Company: Fidson Healthcare Plc
Rating: Hold
Current Market Price: N4.10
Latest Dividend: N0.15
Year High: N5.05
Year Low: N3.65
Fair Value: N3.78
Equity Analyst: Tunde Segun Jeariogbe
Key Investment Ratios
• This report observed the half-year financial statistics of Fidson Healthcare for the period ended June 30, 2019, compares the same with released numbers for the corresponding period of 2018, so as to establish a growth pattern.
• Meanwhile, it is necessary to mention some key events in the financials for its full-year ended December 31, 2018, which is highly instrumental to our valuation approach.
• Due to the high direct cost of sales through the 2018 financial year, Fidson Healthcare declared negative earnings as against the profit position in the corresponding period of 2017.
• Meanwhile, despite the loss, the management announced a 15 kobo cash dividend for the year, the implication of which was the resort to its reserve so as to fulfill that dividend obligation.
• This position will definitely impact negatively on the calculated fair value of Fidson Healthcare for now; until it is able to reverse the position at the end of the 2019 financial year.
• Meanwhile, it was observed that between the previous half-year and the most recent, the company did not up its game, so that it was only able to build income mildly above comparable period.
• Against this marginal growth, it suffered from high interest yielding loans that gulped a good chunk of its income, following which it posted a lower income. We are of the opinion that the management of Fidson Healthcare should consider low-interest funds such as bonds and the likes for now.
• Before we look further into the company’s numbers, it is necessary to mention the different Share Outstanding between both quarters, arising from the company’s recent rights issue.
Company figures
• The half-year Turnover inched below the corresponding period by 0.83% to N7.37 billion compared to N7.43 billion in 2018.
• Cost of Sales marginally grew by 2.02% to N4.05 billion, compared to the N3.97 billion posted in its 2018 half-year earnings report.
• Operating Profit is estimated at N1.27 billion, this is also a marginal growth above the N1.23 billion posted in its 2018 half-year earnings report.
• Commendably, Operating expense was constrained at N2.17 billion, same as 4.89% below the N2.28 billion of the corresponding period.
• Nevertheless, as the company continues to take advantage of various opportunities in its field and research further on products, it engaged more interest yielding liabilities, thus it serviced its Bank loans with N866.87 million, this is 83.50% above the N483.90 million used at the end of 2018 half-year business cycle
• Considering all expenses and incomes, Profit before Tax for the period was valued at N405.78 million, as against N766.76 million in the similar quarter of 2018. As noted above, the high debt servicing cost is chiefly responsible for the lower income.
• Current Assets is valued at N10.73 billion, this is same as 45.74% above the N7.36 billion estimated at the end of the first six months of 2018.
• Non-Current Assets held by the leading indigenous healthcare firm is currently valued at N13.08 billion as against N12.92 billion in 2018 half year.
• Current-Liabilities stood at N9.40 billion the same as 19.12% above the N7.89 billion stated in its 2018 half-year result.
• Non-Current Liabilities grew by 11.45% to stand at N4.73 billion as against N4.24 billion in 2018.
• Net Assets posted for the period, therefore, is valued forN9.68 billion above the N8.14 billion in 2018.
• Retained Earnings, on the other hand, dropped by 16.15% to N3.70 billion versus N4.42 billion in 2018; this is the backlog of the last cash dividend paid when it posted a loss.
Financial Strength/Solvency Ratios
• Debt Ratio is currently estimated at 0.59x,0.84% below the 0.60x estimated in a similar period of 2018. This implies that Total Liabilities is same as 59% of Total Assets.
• Total Debt to Equity was equally estimated at 1.46x as against 1.49x estimated in the comparable quarter. This simply implies that debt used in servicing its assets through the quarter is higher than equity.
• It was established that Equity is same as 41% of Fidson’s Assets Value. Estimate from 2018 half-year performance indices yielded 40%.
• Nevertheless, we can conclude that Fidson share price is fairly liquid, although the estimated Beta stood slightly below market beta.
Profitability Ratios
• EBITDA margin estimated for the period stood at 17.72%, slightly above the 16.67% estimated from 2018 half-year earnings numbers
• Pre-Tax Margin equally dropped by 46.64% to 5.51% against the 10.32% estimated at the end of 2018 half-year.
• Effective Tax Rate was stable through the period as shown in the table below.
• Cost of Sales is 55.01% of the Turnover figure, this is only 2.87% above the 53.74% estimated in 2018. This is a confirmation of the management’s efforts to control direct costs.
• Return on Equity stood at 2.85% against 6.40% of 2018.
Efficiency Ratios
• Operating Expenses to Turnover value is same as 29.48%, which is a 4.10% drop in efficiency during the quarter.
• Turnover to Total Assets Ratios stood at 30.93% against 36.63% a 15.54% drop in management efficiency when compared to the estimate from the 2018 half-year performance indices
• Working Capital Ratio, a ratio that indicates a company’s effectiveness in using its working capital was estimated at 5.54x a 7.99% from the negative ratio of the corresponding quarter
• Further testing the management efficiency, we reviewed the Working Capital Ratio, which confirmed that Current Assets was higher than the current liabilities at the end of the period.
Investment/Valuation Ratios
• When compared with the 2018 half-year earnings performance, the amount earned per unit dropped by 32.68% to N0.13 from the previous estimate of N0.35. Please understand that aside the reduced profit reported, the difference between the shares outstanding within the two periods compared is also responsible for lower EPS.
• P/E Ratio grew by 76.92% having moved to 31.3x from 17.69x.
• The said Earnings per Share is yielded 3.19% of the current market price of Fidson Healthcare shares on the floor of the exchange as at the time the result was made available to the investing public.
• The Book Value of Fidson shares is currently estimated at N4.64, slightly above the market value on the floor of the exchange.
• Confirming the under-priced status of Fidson shares on the exchange is the Price to Book Value which stood below unity (0.89x).
