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Market Sentiment Around Loss-Making Africa Oil Corp. (TSE:AOI)

Simply Wall St
·3 min read

We feel now is a pretty good time to analyse Africa Oil Corp.'s (TSE:AOI) business as it appears the company may be on the cusp of a considerable accomplishment. Africa Oil Corp., together with its subsidiaries, operates as an oil and gas exploration and development company in Kenya and Ethiopia. With the latest financial year loss of US$157m and a trailing-twelve-month loss of US$244m, the CA$472m market-cap company amplified its loss by moving further away from its breakeven target. Many investors are wondering about the rate at which Africa Oil will turn a profit, with the big question being “when will the company breakeven?” We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

View our latest analysis for Africa Oil

According to the 3 industry analysts covering Africa Oil, the consensus is that breakeven is near. They expect the company to post a final loss in 2020, before turning a profit of US$139m in 2021. The company is therefore projected to breakeven just over a year from now. In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 54% is expected, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
earnings-per-share-growth

We're not going to go through company-specific developments for Africa Oil given that this is a high-level summary, however, bear in mind that typically energy companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. So, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before we wrap up, there’s one aspect worth mentioning. The company has managed its capital judiciously, with debt making up 26% of equity. This means that it has predominantly funded its operations from equity capital, and its low debt obligation reduces the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Africa Oil, so if you are interested in understanding the company at a deeper level, take a look at Africa Oil's company page on Simply Wall St. We've also compiled a list of pertinent factors you should look at:

  1. Valuation: What is Africa Oil worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Africa Oil is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Africa Oil’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.