Rating: Buy
Current Market Price: N4.04

Latest Dividend: N0.30

Full Year EPS: N0.56

Q1-EPS: N0.14
Year High: N5.18xv
Year Low: N3.21
Fair Value: N6.21
Equity Analyst:  Tunde Segun Jeariogbe

Key Investment Ratios

• This report on May & Baker observes the first-quarter performance for the period ended 31st March 2021, compares same with those of the similar period of 2020 to establish growth, projections, valuations accordingly.
• Meanwhile, financials for the full year ended 31st December 2020 and those of previous years were very instrumental in the valuation and projection of future returns expected.
• The company in its first quarter achieved 15 kobo, the same as 25% of its full-year earnings. It is noteworthy that this was not the trend in 2020 when it made full-year EPS of 42k (2019) and first quarter EPS of 2k in 2020.
• Leading among the company’s fundamentals is the news of its licence to produce vaccines, in addition to government policies favourable to its operations in the current season.

Company figures

• The Turnover reported for the period stood at N2.70 billion, same as 47.76% above the N1.82 billion posted in the corresponding period of last year.
• Direct Cost is estimated at N1.55 billion, 11.81% above the N1.39 billion reported at the end of the similar period in 2020.
• Operating Profit is estimated at N418.97 million versus N71.96 million in the corresponding quarter.
• Operating Cost is estimated at N729.15 million, same as 102.41% of the N360.23 million in the comparable quarter.
• Finance Cost used through the three months is estimated at N47.36 million, far above the N7.64 million posted in the same quarter of 2020. Note that interest yielding liabilities has proved cheaper to the sector during this period.
• A total of N363.72 million was reported at Profit before Tax at the end of the quarter, far higher than the N62.93 million posted in the corresponding quarter.
• Having made allowance for Tax Expenses, a total of N247.37 million was posted as Profit for the year, as against the N42.79 in the corresponding quarter.

• Current Assets stood at N9.86 billion, compared to N5.50 billion in the corresponding quarter of last year.
• Non-Current Assets stood at N5.11 billion, slightly below the N5.33 billion achieved at the end of 2020 first quarter.
• Thus, Total Assets at the end of the period is valued at N14.97 billion, a 38.18% improvement over the N10.84 billion in 2020.
• Current Liabilities is estimated at N4.15 billion, same as 41.47% over the N2.93 billion in the similar quarter of 2020.
• Non-Current Liabilities came to N3.83 billion, as against N1.98 billion in the comparable quarter of last year.
• Thus, Total Liabilities for the period stood at N7.98 billion, higher than the N4.92 billion posted in the comparable quarter.
• Net Assets of May & Baker amounted to N6.98 billion, versus N5.91 billion in the corresponding quarter.
• Retained Earnings improved by 37.46% to N2.70 billion, from N1.96 billion at the end of the 2020 first quarter.

Financial Strength/Solvency Ratios

• Debt Ratio is currently estimated at 53.34%, the same as 17.41% above the 45.43% estimated in the similar period of 2020, implying that Total Liabilities is same as 53.34% of Total Assets.
• Total Debt to Equity was equally estimated at 114.31%, as against 83.24% estimated in the comparable quarter. This implies that more debt was used in servicing the company’s assets through the period.
• It was also established that Equity is the same as 46.66% of May & Baker’sAssets Value, estimate from 2020 first-quarter performance indices yielded 54.57%.
• Nevertheless, we can conclude that May & Baker’s shares are liquid and well patronized, although the estimated Beta stood below our estimated industry average, and below market beta.

Profitability Ratios

• EBITDA margin estimated for the period stood at 15.50%, well above the 3.93% estimated from 2020 first-quarter earnings.
• Pre-Tax Margin revealed improved profitability at 13.46%, same as 291.17% above the 3.44% margin estimated from 2020 first-quarter numbers.
• Effective Tax Rate was stable through the periods as shown in the table below.
• Cost of Sales is 57.53% of the Turnover Figure; which is 24.33% below the 76.02% estimated in 2020, which is a confirmation of the management effort in controlling the direct cost of running the business.
• Return on Equity is currently estimated at 3.54% higher than the 0.72%  achieved at the end of 2020.
• See below for details.

Efficiency Ratios

• Operating Expenses to Turnover value is currently measured at 26.97%, representing a 36.99% drop in efficiency during the quarter, although this resulted into better profitability since other things are favourable now. It will become a more disadvantageous if not corrected before things returns to normal.
• Turnover to Total Assets Ratios stood at 18.05% against 16.88%, which is 6.93% improvement in management efficiency when compared to estimates from 2020 first quarter performance indices.
• See below for other efficiency ratios tested.

Investment/Valuation Ratios

• When put side by side the comparable quarter earnings, the management of May & Baker grew the amount earned per unit to N0.14 from the N0.02 achieved in similar period of 2020.
• Our three-month Adjusted P/E ratio stood at 29.29x far below the 115.69x in 2020
• The said earnings per share is a yield of 3.41% of the price of May & Baker on the exchange on the day the result was released, representing is a better yield than the 0.86% estimated in the comparable quarter of last year.
• The value of May & Baker’s shares in its book is currently estimated at N4.05, about 18.15% improvement over the previous quarter’s value.
• Thus, Price to Book Value showed an undervalued state of May & Baker’s shares on the floor of the exchange.
• See the table below for details.

Valuation

Having considered the financial status of May & Baker, while maintaining our conservative valuation approach, we have made this projection with the assumption that the management will work on reducing the interest yielding borrowing while building dividends over the years. We, therefore, valued each unit of May & Baker at N6.21, and have rated it a Buy.