FIDSON- Expanding The Frontiers of Nigeria’s Health Sector

By Imperial Asset Research

Key Statistics at a glance
Fair Value N5.00
Current Price N4.50
Outlook Hold
Industry View Positive
Market Cap ₦9.39b ($26.08m)
Exchange Rate [$] N360.00
Price-Earnings [PE]
2018Trailing -0.06x
2019Forward 9.35x
2019Current 30.99x
ROAE 2.85%
ROAA 1.16%
Outstanding Shares 2.08Bn
Analyst: Kanayo John

INVESTMENT HIGHLIGHTS: 6M-2019: EBITand EBITDAMargins grew modestly to 17.6% and 21.3% respectively.
Fidson Healthcare Pharmaceutical Plc(NSE- FIDSON; Bloomberg- FIDSON: NL) on Friday, 26th July 2019 released its unaudited second-quarter financial statements for the period ended 30th June (6M-19) 2019.
A close analysis of the results showed that both Revenue (TO) and Net Income (PAT) plunged by 0.82% and 47.08% to ₦7.37 billion and ₦275.94 million year-on-year (y/y) respectively. Revenue was negatively impacted by 6.3% and 95.0% drop on Ethical and Sinkcare/Consumers’ units. However, Ethical and Over-the-Counter (OTC) products contributed 51.3% and 48.7% to the TO.

Operational cost lines remain major headwinds
Despite management resolve to effectively manage cost line items, we observed that they were a major drawback on the current performance. Cost of sales (COGS) for instance was up by 2% (irrespective of the dip in revenue/TO) due to a spike in personnel cost by +35.9%. As such, COGS-to-TO went up by 55.0% vs 53.5% in 6M ’18. Against the 14.8% dip witnessed in the 3M ’19, Admin. Expenses rose 31.9% y/y (largely induced by +246.9% spike on salaries and allowances). Selling and Dist. Expenses in line with 44.8% reduction witnessed in 3M ’18 dropped further by 42.6% as management moderated allocation on promotion and advertisement.

What impact has deleveraging exercise on earnings
In line with the management resolve to restrain expensive short-term debt financing, it came down by 16.3% while long-term financing went up by 156%. Notwithstanding, finance cost (interest on banks’ loans) spike by 85.3% in the period leading to a debt-to-EBITDA of 5.7x from 3.25x in 6M ’18. Notably, the company has not deployed the proceeds of
Forecasts laid on the bigger picture in FYE-2019
Despite the current drag in the top and bottom lines, we expect H2 ’19 operations to be crucial
it is expected to be driven by i) increased demand for intravenous infusions ii) effective in the 12M ’19 calendar (historically – H2 has always been the company’s optimal season), and management of operational costs and iii) lower finance costs due to deleveraging of balance sheet.
Accordingly, we project a 12M ’19 revenue and net income of ₦14.16 billion and ₦400.52 million respectively. The revenue and net income forecasts were based on our computed average quarterly growth rate of 3.85% from Q1 ‘2017. Therefore, our forecast EPS for FYE 2019 is₦0.25 compared to₦-0.06 reported in FYE 2018.

We retain a HOLD recommendation on FIDSON
Following the above upside developments which outweighed the downside risks and are capable of driving earnings going forward, we adjust our target price upwards to₦5.00 (previous ₦4.50) based on a weighted blend of residual income valuation and price-to-book multiples of 0.97x. At the target price of ₦5.00, the counter currently has an upside potential of 11.1% from the last closing market price of ₦4.50 as at Thursday, 1st August 2019. FIDSON is currently trading at a forward P/E of 9.35x (a discount to the industry average of 15.66x), and an ROE of 2.85%. Thus, we retain a HOLD rating on the counter with a target price of ₦5.00.
We are persuaded by the company’s ability to continue to deliver value to its shareholders, thus, we retain a HOLD rating on the counter with a target price of ₦5.00.

Statement of Comprehensive Income
6M-19 (₦’Mn) 6M-18 (₦’Mn) % Change 12M-19f(₦’Mn)
Revenue/Turnover 7,371 7,432 -0.82 14,156
Cost of Sales -4,055 -3,974 2.04
Gross Profit 3,316 3,458 -4.11
Operating Profit 1,273 1,239 2.74
Finance Cost/Income -896.87 -483.91 85.34
Profit/Loss Before Tax 405.79 766.77 -47.08
Taxation -129.85 -245.37 -47.08
Profit/Loss After Tax 275.94 521.40 -47.08 529.12
Statement of Financial Position
Total Assets 23,828 20,292 17.43
Total Liabilities 14,145 12,148 16.44
Cash and Cash Equivalent 2,889 854.81 237.97
Net Assets 9,683 8,144 18.90
Retained Earnings 3,707 4,420 -16.13
Shares Outstanding 2,086 1,500 39.07
Investment/Valuation Ratios (%)
Gross Margin 44.99 46.53
Net Margin 3.74 7.02
Cost-to-Sales -55.01 -53.47
Leverage 59.36 59.87
Price Multiples
Price at Released (₦) 4.50 5.65
EPS (₦) 0.13 0.35
P/E Ratio (x) 30.99 16.25
BVPS (₦) 4.64 5.43
P/BV (x) 0.97 1.04
ROE (%) 2.85 6.40