North European Oil Royalty Trust :NRT-US: Earnings Analysis: Q4, 2016 By the Numbers : January 4, 2017

North European Oil Royalty Trust reports financial results for the quarter ended October 31, 2016.

Highlights

  • Summary numbers: Revenues of USD 1.23 million, Net Earnings of USD 1.08 million.
  • Gross margins narrowed from 93.95% to 89.65% compared to the same period last year, operating (EBITDA) margins now 87.36% from 93.13%.
  • Change in operating cash flow of -48.58% compared to same period last year is about the same as 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):

2016-10-31 2016-07-31 2016-04-30 2016-01-31 2015-10-31
Relevant Numbers (Quarterly)
Revenues (mil) 1.23 1.56 2.34 1.83 2.25
Revenue Growth (%YOY) -45.18 -54.87 -27.93 -46.79 -41.15
Earnings (mil) 1.08 1.39 2.1 1.57 2.1
Earnings Growth (%YOY) -48.58 -58.07 -31.68 -49.19 -42.67
Net Margin (%) 87.36 88.9 89.94 85.83 93.13
EPS 0.12 0.15 0.23 0.17 0.23
Return on Equity (%) 5768.94 6778.75 6485.86 4818.85 9589.26
Return on Assets (%) 327.87 296.42 426.98 327.38 299.7

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, NRT-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if NRT-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -20.99% and earnings by -22.36% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 93.95% to 89.65%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 93.13% to 87.36% in this time frame. For comparison, gross margins were 90.59% and EBITDA margins were 88.90% in the previous period.

Cash Versus Earnings – Sustainable Performance?

NRT-US‘s year-on-year change in operating cash flow of -48.58% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 93.13% to 87.36% and (2) one-time items that contributed to a decrease in pretax margins from 93.13% to 87.36%

EBIT Margin History
PreTax Margin History

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Company Profile

North European Oil Royalty Trust is a grantor trust holding 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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