Beta Glass was first mentioned on this website as a stock pick about 4 years ago. Back then its share price was about N19 and had fundamentals “to die for”.
Since then it’s doubled roughly annually and is one of the best performers on the Nigerian Stock Exchange (NSE) over the course of 5 years.
About the company
Beta Glass Plc manufactures, distributes and sells glass bottles and containers for the leading soft drinks, wine and spirit, pharmaceutical and cosmetics companies. The company has manufacturing plants in Agbara, Ogun state, and Ughelli, Delta state. It exports to 3 countries Ghana, Guinea, and Cameroon.
The company is a subsidiary of Frigoglass Industries Nigeria Limited (the parent company) which holds 61.9% of the ordinary shares of the company. The ultimate controlling party is Frigoglass S.A.I.C, Athens.
Recent results
Results for the first quarter ended March 2018, show that revenue increased from N4.4 billion in 2017 to N6.4 billion in 2018. Profit before tax increased from N4.1 billion in 2017 to N6.1 billion in 2018. Profit after tax increased from N800 million in 2017 to N1.1 billion in 2018.
Pricing
Current share price: N86.30
Year High: N87.35
Year Low: N57.31
Year to Date: 68.19%
One year return: 65.42%
Price Outlook
Beta Glass is currently trading at N86.30, 11.4% below its year high of N87.35, and 74% higher than its year low of N51.3. Year to date the stock is up 68.19%. The stock has also outperformed the NSE All Share Index (ASI) which is up 2.92%. At this stage, a correction is due.
The relative illiquidity of the stock, however, means that it will not be a sharp one. Investors are better off waiting for a dip in price, most likely in the third quarter of the year as foreign investors exit their positions in view of impending elections.
The recent increase in the US Fed rate could lead to a much earlier exit by foreign Portfolio Investors (FPIs), thus, creating a buying opportunity.
Valuation
Beta Glass is currently trading at 12.3 times earnings, which is much higher than the average Price Earnings (PE) ratio on the Nigerian Stock Exchange. However, blue-chip stocks such as this tend to trade at a slightly higher multiple.
This also makes the stock a must hold for pension funds and other institutional investors, due to its consistent dividend paying history.
The relative illiquidity of the stock also contributes to the high valuation.
Outlook
If the first quarter trend is maintained, the company is in line to maintain its 2017 results. A 5-year summary of the company’s results shows that it has been able to grow both top and bottom line consistently. Revenue has increased from N14 billion in 2013 to N22 billion in 2017. Profit after tax also increased from N1.4 billion in 2013 to N4.1 billion in 2017.
Naira depreciation tends to be positive for the firm, due to the dollar revenue it earns from exports. A slight devaluation of the Naira, which some analysts expect to occur this year, would be positive for Beta Glass.
While the firm continues to maintain healthy profits, the growing adoption of plastic bottles could lead to a decline in revenue, in the medium to long-term. The company is yet to show strategies on how it will counter this.
Risks
There lies a slight risk that Beta Glass could be weighed with debt from other members of the Frigoglass Group.
An excerpt from its 2017 full year financial statements shows that the firm was guaranteeing a total of 261 million Euros in form of loans and notes on behalf of Frigoglass Finance BV. This amounts to N110 billion. This is 5 times higher than its full year revenue of N22 billion and Q1 2018 retained earnings of N23.2 billion.
120 million Euros (N50 billion) will mature on 31st of December, 2021, while the rest of the debt will mature on 31st March, 2022. The state of health of these firms is unknown. Neither did the company disclose how they rank in terms of the possibility of default.
The foreign denominated nature of the debt means that in the event of default, the firm could have a huge bill to settle. In the unlikely (but possible) event of a default by the companies in the midst of a devaluation, the firm could end up like mobile service provider, Etisalat.
Macroeconomic potentials in Nigeria are much brighter than 2017, which saw the country in recession for the greater half of the year. Growth has since recovered in positive territory. Forthcoming elections could lead to an increase in spending, which would be of benefit indirectly through the Fast Moving Consumer Goods (FMCG) firms which form part of its customer base.
The high cost of entry means that competition is limited in the sector, and the firm continues to play a dominant role in its space.