Berger Paints is one of the leading paint manufactures in Nigeria and probably a bell weather for the statistically disjointed real estate market. Gross Revenue rose 7.7% to N1.9b compared to the N1.8b posted in the same period last year. Gross profit profit also rose 12% to N706million a 36% gross margin and 4.24% increase year on year. Operating profit however dropped 5% year on year to N138million as distribution and selling expenses chalked off 92% of gross profit. For a company in the building sector selling a product that is nearly inelastic in demand the reason for the paltry profits couldn’t be further from intense competition and its inability to expand capacity. An operating profit margin of 6% and asset turnover of 71% underscores its reliance of its assets to increase revenue. The company is simply trading within its size, 63% of its total assets is equity financed whilst the rest is working capital.
But can you blame management, capacity utilization for manufacturing industries was 56% in the first half of this year according to the CBN’s half year economic report for 2012. To buttress this view the company has spent just N61.4m on investing activities this year and just N110.8m in the whole of 2011. In fact, much of the investments this year was on properties rather than on machinery and equipments required to increase inventory. Inventories only increased 9% to N629m year on year a sign that it will not trade beyond its capacity even as it showed the company took an average 90days to dispense of its stock.
The value of their shares have remained largely zig zagged all through the year rising highest to N9.45 in June and dropping lowest to N6.93 in mid August. Currently it trades at N8.10 a figure that is 7.23x its trailing earnings and 11x its current 9months earnings. The value of the shares appears to be rising if trading stats are to be relied upon. For me, anything but southwards is a not buying according to size.
Berger Paints 2012 9 months unaudited accounts is posted on the website of the NSE
