Rating: Hold
Current Market Price: N7.15

Latest Dividend: N0.55
Year High: N7.20
Year Low: N3.45
Fair Value: N8.42
Equity Analyst:  Tunde Segun Jeariogbe

Key Investment Ratios

• In this report we observed the full-year financials released by Glaxo Smithkline Consumers for the year ended, 31^st December, 2019, compared same with those of the corresponding period of 2018, to establish growth, make projections and undertake valuation analysis.
• It was observed that the management of Glaxo Smithkline rounded up year 2019 with zero finance cost, in other words, it reported zero Non-Current Liabilities for the period under review, as against the N107.08 million reported in 2018.
• In other words, the company does not have interest yielding liabilities. By implication, the reported current liabilities only include items like: unpaid dividend, advance from customers, trade payables, pension payables etc.
• Meanwhile, the directors have proposed a N0.55 cash dividend for the just concluded year, compared to the N0.50 paid for at the end of the 2018 year.
• The qualification date for the said dividend is 22^nd June, 2020, while payment date is 24^th July, 2020.

Please see the table below for detailed analysis:

Company figures

• Turnover reported at the end of the year under review was N20.76 billion, 12.76% above the N18.41 billion reported in the corresponding period of 2018.
• Cost of Sales grew by 17.82% at N14.70 billion, compared to the N12.48 billion reported through the 2018 financial year.
• Profit before Tax at the end of the year was estimated at N1.169 billion, a marginal improvement over the N1.160 billion achieved in the previous year.
• Tax Expenses allowance for the year was N252.22 million, versus N542.53 million in the similar period of 2018.
• Thus, Net Profit for the period was estimated at N917.10 million, this was 48.49% above the N617.62 million in the corresponding period of 2018.

• Current Assets of Glaxo Smithkline at the end of the year was valued at N16.29 billion, same as 22.16% above the N13.33 billion in the corresponding year.
• Non-Current Assets was estimated at N2.39 billion, a marginal increase of 1.25% above the N2.36 billion in the comparable year.
• Current Liabilities grew by 41.01% to N9.53 billion, compared to N6.76 billion stated in its 2018 year-end report.
• As noted above, the company has no Non-Current Liabilities at the end of 2019; which is against the N107.08 million stated in the 2018 year-end.
• Net Assets is valued at N9.15 billion, versus N8.83 billion in the corresponding period of 2018.
• Retained Earnings inched up by 3.91% at N8.50 billion, compared to N8.18 billion in the preceding year.

Financial Strength/Solvency Ratios

• The amount reported as Total Liabilities is the same as 51.01% of the Total Assets Value at the end of the year, which is higher than the estimated 43.74% in the corresponding year. It is important to note that the liabilities here were mainly short-term.
• The short-term liabilities mentioned above, is the same as 104.14% of the company’s shareholders’ fund reported during the period; this is against the estimated 77.75% at the end of the 2018 financial year.
• Glaxo SmithKline shareholders’ funds at the end of the year was the same as 48.99% of the Total Assets Valuation, this was a lower ratio, when compared to 56.26% achieved at the end of the 2018 financial year.
• Nevertheless, going by the estimated beta value of 0.67x, it can be safely concluded that the shares of Glaxo Smithkline are less liquid, compared to its industry peers.

Profitability Ratios

• EBITDA margin estimated for the quarter stood at -2.35%, an improvement over the the -25.90% estimated from 2018 full year earnings numbers.
• The amount reported as profit before Tax is same as 5.63% of the Turnover value, which is 10.61% drop from the 6.30% estimated in 2018.
• Cost of Sales is 70.85% of the Turnover figure, which is only 4.49% above the 67.80% estimated in 2018. This is a confirmation of the management’s effort to control its direct cost.
• Return on Equity stood at 10.02% as against 6.99% achieved in 2018.
• See below for details:

Efficiency Ratios

• Operating Expenses to Turnover ratio is same as 25.35%, which is a 12.66% improvement in management efficiency from the 29.02% estimated from 2018 full-year financial indices.
• Turnover to Total Assets Ratios stood at 111.10% as against 117.27%, a marginal drop in management efficiency within the two compared years.
• Working Capital Ratio, which indicates a company’s effectiveness in using its working capital was estimated at 3.07x, a 9.69% growth from the 2.80x estimated in 2018
• See below for details:

Investment/Valuation Ratios

• At the end of 2019 financial year, the management of Glaxo Smithkline earned N0.77 on every unit of its shares, this is higher than the N0.52 earned in 2018.
• PE/Ratio becomes more attractive with the price adjustment and the earnings growth recorded. We have estimated PE/Ratio at 9.32x versus 20.91x in 2018
• The said earnings per share yielded 10.73% of the price of Glaxo Smithkline on the Nigerian Stock Exchange as of when the result was made available to the investing public.
• The shares of Glaxo Smithkline have been estimated at N7.65 in its books as at the end of 2019 financial year, this is a marginal improvement above the N7.39 estimated in 2018, and slightly above the price on the floor of the exchange.
• Confirming a marginal underpriced status is the Price to Book Value ratio at slightly below unity.

See below for detailed investment ratios:

Valuation

Impacted by dividend growth between the two years observed in this report, and low rate from the 91-days T-Bill Rate; we have conservatively valued each units of Glaxo Smithkline’s share price at N8.42and Rated it a Hold.