Africa Prudentials Plc released its 2015 full year results showing earnings per share increased year on year by 18% to 72 kobo per share. The company also reported a 15% hike in revenue to N2.5 billion with growth coming from both its Registrar’s and Investment business. The Investment segment of the company led revenue growth with 20% growth compared to the same period in 2014.
Operating profit was also up by 29% compared to the same period in the 2014 another indication that the business model is sound and effective at generating impressive returns. Africa Prudentials are basically in the Registrar’s business and makes money from fees it charges Registrars as well as investment income made from interest from safe investments such as bonds, treasury bills and fixed deposits.
The company declared dividend per share of 43 kobo indicating a dividend yield based of about 14%. The share price closed about 9% higher at N3.2 as investors the mouth watering dividend yield and impressive results was too attractive for investors to ignore. The stock has now gained nearly 20% in two days.
Shareholders of the company have waited for months for the stock to rise to what could be its real value, however like most other stocks in the exchange it has remained depressed as investors flee the stock market amidst the rout on the value of the naira. The current share price of N3.2 was last breached in May 2015. Despite the current share price, there could however still be room for an upside for the this stock.
Price earnings ratio valuation
At an earnings per share 72 kobo the company is currently trading at a price earnings ratio of 4x. Apply an earnings multiple of 10x and the stock could be work N7.2. Is it far fetched? In a bullish market where economic indicators are all pointing northwards, this price will be justified. However, it suggest that the company’s earnings is expected to grow 10 folds in the near distant future. Our estimates suggest the company has a 5 year compounded annual growth rate on its earnings of 17%. Based on its current PE of 4.4x it suggests a PEG ratio of 0.26. Usually companies with a PEG ratio of over 1 are considered expensive. The share price will have to be about N12 to achieve a PEG ratio of 1x.
Africa Prudential also declared a final dividend per share of 43 kobo. And in case you haven’t notice this is the major reason for the rally on the share price. A 43 kobo final dividend provides a dividend yield of over 13% based on share price of N3.2. With treasury bills now in the single digit range and below 7%, this yield makes the dividend attractive to investors seeking double digit returns. Typically, Nigerian stocks pay dividends with a yield of about 5% while large cap stocks will typically pay between 2-4%. At a single digit yield, Africa Prudentials could be worth close to N5. The only things standing between the stock hitting N5 is the lack of foreign investor appetite on Nigerian stocks.