Rating:

Short Term: Hold

Long Term: Buy

Current Market Price: N20.50
Latest Cash Dividend: N1.50

Year High: N22.25
Year Low: N7.05 (2021 Low)
Fair Value: N34.19
Equity Analyst: Tunde Segun Jeariogbe

Introduction

• In this report, we carefully analyse the full year financial performance indices of Vitafoam Plc for the year ended 30^th September, 2021, compare same with figures released for the corresponding year in 2020 to establish growth, arrive at a valuation and make projection accordingly
• Vitafoam has over the years transitioned from being just a manufacturer of flexible and rigid foam products to offering complete household furniture solutions to consumers desirous of style, comfort, and reliability. 
• Aside this, one of the factors that encouraged the company’s business through the just reported financial year was the high patronage of its products (by various governments across the African continent where it operates), especially in the cause of setting up isolation centres for treatment of Covid-19 infected patients, which drove sales numbers northward, while increasing returns on investments, thereby positioning the company ahead of its peers.
• It is important to understand that growth over 2020 numbers is not so fantastic, because the benefits from covid-19 sales actually commenced two years back.
• Kindly see below for detailed analysis:

VITAFOAM NIGERIA
Bourse	Nigerian Stock Exchange
Code Name	VITAFOAM
Sector	CONSUMER GOODS
Market Classification	MAIN BOARD
Nature of Business	Manufacturing and Dsiribution of Flexible and Rigid Foam, Technial Foam Products and Fibre Products
Date of Incorporation	Apr-08-1962
Date Listed	Jan-01-1970
End of Accounting Year	30TH SEPTEMBER
Website	www.vitafoamng.com
Registrar	Meristem Registrars Limited
Auditor	Deloitte & Touche
Share Price@Relsd (N)	22.50
Earnings per Share	3.68
Intrinsic Value(N)	34.19
Share Outstanding	1,250,844,064
Market Capitalisation	28,143,991,440

Dividend Information

• Note that the management of Vitafoam declared a N1.50k Cash Dividend for the year ended 30^th September, 2021 up from 70 kobo paid in the corresponding year. The improved dividend positively impacted our valuation, as against that of half-year 2021.
• Estimates showed that the N1.50 is 40.81% of its total earnings through the year, whereas, it paid 21.32% of its earnings as dividend in the year 2020.
• Nevertheless, due to the growth in the share price of Vitafoam on the exchange within the two observed periods, the dividend yield of 6.67% is lower, when compared to 8.97% achieved in the corresponding year.
• Kindly see the table below for further estimates and comparisons:

DIVIDEND INFORMATION
Tickers	2021	2020	%Chg
Total Dividend	1.50	0.70	114.29
Payout Ratio	40.81%	21.32%	91.47
Dividend Yield	6.67%	8.97%	-25.71
Sustainable Growth Rate	21.03%	35.75%	-41.17

Statement of Comprehensive Income

• The reported Turnover for the year improved by 51.02%, against that of the comparable period, to N35.40 billion, versus N23.44 billion in 2020.
• Cost of Sales grew by 74.49% to N21.72 billion, against N12.43 billion in the corresponding year.
• Operating Profit grew to N7.93 billion, a 22.71% growth over the N6.47 billion in the comparable year.
• Similarly, Operating Expenses increased by 15.29% over the comparable year, at N5.97 billion, versus N5.18 billion used though 2020 full-year.
• Finance Cost used through the two periods compared dropped by 11.25% to N825.50 million, against N930.17 million in the corresponding year.
• Thus, Profit before Tax was estimated at N7.34 billion, same as 30.02% growth from the N5.64 billion reported in its 2020 full year report.
• After taken care of the Tax Expenses as shown in the table below, the management of Vitafoam reported full year profit of N4.49 billion, a 11.92% improvement over the N4.10 billion achieved at the end of 2020.

VITAFOAM NIGERIA
Statement of Comprehensive Income
	2021	2020	%CHG
Turnover	35,404,072,000	23,443,830,000	51.02
Cost of Sales	21,726,917,000	12,430,348,000	74.79
Operating Profit	7,939,367,000	6,470,228,000	22.71
OPEX	5,974,341,000	5,182,230,000	15.29
DEPRECIATION	294,807,000	437,014,000	-32.54
FINANCE COST	825,507,000	930,171,000	-11.25
NET FINANCE INCOME	570,644,000	823,663,000	-30.72
PBT	7,341,723,000	5,646,565,000	30.02
TAX	2,744,677,000.00	1,730,685,000.00	58.59
PAT	4,597,046,000	4,107,506,000	11.92
TOTAL COMP INCOME	4,714,992,000	3,615,552,000	30.41
Statement of Financial Position
Current Assets	24,985,790,000	15,817,633,000	57.96
Non Current Assets	6,803,882,000	5,818,133,000	16.94
Total Assets	31,789,672,000	21,635,766,000	46.93
Current Liabilities	16,448,820,000	8,605,769,000	91.14
Non Current Liabilities	12,935,681,000	3,989,624,000	224.23
Total Liabilities	29,384,501,000	12,595,393,000	133.30
Net Assets	12,935,681,000	9,040,373,000	43.09
Retained Earnings	11,333,365,000	7,769,014,000	45.88
Shares Outstanding	1,250,844,064	1,250,844,064

Statement of Financial Position

• At the end of the period, Total Current Assets of Vitafoam was valued at N24.98 billion, same as 57.96% above the N15.81 billion stated in its 2020 full year numbers.
• In the same trend, Non-Current Assets appreciated by 16.94% to stand at N6.80 billion against N5.81 billion in the corresponding year.
• The, total current liabilities is valued at N16.44 billion versus N8.60 billion in the corresponding year.
• On the other hand, total non-current liabilities is valued at N12.93 billion as against N3.98 billion in the similar year of 2020.
• Nets Assets therefore was valued at N12.93 billion, same as 43.09% growth over the N9.04 billion stated in 2020.
• Also, Retained Earnings remained positive at N11.33 billion versus N7.76 billion in the comparable year.

