E- COPY (8-14) January 2018 cover pgg-compressed | Page 8

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Monday, January 8 - 14, 2018
CAPITAL MARKET
UNAUDITED NINE-MONTH EARNINGS
Vitafoam: Will rebounding earnings support higher payout?
By AMBROSE OLALEKAN
V
itafoam Nigerian Plc recently presented its unaudited nine-month
earnings report to the investing community slightly earlier than that of
the corresponding period in 2016, the highpoint of which was the growth
in top and bottom-lines as the company came out of loss. This reality is yet to
influence its share price, due to its relatively low dividend payout history and
unstable earnings performance over time.
Investors and analysts expect that the company's post-merger numbers
arising from its expansion outside Nigeria, and the introduction of new products
would further boost its earnings capacity, helped particularly by earnings from
its foreign operations, considering the exchange rate. There is also revenue from
its domestic operations as the company continues to penetrate new markets.
Expectations are that with Vitafoam bouncing back to profit, dividend payment
would likely range between 15 kobo and 18 kobo.
In the Q3 result under consideration, Vitafoam recorded an increase in
turnover, indicating the effects of market penetration and new segments
through introduction of new products, following the merger which is ensuring
that the company is able to effectively withstand competition from the growing
number of cottage companies in its sector resulting in enhanced sales. The high
cost of financing its operations and increase in income tax left a deep cut in its
profit as reflected in its profit margin for the period.
The company's successfully repositioning of its furniture business, while
venturing into spare parts production and strategic repackaging of the
insulation business for enhanced value creation have all started yielding results
as expected. This therefore means that investors should wait and expect better
reward with its full year result expected in the market any moment from now.
The low profit margin however suggests the need for better and enhanced cost
management, while plugging loopholes if shareholders must reap the benefits of
the ongoing revenue growth trajectory, through improved profitability.
History
Vitafoam Nigeria is a leading manufacturer of flexible foam, reconstituted
foam and other household products. It has the largest foam manufacturing and
distribution network which facilitates just-in-time delivery of products
throughout Nigeria, with off-shore operations in Ghana and Sierra Leone.
The company was established on August 4, 1962 by British vita and Unilever
and listed on the NSE in 1978. Vitafoam is currently Nigeria's most prominent
and leading producer of Polyether, foam products, furniture, upholstery
products and adhesives. In 2010, it became a major shareholder of Vono
Products and established two sister companies; Vitapur Nigeria (an insulations
products manufacturing company) in the Oil & Gas industry and Vitablom (a
fibre processing and soft furnishing company). Finally in 2012, it established its
youngest subsidiary- Vitavisco for production and sales of Visco elastic foam and
latex products
Source: Company Financial & Investdata Research
Looking at the company's earnings movement since the beginning of the last
financial year ended September 30, 2017, the numbers have been unstable but on
the strength of its Q3 numbers the expected full year earnings per share is
projected to be in the region of 25 kobo and dividend possibility of 15 to 18 kobo as
mentioned earlier. Being the first full year report, the numbers and payout (if
impressive) and dividend is recommended, it might usher investors into the 2018
market and elicit positive reactions.
Technical View
Sources: Company Data & Investdata Research
Source: Company Financial & Investdata Research
Performance Analysis
Statistics for the third quarter ended June 30, 2017 revealed improvement in
all financial indices for the period under consideration, with sales revenue
growing by 34.32% above the comparable period. This came with a profit of N134
million as against a loss of N159 million in the corresponding period of 2016,
which translated to Earnings Per Share (EPS) of 0.13 kobo, as against the15 kobo
loss per share in the 2016 Q3, while Return on Equity (ROE) came to 4.11%, as
against-4.53% in 2016.
As noted earlier, the company's profit margin is poor by all standards at 0.91%,
even when compared to the negative 1.45% in the corresponding period of 2016,
just as Book Value stood at N3.13 from N3.27, as a result of the increase in profit
and retained earnings..
The price action of Vitafoam shows an uptrend movement that started since
March on positive sentiments, aided by the 12 kobo dividend payout, which was
confirmed by the impressive Q1 results that was sustained till June. It remained
trendy in the rectangle chart pattern with resistance price of N3.07 and support
of N2.63. On the expectation of its full year financials the possibility of break out
or down is high, depending however on the actual numbers.
The chart reveals a high possibility of the uptrend continuing to breakout the
next resistant level of N3.07.
On a daily time frame, the stock is strong as it is trading above it year open and
50 day moving average. Despite the possibility of pullbacks as result of profit
taking, the stock has the momentum to retrace up.
2016 Performances Analysis
In the period under review, sales revenue witnessed drop, while operating and
finance expenses continued to grow, pushed the company into red for the year,
with cost of sales pointing in the northward direction at a time the business
environment was very challenging and purchasing power of Nigerians was weak.
Despite all of these, and its red account for the year Vitafoam was forced to pay
a dividend from its retained earnings just to keep shareholders smiling, for the
first time in almost 10 years, with a dividend of 12 kobo per share which reflected
the seeming loss position for the period,