RUBSF - Rubis Shows Continued Profit Growth And Signals Ongoing Aviation Recovery

Summary

• Rubis has come out with its trading update and the salient features are a recovery in aviation activity.
• Moreover, the price caps in Madagascar have been eliminated and this has helped the African performance in terms of gross profit.
• There is deceleration in the shipping and trading segment, but it is still growing YoY.
• Haiti is an issue for Caribbean results, but in the headline figures aren't too far off Europe.
• In general, we are not seeing much deterioration at all into Q4 which has been a poor quarter for the world economy.

Rubis ( RBSFY ) has issued some information of its FY results for the moment only through a press release. The results look good. We are not seeing too much deterioration into the Q4, and even with idiosyncratic issues in some markets, volumes are holding strong. In general, a less shocked environment is also allowing Rubis to get back some margin as government consumer protection measures lighten, specifically in Madagascar. Moreover, the segments to do with shipping and trading that have been benefiting from supply chain issues are still growing, although deceleration is clearer here. In general, Rubis is demonstrating that it is, after all, an infrastructure business, and markets are coming back to it thanks to a high dividend and earnings yield.

Trading Update FY 2022

Let's start with the volumes.

There is some evidence of deceleration, but very slight, into the Q4 as motorists tighten their belt and volumes at the pump are hit. The Caribbean figures include a very disrupted market in Haiti, and are actually growing 3% excluding it in the Q4. For the FY, Haiti excluded volume growth was 20%, showing that it caught some revenge travel trends. In general, aviation and tourism recovery has been helpful in putting vigour back into the Caribbean market. The Caribbean market has been responsible for good unit profit growth in the overall Rubis picture, also helped by falling crude prices.

In Africa, bitumen sales continue to grow despite tough comps fueled by infrastructure spending, and there have been some punctuated moves in securing better contracts for provision of aviation fuel that have gone well in several of its African markets, in time for further reopening. Volumes show a flattish performance as a consequence.

The support and services business, which in addition to their French Antilles refinery which is always totally stable benefits from volatility in oil and oil products' prices, saw continued but slight gross profit growth in the Q4 of 1% YoY. It was 15% for the whole year due to former volatility that is now settling, and supply chain issues keeping logistics prices high. While deceleration was expected, we are happy to see that declines haven't come yet. Half of this business can be expected to be stable in the French Antilles, where they have a contractually fixed crack spread, not connected to market forces.

In the terminal business, exposure to biofuels has been driving growth in revenues. Storage revenues have been decent too as supply chain concerns and wise hoarding have been supporting those markets in the current environment, where Rubis also has exposure to terminaling of agriproducts. Agriproducts are up 50%, biofuels 20% and fuel revenue 6%.

Bottom Line

Madagascar had instituted some price caps that affected retail price realisation. Those have been renegotiated and gross profit is returning from those markets. Gross profit growth is 11% for the comprehensive business YoY for the Q4, which is a superb performance helped by weakening crude prices that can't be levitated by this year's supply cuts but also a testament to the inevitable margin for Rubis that comes from its businesses despite economic pressure globally and demand challenges for oil.

While Haiti is in a crisis, the exposure is not too bad at around 10%, and tourism and a more permanent passing of the hysteria around COVID-19 has helped it improve since 2021, although still behind 2019 figures when the whole picture was just much rosier for travel and aviation.

Markets are finally beginning to reappraise the stock as it provides very large margin of safety with earnings yields in excess of 12%, and a solid and well-covered 7% dividend yield to boot. As rates compete with equities in providing returns, these stocks with less exposure to market gravity are a proven place to hide.

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