North European Oil Royalty Trust :NRT-US: Earnings Analysis: Q1, 2017 By the Numbers : March 22, 2017

North European Oil Royalty Trust reports financial results for the quarter ended January 31, 2017.

We analyze the earnings along side the following peers of North European Oil Royalty Trust – San Juan Basin Royalty Trust and Wacoal Holdings Corp. Sponsored ADR (SJT-US and WACLY-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1.73 million, Net Earnings of USD 1.48 million.
  • Gross margins narrowed from 87.16% to 86.96% compared to the same period last year, operating (EBITDA) margins now 85.48% from 85.83%.
  • Year-on-year change in operating cash flow of -6.27% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-01-31 2016-10-31 2016-07-31 2016-04-30 2016-01-31
Relevant Numbers (Quarterly)
Revenues (mil) 1.73 1.23 1.56 2.34 1.83
Revenue Growth (%YOY) -5.9 -45.18 -54.87 -27.93 -46.79
Earnings (mil) 1.48 1.08 1.39 2.1 1.57
Earnings Growth (%YOY) -6.27 -48.58 -58.07 -31.68 -49.19
Net Margin (%) 85.48 87.36 88.9 89.94 85.83
EPS 0.16 0.12 0.15 0.23 0.17
Return on Equity (%) 5330.21 5768.94 6778.75 6485.86 4818.85
Return on Assets (%) 436.58 327.87 296.42 426.98 327.38

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Market Share Versus Profits

Revenues History
Earnings History

NRT-US‘s change in revenue this period compared to the same period last year of -5.90% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that NRT-US is holding onto its market share. Also, for comparison purposes, revenues changed by 39.79% and earnings by 36.79% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 87.16% to 86.96%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 85.83% to 85.48% in this time frame. For comparison, gross margins were 89.65% and EBITDA margins were 87.36% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

NRT-US‘s change in operating cash flow of -6.27% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 85.83% to 85.48% and (2) one-time items that contributed to a decrease in pretax margins from 85.83% to 85.48%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

North European Oil Royalty Trust is a grantor trust. It holds overriding royalty rights, covering gas and oil production in certain concessions or leases in the Federal Republic of Germany. The company was founded on September 10, 1975 and is headquartered in Red Bank, NJ.

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