Seven Up Nigeria Plc is arguably one of Nigeria’s oldest manufacturing companies and by far one of the most consistent. It released it’s 9months interim accounts with revenue rising by a modest 2.3% to N27.5b year on year. Gross profit also rose 4.3% to N10b in the period under review as direct cost of N17.5b sliced of about 63% of revenue. The company posted an operational profit of N2b representing a 12.7% drop over the same period last year as operating expenses hit hard on gross profit. SG&A as a percentage of Gross Profit was 79% when compared to 75% same period last year. For a manufacturing concern, an SG&A as a percentage of Gross Profit that is higher than 40% in an indication of a business model badly in need of structural change in its operations. What is the point spending N80 of every N100 you earn as gross profit on expenses. It’s a factor that puts the pressure on operational profit especially if its a highly leveraged company.
Seven Up has short and long term loans of N2.6b and N1.7b respectively both representing 16% of Net Assets. It’s a debt equity ratio that shouldn’t bother one provided its repayment terms are flexible and compatible with their cash flows. But they have incurred N1.2b on expenses this year alone, 60% of operational profit and compared to 43% last year. Yet it still has over N4b in debts left to pay!! In fact my estimates put their finance cost at an average about 33%pa!! Holy Molly!!
Last year they spent N2.5b of its net operating cash flow of N8b on financing activities and this year another N2.6b. The company still makes tons of cash from operating profit even though this year its down 42% to N4.7b. Much of this drop it will seem was spent on repaying trade creditors. The company’s negative working capital isa constant source of worry increasing to (N11.5B) from last year’s (N10.4b).
Despite all of this Seven Up did make a profit of N709m even though its down 33% year on year. But that again is no respite, not with ROE of 2.6%!!!! Share price has slid mostly this year currently priced N40.95. This year it has averaged N40 dropping lowest to N38.12 back in late August. Its market price is about 12.67X its trailing full year earnings making it appear to be cheap. For a company that believes “the difference is clear” for its flagship products of Seven Up and Pepsi, its current results is a clearer indication that its share price should go further south this time next year if things don’t change. At the current price of N40 one would expect a share price of below N35 by the turn of the new year
Seven Up Nigeria Plc 2012 Q3 Unaudited Accounts is posted on the website of the NSE
