We have been tracking Beta Glass since 2013 when the stock was still trading below N10. In December 2013 we had included it in our Christmas wish list at a price of about N14 and believed it was worth twice that price at the time. We did another review again in August 2014 and believed Beta Glass could be worth up to N40. The price was N20 at the time and so we decided to take position. We bought at N19 when we should have bought at N13 but then better late than never. As at January 23rd, Beta Glass traded for N30.
So why did we sell?
At N30 Beta Glass is perhaps rightly prices and has little upsides compared to downside risks that may emanate in the coming months. The company still has good fundamentals and is likely to post higher earnings in 2014 but we see headwinds approaching. Beta Glass makes bottles for breweries in Nigeria and depend on them to maintain growth. Unfortunately for it, the Brewery industry has been facing multi-year drop in volumes sold as the economy takes its toll on Nigerian consumers. With less volumes projected, less bottles will be required for manufacture. This is typical of cyclical industries and Beta Glass is seemingly exposed to this risk.
It’s parent company Frigoglass has also seen margins drop in recent years even announcing that it is considering a takeover approach for its Nigerian subsidiary. Whilst that may be the major reason for the surge in price, it also buttresses the risk that the company is in dire need of help to remain relevant.
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This is a stock we love and would like to keep, however we believe there are better undervalued stocks out there to take positions in. Cash is king at the moment so no point tying that capital in assets that portent limited upsides in our view. A 50% gain in 6 months can’t be that bad right?