Linkage Assurance Plc

Red Star Express Plc may find it difficult to beat its FY 2018 performance if the decline seen in first quarter results continues. Red Star Express Plc is our stock pick for the week.

About the company

Red Star Express Plc commenced operations on the 12th of October, 1992 and became a public company on the 9th of July, 2007. It was listed on the Nigerian Stock Exchange in November 2007.

Red Star Express Group includes three subsidiaries – Red Star Freight Limited, Red Star Logistics Limited, and Red Star Support Services Limited. The group engages in courier services, mail management services, freight services, logistics, warehousing, and haulage.

Recent Results

Results for the first quarter ended June 2018 show that revenue increased from N7.2 billion in 2017 to N8.4 billion in 2018. Profit before tax dropped from N653 million in 2017 to N610 million in 2018. Profit after tax also fell from N426 million in 2017 to N347 million in 2018.

Pricing

Current Share Price: N5.40
Year High: N6.50
Year Low: N5.12
Year to date: 6.45%

Price Outlook

Possibilities of the stock witnessing significant upside from its current price are quite low. The stock market is currently on a downward trend and is down 12.54% year to date.

Red Star is currently trading at 5.4% away from its year low and could break below that if bearish sentiments persist. The possibility of a sharp decline in price is, however, limited due to the largely illiquid nature of the stock.

Valuation

The stock is currently trading at 9.24 times earnings, much lower than the other company operating in the same sector, Trans-Nationwide Express Plc, which is trading at 97 times earnings.

Outlook

Last year, the company obtained shareholders’ approval to raise capital and held a fact behind the offer presentation.

Proceeds of the capital raise were to be used to expand the company’s operations to other countries, such as the Republic of Niger.

In addition, the company planned to invest in new ventures such as agro chain services, pharmaceutical logistics, technological services, prints, and packaging. With the current market sentiments, possibilities of a capital raise are quite low.

First quarter results for the period ended 30th of June 2018 show a further decline in the bottom line. While revenue increased from N2 billion in 2017 to N2.3 billion in 2018. Profit before tax dropped from N176 million in 2017 to N164 million in 2018. Profit after tax also fell from N120 million in 2017 to N111 million in 2018.

Second quarter results (ending in September), should show some upside. Q2 coincides with the third quarter of the year, when import and logistic activities tend to spike, as businesses stock up ahead of the festive period.

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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