Company: Vitafoam Plc
Rating: Short Term: Hold
Long Term: Buy
Current Market Price: N4.70
Latest Cash Dividend: N0.42
Latest Bonus– 2018: 1:5
Year High: N4.99
Year Low: N3.22
Fair Value: N9.06
Equity Analyst: Tunde Segun Jeariogbe
Introduction
- In this report, the full-year financial performance indices of Vitafoam Plc for the year ended 30th September 2019 was carefully observed, the same compared with figures released for the corresponding year of 2018 to establish growth projection and valuation accordingly.
- Note that the shares outstanding used to estimate ratios within the two years compared were different, because at the end of the 2018 full-year business, the management of Vitafoam issued one-for-five scrip that increased the shares outstanding from 1,042,370,053 to 1,250,844,064 units.
- At the end of its 2019 financial year, the company’s board recommended N0.42 per share cash dividend, as against the N0.25 and 1:5 scrip issue in the prior year.
- The Closure Date for the said dividend is Friday, 7th February 2020, while the Payment date is 5th March 2020
- Generally, the score-card is outstanding, given that the management smartly adjusted down most of its costs, except for the Operating Expenses, while income improved appreciably.
Statement of Comprehensive Income
- The turnover figure posted for the year grew over that of the comparable year by 14.07% to N22.28 billion, as against the N19.53 billion achieved in 2018.
- Cost of Sales adjusted down by a marginal 1.15% to N13.52 billion, as against the previously reported N13.67 billion
- Operating Profit for the year was estimated at N4.44 billion, far above the N2.09 billion posted at the end of the 2018 financial year.
- Operating Expenses, on the other hand, stood over a comparable period by 13.60%, in other words, it is currently estimated at N4.70 billion against N4.14 billion.
- Finance cost used through the year reduced by 23.79% at the current estimate of N1.04 billion against the N1.37 billion used through the 2018 financial session.
- Profit before Tax was therefore valued at N3.49 billion, this is the same as 340.36% above the N793.85 million achieved in 2018.
- A total of N1.03 billion was separated for Tax Expense, as against N191.92 million in 2018.
- Thus, the profit reported for the 2019 full year transactions is N2.38 billion, the same as 296.51% above the N601.92 million earned in 2018.
- Enhanced by FX Translational Rate differences, the Total Comprehensive Income for the year stood at N2.39 billion versus N673.89 million in the corresponding year.
Profitability Ratio
- EBITDA Margin is currently estimated at 19.95%, this is 86.23% above the 10.71% estimate at the end of the 2018 financial year.
- Pre-Tax Margin stood at 15.69%, as against 4.06% in 2018, the difference between the two ratios is the same as 286.04% in the positive territory.
- Cost of Sales is estimated at 60.67% of the Turnover Figure, which is 13.35% below 70.02% in the corresponding year. Please note that this signifies the management’s attempt at cost management.
- The company achieved a high return on equity of 39.98%, as against the previously estimated 15.50%.
- Similarly, the estimated Return on Average Assets i]was quite impressive at 17.27%, up from 3.75% in the corresponding year.
Profitability Ratio
- EBITDA Margin is currently estimated at 19.95%, this is 86.23% above the 10.71% estimate at the end of the 2018 financial year.
- Pre-Tax Margin stood at 15.69%, as against 4.06% in 2018, the difference between the two ratios is the same as 286.04% in the positive territory.
- Cost of Sales is estimated at 60.67% of the Turnover Figure, which is 13.35% below 70.02% in the corresponding year. Please note that this signifies the management’s attempt at cost management.
- The company achieved a high return on equity of 39.98%, as against the previously estimated 15.50%.
- Similarly, the estimated Return on Average Assets i]was quite impressive at 17.27%, up from 3.75% in the corresponding year.
Efficiency Ratio
- Operating Expenses are estimated at 21.13% of the Turnover Value, a marginal improvement in the management efficiency when compared to the 21.22% estimated in 2018.
- Turnover Value is 161.22% to the Total Assets Value, the ratio is 32.35% above the 121.81% estimated from the 2018 figure, which is a laudable achievement, given that it implies an effective use of the company’s assets through the year.
- Working Capital Turnover dipped to 7.82% from the previously estimated 14.72%.
- Working Capital Ratio, within the two compared year, stood above unity and confirmed the firm’s strength to settle its current liabilities with current assets as at when due through the season.
Investment Ratios
- The price of Vitafoam Plc shares was stable within the two released periods compared to this report as shown in the table below.
- The latest dividend as announced by the company is N0.42, 68% above the previous cash dividend of N0.25. Please understand that the previous year’s incentive was supported by the scrip of 1:5.
- The amount earned per unit of Vitafoam shares is currently estimated as N1.91 as against the N0.58 earned in the corresponding year.
- The estimate shows that 22.01% of the said earnings will be paid to investors as cash dividend; this payout ratio is below 43.29% of 2018.
- P/E-Ratio increased to 1.92x versus 0.65x, confirming investors’ renewed confidence in the shares of Vitafoam Plc.
- The above-mentioned Earnings Per Share is a 43.37% yield over the price of Vitafoam shares on the floor of the exchange as at the time the result was made available to the investing public.
- We have established that each unit of Vitafoam shares is worth N4.77 in its book, slightly above the market price when the result was released.
- See the below table 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.
- In our opinion, the growth established in the dividend payment positively impacted the valuation and projection of Vitafoam’s numbers. Thus, our fair value for each unit of Vitafoam is 06.
- Considering the gap between our valuation and the current market price of the stock, along the estimated Book Value, we Rated Vitafoam a Buy for long term investors and Hold for short term.
