[ANALYSIS] Is RAK Unity’s 60% Dividend Yield A Bull Bait?

Rak Unity an obscure Oil and Gas Company shocked investors on Wednesday after it proposed a dividend payment of 30kobo per share for a stock that is trading at 50kobo per share. This suggest a dividend yield of 60% by far the highest this year and possibly the highest in years by any Nigerian company. Despite this huge dividend yield, the share price remained at 50 kobo per share and will likely remain so for a while. We will explain the reason for that later but first the result.

Revenue

The company reported a revenue of N7.2 billion 89% higher than the N3.8 billion posted a year earlier. Its revenue is dividend into AGO, PMS, DPK and Lubes. Revenue from AGO (diesel) was N6.3billion taking up about 87.5% of total revenue.

RAK Unity however operates a very strange business model. According to its report, the company says a significant portion of its revenue is sold through a subsidiary called SO Energy. SO Energy collects about 10% of revenue as commission on sales and sold about N5.7 billion or 79% of total revenues. There probably won’t have been something wrong with this model except for that whilst Rak Unity makes N2.8 for every N100 of sales it pays its related party N10 for every N100 of sales. In other words, its related party basically earns more than 3 times what the company makes. This essentially gives SO Energy effective control over RAK Unity’s business

Earnings and dividends

The company reported a profit after tax of N89.7million at the end of the period arriving at an earnings per share of N1.59 (+100% YoY). The company’s dividend per share of 30k will therefore cost the company just N17 million or a dividend payout ratio of just 18.8%.

The company reports that one shareholder Toparte Nigeria Ltd owns about 85% of the total shares of the company. As such, 85% of that dividend is going to Toparte whilst the public (5,907 shareholders) will have to share the balance N2.5 million.

Buy or blank?

If you are looking to own shares in this company because of the dividends then be ready to own this shares for a very long time. Liquidity is non existent and even if you wanted to buy you might not see anyone who can sell to you.

Finally,

Rak Unity being a related party to SO Energy, a member of the Sahara Group of companies also catches our attention. The Group announced it was looking to raise equity via a dual listing on the floor of the NSE and in the UK. With Rak Unity being a related party and mostly obscure for years, we won’t be surprised if a merger or acquisition deal is announced in the future.