North European Oil Royalty Trust :NRT-US: Earnings Analysis: Q4, 2017 By the Numbers : January 1, 2018

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

Highlights

  • Summary numbers: Revenues of USD 2.15 million, Net Earnings of USD 2.01 million.
  • Gross margins widened from 89.65% to 94.31% compared to the same period last year, operating (EBITDA) margins now 93.71% from 87.36%.
  • Change in operating cash flow of 86.48% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

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):

2017-10-31 2017-07-31 2017-04-30 2017-01-31 2016-10-31
Relevant Numbers (Quarterly)
Revenues (mil) 2.15 1.98 1.92 1.73 1.23
Revenue Growth (%YOY) 73.84 26.46 -17.8 -5.9 -45.18
Earnings (mil) 2.01 1.84 1.7 1.48 1.08
Earnings Growth (%YOY) 86.48 32.54 -19.07 -6.27 -48.58
Net Margin (%) 93.71 93.17 88.55 85.48 87.36
EPS 0.22 0.2 0.18 0.16 0.12
Return on Equity (%) 1834.24 1616.2 1252.2 1332.55 1442.23
Return on Assets (%) 394.35 386.28 400.41 436.58 327.87

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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 8.61% and earnings by 9.24% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 89.65% to 94.31% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 87.36% to 93.71% compared to the same period last year. For comparison, gross margins were 94.14% and EBITDA margins were 93.17% in the last reporting period.

Cash Versus Earnings – Sustainable Performance?

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

NRT-US’s year-on-year change in operating cash flow of 86.48% 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 earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 87.36% to 93.71% and (2) one-time items. The company’s pretax margins are now 93.71% compared to 87.36% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

North European Oil Royalty Trust is a grantor trust, which engages in 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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