This paper presents profitability analysis of two companies listed and active in the London Stock Exchange. The two companies selected for the analysis include Premier Oil PLC trading under the ticker symbol PMO and Genel Energy PLC falling under the ticker symbol GENL in the exchange. The two companies fall under the Oil and Gas Producer main market segment of the London Stock Exchange. At the time of presenting this report, GENL traded at a price of 97.50p with a 52-week range of 71.75p to 441.00p. On the other hand, the MPS of Premier Oil PLC was at 63.50p with a 52-week range of between 19.00p and 136.40p (London Stock Exchange). The two companies appeared to be performing well with a bullish trend for the day of this reporting and prices higher than the lowest points for the year. However, any investor considering investing in the two companies would require more information than just the share price. The information required includes both financial and non-financial information, which is why this paper focuses on analyzing the profitability of the two companies, the investor performance indicator analysis, and the review of any other material information as it is likely to inform the decision of whether to invest in the company. Notably, part of the analysis will involve the comparison of the two companies considering that they operate in the same sector. However, it will also include the comparison with the Oil and gas producers’ sector index, which is also traded on the same exchange and for which the two companies herein analyzed are included. The index trades under the ticker symbol NMX0530. AT the time of presenting this analysis, the index traded at 7,215.42p with a bearish trend for the day. However, the index has been bullish over the last year, which is one of the reasons the research considered looking into companies trading under the sector. Financial data is analyzed based on five-year financial statements of the two companies selected (London Stock Exchange).
Performance Analysis of Genel Energy PLC
Financial Extracts
Financial data was obtained from the company’s financial statements for the period between 2011 and 2015 (Genel Energy PLC). The financial data extracts are as provided in the table below:
General analysis of the raw data indicates that the revenues of the company have been on an upward trend for the years in focus, with the preservation of the year 2015 whose revenues were lower than those posted in 2014 were. The analysis also indicates that a similar trend was observed in the gross profit. However, the company made s for three out of the five years in focus with the losses increasing in 2014 and 2015.
Profitability Analysis
Investor Performance Indicator Analysis
The investor performance indicator analysis involved the computation of various ratios, which included the earnings per share, the price to earnings ratio, the price to sales ratio, and the price to book value (Investopedia). The ratios were computed for the current period. The assumption is that the investor considers the current price in the determination of whether to invest in the company. From the analysis, the market price of GENL has lost 74.51% of its value over the last year and has a beta of 0.9411 (Financial Times). Consequently, the company is considerably selling at one of the lowest price levels with lower than market risk. The analysis of other investor performance indicator analysis is as provided in the table below.
Performance Analysis for Premier Oil PLC
Financial Extracts
Financial data was obtained from the company’s financial statements for the period between 2011 and 2015 (Premier Oil PLC). The financial data extracts are as provided in the table below:
Analysis of the raw financial data indicates that the Premier Oil PLC reported increasing revenues for the period in the analysis. However, the revenues dipped in the year2015 compared to 2014, and this is because of the falling oil prices in the global oil markets. The gross profit of the company has been on a decreasing trend since trend with there being gross profit losses over the years 2014 and 2015. The analysis of these figures indicates the sensitivity of the company's revenues and profits to changes in the prices of oil. Partly, this is because of the high operating costs in the industry. Similar to the gross profits of the company, the net income has been declining to lead to the reporting of increasingly low EPS or high losses per share in the years 2014 and 2015.
Profitability Analysis
Investor Performance Indicator Analysis
The investor performance indicator analysis involved the computation of various ratios including the earnings per share (EPS), the price to earnings ratio (P/E), the price to sales ratio (P/S), and the price to book value ratio (P/B). The ratios were computed using the prevailing market price per share and the financial data for the year 2015. The assumption is that the investor would consider the current market price per share in the determination of whether to invest in the shares of Premier Oil PLC. From the analysis, the market price of Premier Oil PLC at the current 63.50 GBX has lost 53.10% of its value over the last year and had a beta of 2.1869 (Financial Times). Consequently, the company is considerably selling at one of the lowest price levels for the year and has a higher risk than the market risk considering the beta value. The analysis of other investor performance indicator analysis is as provided in the table below.
