Champion Breweries joined the gainers chart today gaining 4.7% to close at N9.45. This caught the attention of one of my subscribers who sent me a message asking if this was a right stock to buy. My response was a swift No. However, rather than just give a simple answer I thought it was important to put some things into perspective regarding this stock.
1. Champion Breweries has 4 major share holders Raysum Nigeria Ltd (57%), Asset Management Nominee 13.36%, Union Trustees Ltd (9%), Akwa Ibom Investment (8.39%). That is a total 87.7%. Raysum is owned by the Heineken Group
2. The company has a total outstanding shares of 900m units. They recently embarked on a rights issue (which closed September 10th 2014). The rights issue involved giving shareholder on the register as at 7th May 2014 a chance to buy 7 new shares for every 1 held at a price of N1.85 per share.
3. This will help the company raise N11.65billion by issuing 6.3billion new shares. The company will then have a post rights issue shares of 7.2billiob units.
4. After the rights issue the company’s theoretical ex price will be about N2.8
5. Currently the share price is N9.45 which should be worth about N2.8 per share after the rights issue. Those who bought at the rights issue price of N1.85 will still probably have an upside of 51%. Therefore, the higher the share price rises the more upside there is for pre-offer shareholders
6. Champion Breweries 2013 FY results was a N1.1billion loss. The company has also posted a 884million loss in the first half of 2014. It is currently a chronic loss making company.
7. Champion Breweries also has a negative retained earnings of N9.7billion. It can therefore not pay dividends until it makes profits that surpasses that amount.
8. The company has just N129million in its share premium as such it can also not rely on setting off share premium with negative retained earnings to pay dividends. It should gain about N11billion in share premium after its rights issue. However, setting that off against the negative retained earnings is as good as refunding shareholders their money.
9. By my estimates, this company needs at least 2 years to turn to profitability and another one year to pay dividends.
10. The only upside for a retain investor, in my opinion is probably via sentiment induced movements by the market. This is not a stock for a value investor.