Rating:
Short Term: Hold
Long Term: Buy
Current Market Price: N4.96
Latest Cash Dividend: N0.42
Year High: N5.50
Year Low: N3.61
Fair Value: N8.44
Equity Analyst: Tunde Segun Jeariogbe

Introduction
•This report observed the half-year financial performance indices of VitafoamPlc for the period ended 31st March 2020, compared same with those released for the corresponding quarter in 2018 to establish growth, make projections, and valuation accordingly.
•Note that the shares outstanding used to estimate ratios within the two periods compared are different. This is because at the end of the operations in 2018 full-year, the management of Vitafoam approved and issued a one-for-five scrip, which increased its shares outstanding from 1,042,370,053 to 1,250,844,064 units.
•Note also, that despite the outstanding improvements observed in the company’s financial indices, when compared to that of the corresponding quarter, the management’s efficiency level is is negative, as the improvement in the value of the assets has not been fully marched. In other words, more efficient use of the Assets is capable of yielding a better profit.

Statement of Comprehensive Income
• Turnover for the period dropped by a marginal 7.56%, from that of the comparable period to N11.96 billion versus N12.93 billion in 2019.
• Cost of Sales impressively dropped by 26.17% to N6.76 billion, as against N9.15 billion in the similar period of 2019.
• Operating Profit grew to N2.77 billion, a 77.99% growth over the N1.55 billion in the comparable period.
• Nevertheless, Operating Expenses increased by 11.63% over the comparable period, from N2.33 billion used in the 2018 half-year business session to N2.60 billion.
• Finance Cost used through the two periods compared dropped by a marginal 8.15% to stand at N411.27 million, as against N447.76 million in the corresponding quarter.
• Thus, Profit before Tax was estimated at N2.36 billion, same as 112.66% up from the N1.11 billion reported in its 2019 half-year report.
• After taking care of the Tax Expenses as shown in the table below, the management of Vitafoam reported a half-year profit of N1.69 billion, a 128.88% improvement over the N739.94 million achieved at the end of 2019 half-year business session.
• Helped by Exchange difference on translating foreign operations, Total Comprehensive Income for the quarter stood over the comparable period by 112.00%, as it is currently valued at N1.70 billion against N805.14 million.

Statement of Financial Position
• At the end of the period, Total Current Assets of Vitafoam was valued at N11.44 billion, same as 39.54% above the N8.20 billion stated in its 2019 half-year numbers.
• Meanwhile, Non-Current Assets inched north by 4.96% to N3.15 billion, from N3.00 billion in the corresponding quarter.
• At the end of the half-year, Vitafoam reportedly had a short-term Borrowings of N2.181 billion. Items that made up the borrowings include bank overdraft, commercial papers, and bank borrowings.
• Also it reported a total of N3.35 billion as long-term bank borrowings, bringing total borrowings at the end of the half-year to N5.53 billion.
• Nevertheless, total current liabilities stood at N5.62 billion, versus N6.95 billion in the corresponding quarter.
• On the other hand, total non-current liabilities soared to N4.15 billion, as against N2.14 billion in the similar quarter of 2019.
• Nets Assets, at N7.10 billion, grew by 61.17% over the N4.40 billion stated in 2019.
• Also, Retained Earnings remained positive at N567.38 million, versus N536.12 million in the comparable quarter.

Financial Strength
• The amount reported as Total Liabilities is the same as 67% of the Total Assets figure for the year. In other words, the Debt Ratio is 0.67x this is 17.49% below the 0.81x in the corresponding period. This is a positive trend since it confirmed Assets’ improvement over liabilities.
• Total Debt to Equity Ratio is currently estimated at 1.32x against 3.13x in the corresponding year, this implies that the Total Debt Value for the year can replicate Equity 1.32 times, which is better than the 3.13 times of the previous year.
• Equity Ratio is also valued at 1.38x versus 2.07x, which is Equity is the same as 137.77% of the Total Assets Value for the quarter, which is better than the 206.55% in 2019. Please understand this is an improvement that favours shareholders’ position in the firm.
• Also checking investors’ stand, we checked the Equity Ratio and established that equity is the same as 48.64% of Vitafoam’s Total Assets Valuation, an improvement when compared to 39.32% estimated in 2019.
• Going by the current estimated beta value, the shares of Vitafoam can be said to be less liquid as its beta value currently stands below the market beta.

Profitability Ratio
• EBITDA Margin is Currently estimated at 23.21%, this is 92.54% above the 12.06% estimate at the end of the 2018 half-year business session.
• Pre-Tax Margin stood at 19.78%, as against 8.60% in 2019, with the difference between both ratios being the same as 130.05% in the positive territory.
• Cost of Sales is estimated at 56.53% of the Turnover Figure, which is 21.13% below 70.79% in the corresponding quarter. Please note that this signifies the management’s attempt in cost management and it is commendable.
• The company achieved a high return on Equity to the tune of 23.83%, up from the previously estimated 16.78%.
• Similarly, the estimated Return on Average Assets is quite impressive at 11.59%, up from 6.60% in the corresponding quarter.

Efficiency Ratio
• Operating Expenses is estimated as 21.80% of the Turnover Value, which is the same as a 130.05% drop in the management’s efficiency level when compared to the 18.05% estimated in 2019.
• Turnover Value is 81.93% of the Total Assets Value, the ratio is a 29.04% drop from the 115.46% estimated from 2019 figures. This can be seen as another drop in the management’s efficiency, as it implies that Vitafoam’s Assets are not fully turned over through the period. Nevertheless, it is still a good ratio
• Working Capital Turnover dipped to 2.05% from the previously estimated 10.32%.
• Working Capital Ratio, within the two compared year stood above unity and confirmed the firm’s capacity to settle current liabilities with current assets as and when due through the season.

Investment Ratios
• Judging by the price of Vitafoam’s number of shares listed on the exchange as at the time the two results compared were made available to the investing public, one can conclude that investors’ preference for Vitafoam was stable through the period.
• The amount Earned per unit of Vitafoam shares is currently estimated as N1.35 as against the N0.59 reported in the corresponding period of last year.
• P/E-Ratio dropped to 3.67x versus 7.11x, a reflection of the improvement seen in the company’s earnings over the periods compared, and signifies positive investment point for investors.
• The above-mentioned earnings per share is a 27.27% yield over the price of Vitafoam shares on the exchange as at the time the result was made available. This is indeed outstanding when compared to the current rate in the fixed income market at the moment.
• We have established that each unit of Vitafoam is worth N5.68 in its book, a 61.17% discount over the market price on the date the result released.
• Confirming an undervalued position for Vitafoam is the Price to Book Value Ratio, which stood below unity.
• See the table below for detailed investment analysis.

Valuation
• We have carefully explored two valuation models- FCFE Growth Model and 2-Stage H-Model. Our conclusion on the intrinsic value of Vitafoam was arrived at by averaging the outcome of the two valuation models.
• Thus, we have valued each unit of Vitafoam shares for N8.44. Meanwhile, considering the gap between our valuation and the current market price of Vitafoam shares, along with the estimated Book Value, we Rated Vitafoam a Buy for long-term; but since its currently selling close to its year-high we have rated it a Hold for short-term investment options.