Company: CAVERTON OFFSHORE SUPPORT GROUP PLC
Rating: Buy
Current Market Price: N2.67
Intrinsic Value: N5.31
Latest Cash Div: N0.15
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Financial Tickers
• This report dwells on the financial performance for the full year ended December 31, 2017, while key financial indices released for the first three months of 2018 were equally considered to establish consistency and test the financial health of the company.
• The cash dividend by the management of Caverton is coming after two consecutive years of drought is N0.15.
• The closure and qualification date for the dividend was April 25, 2018
• May 8, 2018 was the payment date while the Annual General Meeting was held at the Civic Centre, Ozumba Mbadiwe Street, Victoria Island, Lagos, Nigeria, on Tuesday the May 8, 2018.

Attraction
• Caverton Helicopters, a subsidiary in August 2017 signed on a new five-year contract with the NNPC/Chevron Joint Venture for provision of aviation services to Chevron Project based in Escravos, Delta State.
• Consequently, Caverton Helicopters executed a purchase agreement with Bell Helicopters and Macquarie Rotorcraft Leasing Inc (the Leasing Company) in the United States for the purchase of eight factory-new Bell 4017 GXP helicopters.
• Thus by March 2018, it introduced and showcased 11 new helicopters in full preparation for the terms and conditions of the contract without fail
• Caverton Maintenance Repair & Overhaul (MRO) Project, though still under construction, but nearing completion, continues to generate interest from both current and prospective global aviation partners and original equipment manufacturers. The management also relentlessly continues to work hard towards completing the MRO in the last quarter of this year and fully operational in Financial Year 2019.
• The Marine arm of the business continues to gather momentum with increasing agency contracts and continuing boat operations and management contract executed with the Lagos State Government. Governor Akinwunmi Ambode formally commissioned two Lagos State acquired boats in November 2017.

Major Shareholders
• Tesmania Investment Ltd owns 54.03% of Caverton ,
• Makanjuola Aderemi M. controls 14.94% and
• Molar Vessels owns 9.04%

Corporate Figures
• Caverton in its financial statistics for the year ended December 31, 2017 builds the Turnover (TO) figure above previous year by 6.37%. As shown in the table below, the current TO is N20.540 billion as against the N19.310 billion in 2016.
• Meanwhile, after taking care of all expenses, Operating Profit was N5.292 billion, this is 99.24% above the N2.656 billion in 2016
• Both Profit before and after Tax soared against the previous year’s profit. PBT is estimated at N3.907 billion, 253.69% above the N1,104 billion made in 2016 while PAT for the year is stated as N2.621 billion same as 328.20% above the N612 million earned in 2016 financial year
• Retained Earnings improved to N7.417 billion, this is 53.76% above the N4.824 billion reported in 2016 financial year
• Non-Current Assets builds marginally by 6.53% moving from N26.655 billion of last business year to N28.394 billion in the current year
• Net Assets equally builds above similar year in 2016 by 19.78%. The index moved to N15.803 billion from the previous N13.193 billion
• See the table below for other comparison.

Liquidity/Risk Ratios
• The company currently has a 61% gearing ratio, down from 63% in 2016, while Debt to Equity Ratio is quite high at 85.37%. This is however typical of operators in the sector.
• Allaying investors’ fear is the 1.14x Current Ratio which confirmed Caverton’s potential to offset its short-term liabilities as at when due without struggling.
• Fairly above industry peers, Caverton enjoys relatively high investor patronage, which is justified by the 0.95 beta value
• Further, reducing the firm’s gearing ratio is the estimated Interest Coverage of 50.42x, far above the industry average of 5.72x. The interpretation of this ratio is that, the company can easily service its interest bearing liabilities and can even access more if required

Profitability Ratios
• Typical of the industry, the Cost of Sales (COS) margin is currently 64.89%, this is 7.62% above the 60.29% of last year. According to the management the increase was due to major scheduled maintenance carried out during the year.
• Profit before Tax margin improved outstandingly by 232.52% having moved from 5.72% to the current 19.02%
• Similarly, Profit Margin soared by 302.56% to 12.76%, as against the 3.17% achieved in 2016
• Return on Average Equity was enhanced by the effective use of more debt in acquiring value as the Ratio appreciated by 257.49% to 16.59% from 4.64%
• Please see below for other profitability ratios.

Efficiency Ratios
• Total Assets Turnover dropped against the previous year’s estimate by 4.89%. The ratio is currently estimated at 44.42% as against the previous 46.70%
• Similarly Equity Turnover though was good, stemmed below last year estimate by 11.20%
• Further confirming the management efficiency is the Equity Multiplier. The ratio confirmed that the Company Assets could conveniently replicate Equity 2.93 times, although this is below the 3.13 times achieved last financial year, it is still applaudable

Investment Ratios
• On the strength of the outstanding improvement achieved on the profit for the year, Earnings per Share (EPS) stood above the corresponding year‘s by 328.20%. Presently, EPS is estimated at N0.78 as against the previous N0.18
• Despite the wide gap in the market price between the two periods compared, the current earnings yielded 29.31% of the current market price
• The company has not really enjoyed good investor sentiments that could result to an overpriced situation. This can be proved by the drop in its PE/Ratio from 1.70x to 1.14x
• Also, agreeing the underpriced status of Caverton’s share price is the Price to Book Value of 0.56x
• Please notice that the current Book Value of Caverto had been estimated at N4.72 which is above the current market price as at the released of this result.

First Quarter 2018 Financial Indices
• Safe the Turnover figure that dropped, all income statement improved over the corresponding quarter of 2017
 Turnover: dropped by 10.66% to N4.560bn against the N5.104bn posted in Q1 2017,
 Profit before Tax improved over 2017 by 34.09% from N355.383 million to N476.520 million
 Profit after Tax equally appreciated over 2017 by 36.64%. Currently standing at N293.533 million compare to N214.819 million last year
• Total Assets grew by 14.57% from N41.734 billion to N47.813 billion.
• In the same trend, Total Liability appreciated by 11.97% to N31.716 billion from N28.326 billion.
• Net Assets posted for the period is now N16.097 billion, this is 20.05% above the previous N13.408 billion.
• On the strength of the above mentioned
 Profit per share for the reported three months is 9k compared to the 6k earned in Q1-2017
 The said earnings is a marginal yield of 3.65% over the current market price as at the released of the financials
 Book Value grew to N4.80 above the N4.00 achieved at the end of Q1-2017
Valuation
• Our valuation model explored a blend of our model plus CAPM and Gordon’s Growth model. A careful use of our approach valued each unit of Caverton share price for N5.31 each.