Company Analysis

Vitafoam Plc 2020FY: Juicier Dividend, But Sustaining Same Needs Turnover Boost

Rating: Short Term: Hold

Long Term: Buy

Current Market Price: N7.80
Latest Cash Dividend: N0.70

Year High: N7.80
Year Low: N3.61
Fair Value: N11.44
Equity Analyst: Tunde Segun Jeariogbe

Introduction

  • This report reviewed the full-year financial performance of Vitafoam Plc for the year ended 30th September, 2020, compared same with figures released for the corresponding period of 2019 to establish growth, make projection and valuation accordingly.
  • In the 2018 financial year, the Directors resolved to dispose the company’s subsidiary- Vitafoam Sierra Leone. Consequently, the investment in that subsidiary was reclassified and presented as held for sale (disposal group).
  • However, in the year under review, the Directors do not believe it is still appropriate to classify the investment as “held for sale,” as they have not found a buyer for the investment and it cannot be held so perpetually. They have, therefore, subsequently reclassified the “disposal group” as “Investment in subsidiary”.
  • Although the Turnover only improved marginally, items that enhanced profit for the period include:
    • Lower Rate of Direct Cost compared to previous year
    • Improved income from other businesses
    • Lower Finance Cost
    • Profit from discontinued operations of Vitafoam Ghana Limited in 2019 and Vitagreen Limited in 2020
  • Note that the management of Vitafoam declared a 70 kobo Cash Dividend for the period under review, an improvement on the 42 kobo paid in the corresponding period of last year. The improved dividend proposed positively impacted our valuation, as against the half-year 2020 valuation.
  • See below for detailed analysis
VITAFOAM NIGERIA
BourseNigerian Stock Exchange
Code NameVITAFOAM
SectorCONSUMER GOODS
Market ClassificationMAIN BOARD
Nature of BusinessManufacturing and Dsiribution of Flexible and Rigid Foam, Technial Foam Products and Fibre Products
Date of IncorporationApril 8th 1962
Date Listed1978
End of Accounting Year30th September
Websitewww.vitafoamng.com
RegistrarMeristem Registrars Limited
AuditorDeloitte & Touche
Share Price@Relsd (N)                                                         7.80
Earnings per Share                                                         3.28
Intrinsic Value(N)                                                       11.44
Share Outstanding1,250,844,064
Market Capitalisation                                         9,756,583,699
Sources: Company Report, NSE, Investdata Consulting

Statement of Comprehensive Income

  • The reported Turnover figure for the year improved by a marginal 5.21 to N23.44 billion, versus N22.28 billion in 2019.
  • Cost of Sales adjusted 8.06% south to N12.43 billion from N13.52 billion in the corresponding year.
  • Operating Profit grew to N6.47 billion, 45.58% improvement over the N4.44 billion in the comparable year.
  • Similarly, Operating Expenses increased by 10.07% over the comparable year at N5.18 billion, up from the N4.70 billion used though the 2019 full-year.
  • Finance Cost used through the two periods compared dropped by 11.39% to N930.17 million, as against N1.04 billion in the corresponding year.
  • Thus, Profit before Tax was estimated at N5.64 billion, same as 61.52% up from the N3.49 billion reported in prior full-year.
  • Having taken care of the Tax Expenses as shown in the table below, the management of Vitafoam reported full-year profit of N4.10 billion, a 72.10% improvement over the N2.38 billion achieved at the end of 2019.
  • Profit for the year could have been better, but for the negative impact of Exchange Rate differences on translating foreign operations. Total Comprehensive income for the quarter improved over comparable period by 50.72%, as it is currently valued at N3.61 billion against N2.39 billion.
VITAFOAM NIGERIA
Statement of Comprehensive Income
 20202019%CHG
Turnover23,443,830,00022,283,163,0005.21
Cost of Sales12,430,348,00013,520,270,000-8.06
Operating Profit6,470,228,0004,444,510,00045.58
OPEX5,182,230,0004,708,214,00010.07
DEPRECIATION437,014,000198,378,000120.29
FINANCE COST930,171,0001,049,732,000-11.39
NET FINANCE INCOME823,663,000948,672,000-13.18
PBT5,646,565,0003,495,838,00061.52
TAX1,730,685,0001,031,133,00067.84
PAT4,107,506,0002,386,708,00072.10
TOTAL COMP INCOME3,615,552,0002,398,883,00050.72
Statement of Financial Position
Current Assets                 15,817,633,000                8,006,663,00097.56
Non Current Assets                    5,818,133,000                3,031,914,00091.90
Total Assets                 21,635,766,000              11,038,577,00096.00
Current Liabilities                    8,605,769,000                5,157,448,00066.86
Non Current Liabilities                    3,989,624,000                2,118,353,00088.34
Total Liabilities                 12,595,393,000                7,275,801,00073.11
Net Assets                    9,040,373,000                5,969,710,00051.44
Retained Earnings                    7,769,014,000                4,658,091,00066.79
Shares Outstanding                    1,250,844,064                1,250,844,064 
Sources: Company Report, NSE, Investdata Consulting

Statement of Financial Position

  • At the end of the period, Total Current Assets of Vitafoam was valued at N15.81 billion, same as 97.56% above the N8.00 billion stated in its 2019 full year numbers.
  • In the same trend, Non-Current Assets appreciated by 91.90% to N5.81 billion, as against N3.03 billion in the corresponding year.
  • At the end of the period, Vitafoam had short-term Borrowings of N4.18 billion. Items that made up the borrowings include bank drafts and Letters of Credit.
  • It also reported a total of N120.10 million as long-term bank borrowings. Thus, this brings the total borrowings at the end of the full-year stood to N6.63 billion.
  • Nevertheless, total current liabilities stood at N8.60 billion, versus N5.15 billion in the corresponding year.
  • On the other hand, total non-current liabilities amounted to N3.98 billion, from N2.11 billion in the similar year of 2019.
  • Nets Assets rose to N9.04 billion, same as 51.44% growth over the N5.96 billion stated in 2019.
  • Also, Retained Earnings remained positive at N7.76 billion, versus N4.65 billion in the comparable year.