Comparative Analysis of Profitability for Premier Oil PLC and Genel Energy PLC
Both Premier Oil PLC and Genel Energy PLC reported losses in the years 2014 and 2015. However, the comparative analysis of profitability indicates that Premier Oil PLC performs better than Genel Energy PLC. The reported EPS for Premier Oil PLC was at (209) as compared to that of Genel Energy PLC at (417) indicating a higher loss. The Net profit margin shows the proportion of net profit per every unit of revenue. The analysis returned a net profit margin of (1.09) for Premier Oil PLC as compared to a low of (3.38) for Genel Energy PLC. This indicates that there is a higher loss per unit revenue for GENL as compared to POM. The analysis further indicates that Premier Oil PLC reports lower losses on assets and lower losses on equity as compared to Genel Energy PLC. This is derived from the return on assets and return on equity ratios as computed above. The interpretation of this is that if the reported figures were profits, Premier Oil PLC would have reported better ratios in general as compared to Genel Energy PLC. Additionally, the analysis indicates that Premier Oil PLC performs better than Genel Energy PLC hence confirming the observation that in the period in focus, Premier OIL PLC reported better financial profitability that Genel Energy PLC. The only concern with the profitability of the two is concerning the level of exposure to price fluctuations in the oil and gas industry. The global oil prices have been on a downward trend since 2012, and partly, this is one of the reasons why the companies reported negative profits over the period. As the data indicates, Premier Oil PLC has a beta value of more than 2.18 while that of Genel Energy PLC at 0.94 is lower than the market beta, which is 1.0. The extended interpretation of this is that the revenues and profitability of Premier Oil PLC are more sensitive to changes in oil prices as compared to those of Genel Energy PLC. The drastic annual changes the net incomes of the two companies confirm this sensitivity of profits and hence confirming the analysis herein presented. Considering that the prices of oil are now rising in the global markets, it is important to note that the profitability of Premier Oil PLC would be expected to rise at a faster rate than that of Genel Energy PLC. Generally, therefore, Premier Oil PLC is more profitable than Genel Energy PLC.
Comparative Analysis of Investor Performance Ratios for Premier Oil PLC and General Energy
The critical investor performance ratios computed for this analysis include the price to earnings, price to sales, and price to book ratios, which helps in ranking the prices of the companies being analyzed. From the analysis, the general view of these ratios indicates that Premier Oil PLC is a more viable investment as compared to Genel Energy PLC. This is because the ratios provided above were lower than those of General Oil PLC and consequently, the market price of Premier Oil PLC is considerably fairer. In other words, the ratios can be loosely interpreted to mean that Premier Oil PLC is a more affordable investment. However, it would be important to note that the price to book value of Premier Oil PLC is higher than that of Genel Energy PLC. The ratios are as summarized in the table below which indicates that Premier Oil PLC performance better for the investor as compared to Genel Energy PLC.
Conclusion
In conclusion, this paper presents the analysis of Premier Oil PLC and Genel Energy PLC. The analysis covered profitability ratios and investor performance ratios. From the analysis, Premier Oil PLC appears to be a better performer than Genel Energy PLC. This is despite the dipping in the global oil prices over the period in focus resulting in losses and reducing profits over the period in focus. The oil prices are predicted to increase going forward. Consequently, the performance of the two companies is expected to improve in future (Bloomberg).
Recommendations
Based on the analysis, the research recommends a buy decision on Premier Oil PLC for an investor considering investment in any other two companies. The price of Premier Oil PLC is fairer as compared to that of Genel Energy PLC. For investors who already have positions in the two companies, the recommended action is to hold since the share prices are set to rebound with the rising oil prices and increased profitability in the near future.
Works Cited
Bloomberg. "GENL:London Stock Quote - Genel Energy Plc - Bloomberg Markets."Bloomberg.com. N.p., 2016. Web. 30 July 2016.
Financial Times. "Genel Energy PLC, GENL:LSE Forecasts FT.com." N.p., 2016. Web. 30 July 2016.
Financial Times. "Premier Oil PLC, PMO:LSE Summary FT.com." N.p., 2016. Web. 30 July 2016.
Genel Energy PLC. "Results, Reports & Presentations." Home Page. N.p., 2016. Web. 30 July 2016.
Investopedia. "8 Simple Investing Ratios You Need To Know." Investopedia. N.p., 2016. Web. 30 July 2016.
Investopedia. "Profitability Ratios." Investopedia. N.p., 2016. Web. 30 July 2016.
London Stock Exchange. "General Energy Share Price (GENL) - Buy General Energy Shares (GENL.L, LON:GENL) - GENL Share Price Today - Buy GENL Shares Now - Historical Prices." LSE & FTSE Share Prices, Buy Shares, Online Share Dealing - UK Share Prices & Stock Portfolio. N.p., 2016. Web. 30 July 2016.
London Stock Exchange. "Oil & Gas Producers Sector Index & Share Prices - Buy Oil & Gas Producers Shares." LSE & FTSE Share Prices, Buy Shares, Online Share Dealing - UK Share Prices & Stock Portfolio. N.p., 2016. Web. 30 July 2016.
London Stock Exchange. "Premier Oil Share Price (PMO) - Buy Premier Oil Shares (PMO.L, LON:PMO) - PMO Share Price Today - Buy PMO Shares Now - Historical Prices." LSE & FTSE Share Prices, Buy Shares, Online Share Dealing - UK Share Prices & Stock Portfolio. N.p., 2016. Web. 30 July 2016.
Premier Oil PLC. "Results and Reports | Premier Oil." Home | Premier Oil. N.p., 2016. Web. 30 July 2016.
