.76 per cent gain to close at 22 kobo, though not sufficient to earn it a place in the top 10 gainers’ chart for that week.

The forces of demand and supply ( a concept in which an increase in price occurs when demand outweighs supply) seemed to have played on the stock in the subsequent week where it emerged the highest share price gainer for the week ended June 8, 2018, having gained 9 kobo or 40.91 per cent more to close at 31 kobo.

The trend continued into the week under review (June 14,2018) making it two consecutive weeks of gains.

Although the share price has witnessed increased rally, lately, it is yet to attain its highest traded share price year to date(52weeks), which is N1.06.

The stock has, however, exceeded its lowest traded price year to date of 20 kobo.

Listed on the Energy Equipment and Service subsector in the Oil and Gas sector of the Nigerian bourse, the company currently has a market capitalisation of N2.38 billion according to data mined from NSE’s Daily Official list.

A review of the company’s full year result for the financial year ended December 31, 2017, showed that it recorded a loss of N13.08 billion.

The result further showed that the ₦13.08 billion is a reduction compared to a loss of ₦21.3 billion recorded in 2016.

Moreover, its revenue followed the same pattern, plunging to N1.90 billion in the year under review from the ₦3.07 billion it achieved in 2016.

Again, extracts from the 2018 first quarter(Q1) results was not looking any better as the company’s loss after tax plunged lower to N3.20 billion from a loss before tax of N519.73 million in the corresponding period of March, 2016.

On Thursday 22nd February, 2018, the company announced on its website that it has signed an agreement with a private equity firm, Milost Global Inc., for $350 million in shares and loans for business expansion.

“With this development, Milost will invest $250 million in equity and add another $100 million in convertible loans,” the company disclosed.

Again, the chairman of the company, Mr. Paul Jegede noted that the fresh injection of capital will enable the company to fix grounded vessels, finance new contracts and expand into mining.

He added that Japaul’ s oil and gas operations suffered a setback with the 2014 plunge in crude oil prices, which forced exploration and production companies to scale back their activities.

“As prices are recovering, we want to take the advantage of new business opportunities in the industry. The company plans to absorb future oil and gas price shocks by diversifying into mining,” he continued.

Further findings by National Daily Newspaper, showed that the company has began its mining business as disclosed by the chairman of the company, by establishing a subsidiary- Japaul Mines and Products Limited (JMPL), a mining company wbich owns and operates two granite quarries in Ifon, Ondo State and Akpampa, Cross-River State, Nigeria.

The company disclosed that it has average monthly production of 520,000 tonnes with ongoing plan to increase the production by 50 per cent through the acquisition of additional crushing line.

Surprisingly, on May 8, 2018, in a public notice published on the NSE website dubbed: ‘RE: Equity Financing Facility of $350 million With Milost Global Inc.’ signed by the Acting Group Managing Director of the company, Akin Oladapo, Japaul Oil and Maritime Services made a decision to pulled out from the proposed $350 million Milost Global Inc. financing deal.

“Japaul Oil and Maritime Services Plc. wishes to notify its shareholders that the Board of company at its meeting held on Thursday, 29th March 2018 deliberated on the proposed equity injection by Milost Global Inc..”

“The Board resolved that in view of the numerous red flags associated with the proposed injection that management should in consultation with the company’s retained counsel take prompt steps to pull out the transaction in a non-prejudicial manner. Further development regarding this transaction will be communicated,” the notice indicated.

Milost Global Inc. is a private equity firm specializing in leveraged buyout investments. The firm seeks to invest in technology, transportation, cannabis, education, distribution, mining, oil and gas, financial services, healthcare, infrastructure development, alternative energy, pharmaceuticals, and real estate. It also provides acquisition capital, mezzanine finance, and alternative capital and lending. It prefers to take a majority stake. Milost Global Inc. was founded in 2016 and is based in New York City, New York with additional offices in Birmingham, Alabama and London, United Kingdom.

Earlier in March 2018, Bloomberg reported that Milost Global Inc. was looking for investments.

According the report, Kim Freeman, Managing Partner and Chief Executive Officer of Milost Global, stated, “Nigeria has the largest economy in Africa that is growing rapidly and Milost Global wants to be instrumental in sustaining this growth. Our MESA fund is an innovative facility that allows a company to not only reach its true market value but also to achieve its vision of a larger more vertically diversified company through acquisitions and organic growth.”

Apart from the suspended investment in Japaul Oil, National Daily Newspaper also discovered that the firm has made other investment attempts on Unity Bank.

Reactions have continued to trickle in regarding the recent rally on the shares.

The Chief Relationship Officer of Foresight Securities, Charles Fakrogha said, “For every market that is dynamic, prices go up and prices come down. For Japaul, when we experienced the Milost saga, at the end of the day, we were really not seeing what they had with Milost. Now, the price of Japaul that we’re seeing now that is going up is really a mechanism of demand and supply. The prices have gone down so much now investors are pricing and saying, ‘this stock is so cheap, it’s undervalued for now. Let us take position.

They’re restructuring, probably, they’ll come up with something.’ But they would have positioned themselves, that is why there is huge demand for Japaul. When there’s huge demand for securities, the price tends to go up.”

Chairman of Constance Shareholders Association of Nigeria, Mikhail Shehu seem to have a different view.

He noted that the current state of the company along with the chairman’s contradictory statement was enough to dampen investors’ appetite with regards to the stock.

He said, “There are a lot of issues. For example Milost wanted to venture into the company but along the line a lot of things occurred that didn’t make them to come in as expected.

The founder who is now the chairman, Jegede, the statement that he made regarding the upcoming AGM, that statement cannot boost the morale of an investor of the company. It means they’re nor certain about the way forward of the company.”

“What he was trying to say is that most of their equipment, they’re likely to dispose them. They have not got reasonable buyers yet,” he added.

Nevertheless, he was quick to add that investors may also be taking advantage of the cheap price to buy up enough shares that would earn them positions in the board.

“People that are buying the shares are buying it to mop up. Probably to take over the from the board. There are prospects in that company. I can decide to take over from the board and I can now use another platform, since, I now have an upper hand to buy up those equipment, so, that is it.”

As global oil prices continue to improve(currently at $75.24 per barrel), analysts are optimistic that the rally on the share price would continue although the outcome of the company’s AGM slated for the current week is also a major determinant.