Lately the Nigerian economic landscape has been blanketted with several technological initiatives. The National ID card scheme, the ever increasing use of the ATM and P.O.S machines in transaction making and more recently the CBN Cash-Less Policy. All of these require significant infrastructural deployments in the IT by the Government and from private sector as well. If there is one company that stands above many in IT Infrastructure deployment in Nigeria, then it is Chams Plc. The Company leads the way for Card Products, P.O.S, Internet Cafe’s etc. But does its leadership position in leading IT deployment in the country transcend to economic value to its shareholders and potential investors? May be a review of its first quarter earnings will help.
Revenue
The Company revenues dropped significantly to N197m in the first quarter of 2012 from the N988m obtained in the same period in 2011. This is a whopping 80% drop in revenues and one which should bother any right thinking investor. I’d attribute this drop to their inability to secure any major contract from the Government in the first quarter of the year. The company relies heavily on government contracts and as such any hold back on government expenditure is bound to affect its operational results. One can easily infer that the dismal revenue generated will cascade down to the overall profitability of this company.
Gross Profit
Gross Profit understandably dropped 64% in this quarter compared to the same period last year. Though Gross profit margin rose to 56.68% more than the 31% obtained in 2011, it obviously doesn’t carry enough weight to suck up operational expenses which hardly go down.
Operating Profit
Operating profit was expectedly poor. The company had a negative operational profit of N150.6m for the period. This was obviously as a result of the very week Gross Profit Margins for the period. The Company however reduced SGA from N307m to N262m in the first 3 months of the year. But then efficiency without a strong revenue base feels more like saving water in a basket.
Profit After Tax
Chams Plc got a profit after tax of N201m for the first quarter of 2012. This was a massive 198% drop from the same period last year. Incidentally this keeps in line with the previous years results which was a loss of over a billion.
Bottom Line
Chams Plc as opined is a company that has over the years relied heavily on Government contracts and supplies to grow its revenue base. The company has failed to replicate its huge influence in the wider market by offering revolutionary products that consumers will want to pay for. Its foray into biometrics, electronic payment systems etc have largely been designed for the needs of Government and its desires. Unfortunately for it these products are easily moribund without any recourse to regular maintenance or upgrades which adds incremental revenue. A factor that would have been explored had their focus been on providing products for the general public. Ironically, the fortunes of the company may change overnight. All they need is for the Government to award them a contract. The Company’s website already features an article about the FG approving N30b for the National ID Card scheme. But then, getting a mouth watering contract from the government isn’t enough to guarantee a sustainable bottom line let alone charm me. Amidst the gloom, the company still has a fantastic chance to take advantage of the revolution in the IT industry. With more and more company’s veering into the mobile money platform its can either be a part of it or remain in the confines of obscurity. Its really up to them to turn things around but for now, they remain in the red.
