John Holt Plc: Trading At A Hefty Discount

Company Overview

JOHNHOLT which began the business of  distribution and exporting produce  in Lagos in 1897 has grown to a conglomerate distributing a wide range of consumer and industrial products such as high capacity generators, air conditioners, fire-fighting equipment, boats, transformers, hybrid generators, gas generators  and pre-paid meters. The company is also engaged in oil and gas, inventory management, construction and non-oil exports.

Investment Thesis

JOHNHOLT has increased gross earnings at a three-year compound annual growth rate of 3.31% while Profit After Tax (PAT) declined by 186.6%. Sale of finished goods which amounted to NGN2.1 billion  increased by 43.9% year-on-year while property rent and warehousing added 5.4% from NGN223 million to NGN235 million within a year. However, revenue from services and repairs lost 34.9% from NGN567 million in 2017 to NGN369 million in 2018.

Though earnings growth has been unstable, we believe that the property, warehousing and central business unit is promising. With assets of NGN9.3 billion, this unit accounts for 90.3% of total assets. Despite producing 8.8% of total revenue or NGN235 million in 2018, it was responsible for 31.3% of total gross profit. Gross profit margin is 69.4% unlike 19.5% for the whole company.

Though JOHNHOLT trades below our estimated fair value, we would like to maintain a hold recommendation. We would like to keep a watch on the company's effort at turning around the business.

READ FULL REPORT HERE.

Eterna Plc: Leveraging on its thriving lubricants business

Company Overview

ETERNA was founded in 1989 but started operation in 1991. It was converted to a public company in 1997. This change culminated in the listing of its shares on the Nigerian Stock Exchange in the following year. ETERNA manufactures lubricants and petrochemicals, and sells crude oil and imported petroleum products. It is the sole licensee of BP-Castrol lubricants in Nigeria.

Investment Thesis

The lubricants business segment has witnessed a stable revenue growth. Lubricants sales increased by 31.3% compared to the previous period's figure of 41.3% on a 3-Year Compound Annual Growth Rate (CAGR) basis. Lubricants produced 28% of Profit Before Tax (PBT) despite accounting for less than 5% of total revenue. In addition, it has a better gross profit margin of 29.7% compared to 0.8% of crude oil sales. Its PBT and Profit After Tax (PAT) margins stood at 13.2% and 9.4% respectively compared to 8.3% and 5.1% of the year before. 

ETERNA's total debt dropped 6 percentage points to 16.3% of total assets from 22.3%. Operating profit covered interest obligations 5.9 times while cash flow from operations covered it 0.6 time. Debt obligations may exert pressure on the company's short-term liquidity or result in the accumulation of more debts because most of its loans are short-term in nature.

We are of the opinion that ETERNA has manageable debts; sales revenue is rising notwithstanding the low profit margins.

Read full report here.

Is Fan Milk Limited (Ghana) fairly priced?

Company Overview

Ghana Milk Company Limited was established in January 1960 to produce and market milk products in Ghana. It went bankrupt in 1962. FML emerged from the defunct Ghana Milk Company Limited in 1962 in a bid to resuscitate the company. The company was changed to a public limited company seven years after and was listed on the Ghana Stock Exchange on October 18, 1991.

FML prides itself on the production and distribution of dairy products and food drinks such as FanIce, FanYogo and FanChoco. The management grows the business internally by continuously investing in production and distribution facilities. The company expended GH¢49.1 million in 2017 on property, plant and equipment ( 2016: GH¢107.8 million). Also, distribution expenses increased by 26.7% from GH¢85.4 million to GH¢108.1 million between 2016 and 2017. The company sells its products through distributors and agents who are trained from time to time in order to improve customer  service and create brand preference. Fan Milk International A/S (Denmark), its parent company, controls 56.6% of the equity stake of the company. Dr. Charles Mensa (Ghanaian) occupies the position of the chairman of the board while Stephane Couste (French), the managing director, leads the management board of FML.

Investment Thesis

The decision not to pay dividends in 2017 and 2018 is a plus for the management. It would reduce company's dependence on loans to finance its expansion activities. We are of the opinion that management's capital investment would strengthen FML's productive capacity and distribution network. And shareholders would benefit from appreciation of their investments going forward. In addition, debt obligations will not erode profits and assure of future dividends. Revenue and Earnings Per Share (EPS) have been grown by 23.2% and 14% respectively in the last seven years on a Compound Annual Growth Rate (CAGR) basis.

We arrived at an estimate ranging from GH¢5.2 to GH¢7.4 per share. 

