Businessday headline yesterday (10/4/2013) read “Mobile money struggles despite N1.1trillion market potential”. Etranzact International Plc is a major player in the mobile money market in Nigeria owning products such as ‘Pocket Moni” the e payment platform. They released their 2012 audited results with revenues rising 36% year on year to N3billion. Gross Profit also rose during the year to N939million (2011: N756million). The company will proceed to post a profit after tax of N128million up from 57% from last year’s result.
Is the Result flattering?
Despite over 100million Nigerians GSM subscribers Mobile money in Nigeria have so far failed to gain traction. As such Etranzact result can either be viewed as half empty or half full. I will examine their results as half empty to help put into perspective the relative lack of growth in their bottom line. This year they very well grew PAT by 57% to N128million. In fact PAT has grown at a CAGR (compounding growth rate) of about 20% in the last five years whilst revenue also grew on a CAGR of 38%. But these impressive growth rate is flattery and meaningless if it doesn’t translate to value accretion. For example, the company in the last five years have posted profits and losses which if set off against each other will result in a net gain of only N18.7million (without factoring in inflation) !! Meaning only N18.7million has been added to bottom line in the last five years despite posting revenues of about N7.7billion.
The company’s achilles heel obviously lies in its ability to cut down operating expenses. Just imagine, Selling General and Admin Expenses (S,G&A) was a whopping 95% of Gross Profit in 2012 and was 90% the year before. Operating profit margin was just 1.5% even lower than 3.6% posted in 2011 meaning that the increase in PAT had little to do with its operational efficiency. It basically made profitability this year because of the N132million in other income.
Will I invest at the moment?
When Etranzact was listed on the NSE at an entry price of N4.80. It traded today (11/4/2013) at N3.47 and has lost over 22% of its value in the last one year. Its share price has remained flat in the last month with neither an increase or decrease. Currently it trades at a high price to book value of 5.5x making the current share price unattractive. A stock with an earnings per share of 3kobo should be trading at 50kobo tops (which by the way is a P.E of 16.6X). The company is very well positioned to benefit from the mobile payment revolution that is bound to happen in Nigeria. Whilst that is not a flattery assertion, management has not demonstrated a consistent ability to grow organically. Till I see a sign of that happening, its a no for me.
Etranzact 2012 Audited Accounts was posted on the website of the NSE
