Imagine owning a business that earns you a profit of N40,000 for every N1million it generates in revenue, meaning the remaining N960,000 is spent on direct cost and other expenses. Not worth your time right?? Wrong!! Time don’t matter to some as has been the case for Academy Press over the last 5 years. The company recently released its third quarter to December 2012 unaudited results with revenues increasing a meagre 1.3% to N1.55b when compared to the same period last year. Operating profit however also remained flat at N119million whilst pre-tax profits dropped 41% to N21million.
Directors at the company are quick to blame the harsh economic environment as a reason for the poor results even as they also blamed the violence in the North as contained in the Chairman’s statement at last financial year’s annual report. In that same report they also highlighted the need for the Government to ensure Universal Basic Education Contracts for supply of books are given to books printed in Nigeria. These narratives are not uncommon and is surely not enough excuse for some poor operational results. A thin profit margin of less than 2% indicates operational expenses are high gulping 86% of Gross Profit in the first 9months.
The company will lay claim to its 11% drop in cost of sales as a sign of reigning down on cost even though a review of how it measures its closing stake may throw more light to their claims. “Goods in transit” and “Paper” make up over 71% of Inventory in 2012 and 65% a year earlier.
The shareholders may not be too bothered anyway? Not when 18 of them own over 65% of the outstanding shares. A board with an average age of over 50 (by my estimates) surely can’t be lured into taking a risk that might result in some dilution of ownership; a recipe for intrusion and pressure to adopt a more aggressive approach to increasing margins. Currently, the company seem satisfied with a 40/60 debt equity ratio with the inexpensive bank of industry loans making up about half of the loans. As far as they’re concerned their Net Assets of N764m is currently valued at about N1.4b and possibly rising. Is it your money??
Their share price was about N1.64 back in October and rose to over N4 a month later before crashing to about N1.62 at the end of the year. The volatility in its share price remains as it has now risen to N2.82 as at the time of writing this blog. You just can’t bet on this can you? Its free cashflow per share of 79kobo makes its current share price seemingly expensive. Equate that to its last year dividend per share of 7kobo and current market price of N2.82 and you get a yield of 2.4%.