Financial Strength

• The amount reported as Total Liabilities is same as 92.43% of the Total Assets figure for the year. In other words, the Debt Ratio is 0.95x this is 58.78% above the 0.58x in the corresponding year. This shows that more debts were used to service the company’s Assets through the year, compared to that of the corresponding year.
• Total Debt figure reported for the year is same as 227.16% of the Equity Value, this shows that, compared to equity used through the year, more debt were explored in achieving more profit through the year under review.
• Equity Ratio is valued at 40.69% as against 41.78% in the comparable year.
• Going by the current estimated beta value, the shares of Vitafoam can be said to be less liquid than the market average, with its beta value currently below both the market beta and the industrial average.

Financial Strength/Solvency Ratio
TICKERS	2021	2020	%CHG
Debt Ratio	92.43%	58.22%	58.78
Total Debt to Equity Ratio (MRQ)	227.16%	139.32%	63.04
Equity Ratio	40.69%	41.78%	-2.62
TICKERS	2021	Industrial Average	%CHG
Beta Value	0.70	0.89	-21.35

Profitability Ratio

• EBITDA Margin is Currently estimated at 22.43%, this is 18.75% below the 27.60% estimate at the end of 2020 full year business session.
• Pre-Tax Margin stood at 20.74% as against 24.09% in 2020, difference between the two ratios is same as 13.90% into the negative territory.
• Cost of Sales is estimated at 61.37% of the Turnover, this is 15.74% above the 53.02% in the corresponding year. 
• The company achieved a high return on Equity to the tune of 35.54% down from the previously estimated 45.44%. 
• Similarly, estimated Return on Average Assets is quite impressive at 14.46% though it dipped from the previously estimated 18.98% in the corresponding year.

PROFITABILITY RATIOS
TICKERS	2021	2020	%CHG
EBITDA MARGIN	22.43%	27.60%	-18.75
PRE-TAX MARGIN	20.74%	24.09%	-13.90
EFFECTIVE TAX RATE	59.71%	42.13%	41.70
CS TO TO	61.37%	53.02%	15.74
ROE	35.54%	45.44%	-21.78
ROA	14.46%	18.98%	-23.83

Efficiency Ratio

• Operating Expenses is estimated as 16.87% of the Turnover Value, this is same as 23.66% drop in the management efficiency when compared to the 22.10% estimated in 2020.
• Turnover Value is 111.37% of the Total Assets Value, the ratio is 2.78% imrovement from the 108.36% estimated from 2020 figures. 
• See below for other efficiency ratios:

EFFICIENCY RATIOS
	2021	2020	%Chg
OPEX TO TO	16.87%	22.10%	-23.66
TO TO TA	111.37%	108.36%	2.78
Working Capital Turnover	4.15	3.25	27.58
Working Capital Ratio	1.52	1.84	-17.36

Investment Ratios

• Judging by the share price difference of Vitafoam on the exchange as at the time the results were made available to the investing public, one can conclude that investors’ expectation is on the high side. The amount Earned per unit of Vitafoam shares is currently estimated as N3.68, as against the N3.28 earned in the corresponding year. This is a marginal growth of 11.92%, and is a fair justification of investors’ revaluation of its price on the exchange.
• P/E-Ratio grew to 6.12x versus 2.38x, this is the implication of the large difference between the share price of Vitafoam on the exchange.
• The above-mentioned earnings per share is a 16.33% yield over the price of Vitafoam shares on the floor of the exchange as at the time the result was made available to the investing public. Understand that this is outstanding, especially when compared to the current rate in the fixed income market at the moment.
• We have established that each unit of Vitafoam shares is worth N10.34 in its book, 43.09% upbeat over the previous year’s estimate.
• Confirming a marginal over-value position for Vitafoam shares is the Price to Book Value that stood above unity.
• See the below table for detailed investment analysis:

Investment/Valuation Ratios
Tickers	2021	2020	%Chg
Price at Released	22.50	7.80	188.46
EPS	3.68	3.28	11.92
TCIP/SHARE	3.77	2.89	30.41
P/E-Ratio	6.12	2.38	157.74
Earnings Yield	16.33%	42.10%	-61.20
BV/Share	10.34	7.23	43.09
PBV	2.18	1.08	101.60

ValuationWe have carefully explored two valuation models- FCFE Growth Model and 2-Stage H-Model, our conclusion on the intrinsic value of Vitafoam was arrived at by averaging the outcome of the two valuation models. Thus, we have valued each unit of Vitafoam shares for N34.19. Meanwhile, considering the gap between our valuation and the current market price of Vitafoam shares, along the estimated Book Value, we Rated Vitafoam a Buyfor both long term; but since its currently selling at its year high we have rated it a Hold for short term investment options.