[Analysis] Why is Red Star a ‘hot cake’?

The Board of Red Star Express are set to meet June 25 to approve the company’s result and perhaps declare dividends. The press release issued last week has added renewed impetus to the share price movement of Red Star turning it into a hot cake for some investors.

This makes you wonder what it is that could have made the share price gain 33% year to date. Custom street has a way of hoarding information and when that is the case stocks like Red Star can sometimes enjoy a dose of herd mentality.

Nevertheless, could there be something in its result that can suggest a bountiful of returns for shareholders?

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Higher profits?

Red Star’s most recent result was its 2014 9 Months result were it reported a relatively unchanged pre-tax profits of N441 million (2013: N414million). Last year, it reported a full year profit after tax of N404 million up 32% from the year before. Profit after tax was N309 million in its 9 months to December 2014 results.  Nairametrics does not expect any significant increase in profits and actually feel it may not meet the 2014 figure of N404 million.

Dividends

This perhaps may be the reason for the rally. In 2014 it paid 35 kobo per share in dividends. A repeat of that dividends will suggest a gross dividend yield of 6.6%. This market has seen dividend yield of 10% without a rally of this nature. Perhaps there might be something stronger in the offing. Bonus issue? Red Star had about N400 million in the bank as at December. A 35 kobo dividend per share will cost it about N206 million. The company has just 589.5 million outstanding shares leaving some room for Bonus.

Red Star could be a bull trap like we have seen happen to the likes of NPF & NEM. If you are not in the company for the long term then make sure you get your entry and exit well timed, lest you get eroded by the smart money.

Dividend History

28/07/2014   –     N0.35k

02/09/2013   –     N0.32k

10/08/2012   –     N0.30k

19/08/2011   –     N0.30k

01/07/2010   –     N0.30k

13/08/2009   –     N0.30k

24/07/2008   –     N0.25k