Nigerian Aviation Handling Company (NAHCO: NL) released its earnings report with revenues rising modestly by 4% to N7.3billion. Operating profit at the end of the year was N905million compared to N1.2billion posted in 2011.Profit after tax also dropped 25% to N593million at the end of the year. The company has proposed to pay dividends of 25kobo per share based on this result down from the 40kobo per share paid a year earlier.
Opinion on the result?
From the initial results posted one is quick to point out to increase in operating cost as well as cost of sales as both rose marginally higher than the increase in revenue during the period. The aviation industry took a big hit last year following the plane crash and several controversies surrounding the sector which affected growth industry wide. Passenger traffic is expected to fall in 2012 when compared to 2011 stemming from the crisis in the industry which may be a reason for the minimal revenue growth. NAHCO face little competition in the industry and should actually do better despite the crisis in the industry. A silver lining in this result may perhaps be their ability to reduce debtors by half over the last year to N1.1billion. However, working capital for the period was negative as current liabilities over shot current assets.
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The company also has a good cash pile of about N819million and generated a whopping N4billion in operating cash flow. But with their planned dividend payout of 25kobo per share and outstanding shares of over 1.47billion they will have to look for cash to pay out about N370million in dividends, almost half of their December cash pile
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Is the stock worth buying?
Results like this should be viewed in a larger context . Whilst revenue have been increasing over the years, profits have declined from about N1.1billion in 2010 to the N593million they posted this year. Return on Earnings this year also dropped to 11.2% compared to 15% last year indicating a decline in optimizing shareholder value over the prior year. Also for a business with spends up to 74% (2011:63.7%) of its Gross Profit on operating expenses and likely growing the company looks to lack competitive advantage in an industry it solely dominates.
Investors have also not taken likeness to this stock as it has declined about 2% year on year to N6.40. In fact it has been on a slide over the last month dropping from N7.90 on the 4th of March. Year to date it has gained 93kobo having opened at N5.47 and peaking at N8.8 at the end of the January 2013. The current share price represents a premium of 15.6x over its earnings per share. I expect the intrinsic price to be about N4 per share or 1.1x its Net Asset Per share (Book value per share) which is just *N3.6. Holders of the stock may consider selling as the fundamentals don’t justify the current price. Holders of the stock may consider selling as the fundamentals don’t justify the current price especially if their results continue to decline. Watch out for their first quarter results as this will give a clear direction of things to come this year.
NAHCO Plc 2012 Audited Accounts is published on the website of the NSE
*Amended to correct Book Value per share from 60kobo to N3.6