Download latest edition of Investmentfrontiers to read full report.

How profitable is VANLEER?

Company Overview

VANLEER began as Metal Containers of West Africa Limited on January 20, January 1940.  It was renamed Van Leer Containers (Nigeria) Plc in 1969. VANLEER is a subsidiary of Greif International Holding B.V. (Netherlands). It became a public limited company, Greif Nigeria Plc, on 12th May, 2004. Its business focus is on manufacturing and marketing of metal drums.   

Greif International Holding B.V. (Netherlands) controls 51% of the company while The Van Leer Nigerian Education Trust holds 23% equity stake of the company. The members of the public own the remaining 26%.

Investment Thesis

Revenue grew at a Compound Annual Growth Rate (CAGR) of 21.3% over the past three years (2016: 7.9%).  The company benefits form technical and support services from members of the Greif group.  The business is not high-geared and investors of VANLEER should expect a return of 41.5% in three years’ time.

VANLEER generates free cash flow to the shareholders owing to the fact that it is not capital intensive. It trades at 1.1 and 0.3 times book value and sales respectively. Return on capital employed got better by 3.3% and return on average equity rose to 14.1% from 8.1% of a year before.

 More

VITAFOAM NIGERIA PLC

Company Overview

VITAFOAM produces flexible polyurethane foams for beddings and rigid foams for insulation in industries such as oil and gas, construction, agriculture, automotive, food processing and pharmaceuticals. 

Management has been growing the business by branching out into the production of allied products through its domestic and foreign subsidiaries. This has helped the company to broaden its product portfolio and achieve operational efficiency and profitability. 

Investment Thesis

Management has been growing the business by branching out into the production of allied products through its domestic and foreign subsidiaries. This has helped the company to broaden its product portfolio and achieve operational efficiency and profitability. 

Revenue has grown annually at a Compound Annual Growth Rate (CAGR) of 1.9% over the past three years. Nigeria produced a revenue increase of 2% (on a three-year CAGR basis) while operations outside Nigeria lost turnover of 37.9% on a three-year CAGR basis. Revenue from foam products, its flagship products, was NGN15.4 billion up from NGN11.7 billion, gaining 31.7%.

Debts are mounting and the interest payment has had a negative impact on net earnings and profit margin. Profit Before Tax (PBT) margin, which has been on the decline, was less than 1 percentage point. Profit After Tax (PAT) margin was -0.7%. Moreover, VITAFOAM obtained a NGN2 billion loan in September, 2017 to shore up its working capital.

VITAFOAM's shares should offer investors an expected return of 30.1% consisting of capital appreciation of 23.7% and a dividend yield of 6.4%.

Read More.

How much should you pay for Prestige?

PRESTIGE began operation as a Nigerian branch office of The New India Assurance Co. Limited in 1952. It was incorporated as a wholly-owned subsidiary of The New India Assurance Co. Limited in January, 1970 and named The New India Assurance Company (Nig.) Limited.

It enjoys the financial, research and technical support of The New India Assurance Co. Limited, an insurer established in 1919 with strong presence in Asia and Africa.  The experience of PRESTIGE in the Nigerian insurance sector spans over six decades.

Earnings growth has been unstable. And the company has been accumulating losses since 2012. The value of accumulated losses at the end 2017 financial year stood at NGN347.3 million (2016:NGN776.5 million, 2015:NGN991.9 million).  This halted dividend payment. Consequently, the management has succeeded in seeking approval to write off the accumulated losses in 2018 so as to pave way for payment of dividends to shareholders.

Company's performance has started getting better since 2016. Gross premium written profit improved by 7.6%, underwriting profit was NGN254.1 million compared to an underwriting loss of NGN422.3 million of 2015. Profit After Tax (PAT) was NGN222 million when compared to NGN145.3 million loss after tax of 2015.

Read full report in InvestmentFrontiers Magazine.

It is time to fire your adviser!

Many investors are dissatisfied with the services they receive from their advisers despite the bogus claims the advisers often make. You should look beyond the excellent sales presentation and hype. If he does not ask you about your goals and other factors that will determine the suitability of the product for you, your insurance agent may probably be only interested in making his commission. Furthermore, a stockbroker may coax you into buying shares of a company with a streak of losses. He makes money no matter how much you lose. If you buy shares that have proven to be bad investment, your stockbroker makes money twice when you buy and when you sell. A lot of investors are of the opinion that many advisers cannot justify the fee they collect from their clients.

Read more in InvestmentFrontiers Magazine.