Financial Strength

  • The amount reported as Total Liabilities is same as 58.22% of the Total Assets for the year. In other words, the Debt Ratio is 0.58x which is 11.68% below the 0.66x of the corresponding period of last year. This is a positive trend, having confirmed Assets improvement over liabilities
  • Total Debt reported for the year is same as 139.32% of the Equity Value, a confirmation that more debt was used to service the company’s assets through the year. Meanwhile, 121.88% was estimated in the corresponding year.
  • Equity Ratio is valued at 41.78% as against 54.08% in the comparable year
  • Going by the current estimated beta value, it is safe to regard the shares of Vitafoam as more liquid, given its beta value currently above both the market Beta and industry average.
Financial Strength/Solvency Ratio
TICKERS20202019%CHG
Debt Ratio58.22%65.91%-11.68
Total Debt to Equity Ratio (MRQ)139.32%121.88%14.31
Equity Ratio41.78%54.08%-22.74
TICKERS2020Industrial Average%CHG
Beta Value                                       1.20                                   1.172.56
Sources: Company Report, NSE, Investdata Consulting

Profitability Ratio

  • EBITDA Margin is Currently estimated at 27.60%, which is 38.37% above the 19.95% estimate at the end of 2019 full-year.
  • Pre-Tax Margin stood at 24.09%, as against 15.69% in 2019, with the difference between both ratios same as 53.53% into positive territory.
  • Cost of Sales is 53.02% of the Turnover Figure, which is 12.61% below the 60.67% in the corresponding year. Please note that this confirmed management’s efforts at adjusting Direct Cost in the year under review.
  • The company achieved a high return on Equity which was 45.44%, up from the previously estimated 39.98%. This is the positive impact of more Debt against Equity as stated earlier.
  • Similarly, estimated Return on Average Assets is quite impressive at 18.98%, although it dipped from the previously estimated 21.62% in the corresponding year.
PROFITABILITY RATIOS
TICKERS20202019%CHG
EBITDA MARGIN27.60%19.95%38.37
PRE-TAX MARGIN24.09%15.69%53.53
EFFECTIVE TAX RATE42.13%43.20%-2.47
CS TO TO53.02%60.67%-12.61
ROE45.44%39.98%13.64
ROA18.98%21.62%-12.19
Sources: Company Report, NSE, Investdata Consulting

Efficiency Ratio

  • Operating Expenses is estimate at 22.10% of the Turnover, which is same as a 4.62% drop in management efficiency, when compared to the 21.13% estimated in 2019.
  • Turnover Value is 108.36% of the Total Assets Value, representing a 46.32% drop from the 201.87% estimated from the 2019 figure, which can be interpreted as another proof of a drop in management efficiency. It implies that Vitafoam’s Assets were not fully utilised through the year. Nevertheless, it is a good ratio
  • See below for other efficiency ratios.
EFFICIENCY RATIOS
 20202019%Chg
OPEX TO TO22.10%21.13%4.62
TO TO TA108.36%201.87%-46.32
Working Capital Turnover                                       3.25                                   7.82-58.43
Working Capital Ratio                                       1.84                                   1.5518.40
Sources: Company Report, NSE, Investdata Consulting

Investment Ratios

  • Judging by the share price difference of Vitafoam on the Nigerian Stock Exchange (NSE) as at the time the results were made available to investors, one can conclude that there is a high investor expectation.
  • The amount Earned per share of Vitafoam is currently estimated at N3.28, as against the N1.91 of the prior full-year, representing a huge 72.10% growth, which is a justification of investors’ improved valuation as seen in its share price movement on the Exchange.
  • P/E-Ratio inched up to 2.38x versus 2.31x, despite the large difference between the share price of Vitafoam within both periods compared in this report.
  • The afore-mentioned earnings per share is a 42.10% yield over the price of Vitafoam shares on the Nigerian bourse, as at the time the result was presented. We note that this is outstanding, especially when compared to the current rate of fixed income instruments at the moment.
  • We have established that each unit of Vitafoam shares is worth N7.23 in its book, which is 51.44% upbeat over the previous year’s estimate.
  • Confirming its marginally over-valued nature of Vitafoam shares is the Price to Book Value that s slightly above unity.
  • See the table below for a detailed investment analysis.
Investment/Valuation Ratios
Tickers20202019%Chg.
Price at Released7.804.4077.27
EPS3.281.9172.10
TCIP/SHARE2.891.9250.72
P/E-Ratio2.382.313.01
Earnings Yield42.10%43.37%-2.92
BV/Share7.234.7751.44
PBV1.080.9217.06
Sources: Company Report, NSE, Investdata Consulting

Valuation

  • We have carefully explored two valuation models- FCFE Growth Model and 2-Stage H-Model, to arrive at the intrinsic value of Vitafoam by averaging the outcome of the two valuation models. Thus, we have valued each unit of Vitafoam shares at N11.44. Meanwhile, considering the gap between our valuation and the current market price of Vitafoam shares, along with the estimated Book Value, we have rated Vitafoam a Buy for long-term investors. But since it is currently selling at its year-high we, nonetheless, rated it a Hold for short-term investment purpose.

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