Between December 2018 and October 18th, 2019, the share price of C & I Leasing Plc has leaped by as much as 310% to N7.30, up from N1.78. This makes the company the best performing stock on the Nigerian Stock Exchange thus far in 2019. The stock picked up on January 15th when it recorded a year high of N9.04 before temporarily declining to N4.55 in July. Since then, it has climbed and stabilised at N7.30 between August 23rd and October.
What is responsible for the stock’s performance?
The stock’s performance so far has been quite fascinating; however, it would never have been possible if C & I Leasing Plc hadn’t taken the necessary step of reconstructing its shares. Recall that Nairametrics reported in December 2018 that the company was ready to drastically reduce its issued and paid-up share capital from 1, 617, 010, 000 ordinary shares to 404, 252, 500 ordinary shares.
Understanding C & I Leasing’s share reconstruction
Share reconstruction can also be understood to mean a reverse stock split. In simple terms, a reverse stock split entails a company’s decision to reduce the number of its issued share capital, usually in a bid to shore up such a company’s share price. This is especially important if such a company’s share price is very low and at risk of being either delisted or classified as a “penny stock”.
In the case of C & I Leasing Plc, the company had made it clear that its stock reconstruction exercise was not necessarily intended to shore up its share price. This was despite the fact that the stock was trading as low as N1.78 at the time of this exercise. Instead, the company explained that it carried out the exercise to create some leverage which would enable it to issue additional shares in the future. In other words, the company needed to have enough unissued shares in order to accommodate any future plans to raise additional capital— said capital which would be used to finance the company’s expansion efforts, take care of some of its liabilities, and enhance capital mix.
In view of the foregoing, the company announced on September 9th that it had “filed an application with the Securities Exchange Commission (SEC) for approval to undergo a Rights Issue of Five Hundred and Thirty-Nine Million, Three Thousand, Three Hundred and Thirty-Three (539,003,333) ordinary shares of Fifty Kobo (N0.50) each at Six Naira (N6.00) per share, on the basis of four (4) new ordinary shares for every three (3) ordinary shares held. The Qualification Date for the Rights Issue is Wednesday, 4 September 2019.”
Effect of share price increase on the company’s valuation
It is important to note that the company could have easily actualised the above-stated purpose by simply passing a resolution to increase its authorised share capital rather than going through a reverse split. Whatever the case, the reverse stock split has helped to increase the company’s share price. But has the resultant share price increase added any value to shareholders? This is an essential question to ask because a share price increase resulting from share reconstruction exercise doesn’t really add much value to shareholders if the market value stays the same. Therefore, let us find out if the company’s market value has also changed.
Focus on C & I Leasing’s market cap
To calculate the company’s current market capitalisation, we used the company’s current share price of N7.30 to multiply its outstanding share of 404.2 million. This equals to N2,951,043,250.00. Meanwhile, the company’s outstanding share prior to the share reconstruction was 1, 617, 010, 000. This multiplied by its share price of N1.78 in December 2018 gives us N2,878,277,800.
To see if shareholders got any value from the share reconstruction exercise and the subsequent increase in the company’s share price, we calculated the percentage difference in C & I Leasing Plc’s market cap at the moment compared to what obtained in December 2018. This would be N2, 951, 043, 250.00 minus N2, 878, 277, 800 divided by N2, 878, 277, 800 and multiplied by 100 which equals 2.5%. In other words, the company’s valuation has increased by 2.5%, meaning that shareholders did get some value, no matter how small.
How are the company’s financials?
For the second quarter period ended June 30th, 2019, C & I Leasing Plc’s recorded gross earnings stood at N16.2 billion. This represents a 27.2% increase compared to N12.7 billion recorded in Q2 2018. The company’s Q2 profit before tax also grew to N909.1 million compared to N723 million in Q2 2018. Also, profit after tax stood at N866.8 million during the period under review, representing 27% increase compared to profit after tax of N682.1 million in Q2 2018.
About the company
The company was incorporated in 1990. It specialises in the provision of such services as fleet management, automobile distribution, marine vessel rental, equipment leasing, security and escort services, and fire-fighting services. The company also offers pollution control services, mooring support, recruitment/HR consultancy services, etc.
Although headquartered in Lagos, Nigeria, C & I Leasing has operations in Ghana (Leasafric) and the United Arab Emirates (EPIC International FZE). The company was listed on the NSE in 1997; it is the first Nigerian logistics and rental company to do so.