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.

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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. 

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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.

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