Vitafoam Nigeria Plc hit a 5-year high on the Nigerian Stock Exchange, this week. The stock closed at N5 in Tuesday’s trading session. The last time the stock traded at that level was on the 4th of September, 2015.
The key driver behind the stock’s rally is a sharp rise in its full-year results. Vitafoam’s financial year ends in September. For the financial year ended September 2019, revenue was up by 13.8%, from N19.5 billion in 2018 to N22.8 billion in 2019. Profit before tax jumped from N793 million in 2018 to N3.4 billion in 2019. Profit after tax also rose from N601 million in 2018 to N2.3 billion in 2019.
The company declared a N0.42 kobo dividend from an earnings per share of N1.82, amounting to a payout ratio of 23%.
Key drivers behind the results were higher revenue and lower finance costs. Finance costs dipped from N1.3 billion in 2018 to N1 billion in 2019, down 23% year on year. The increased revenue came from freight income which amounted to N779 million in 2019.
The company also earned N779 million as freight income within the year.
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Where will the price move from here?
The interplay of three factors will determine the stock’s price direction: Performance of the market as a whole, the stock’s valuation compared to the larger market, and its Q1 2019/2020 results.
Year to date, the NSE All-Share Index is up by over 9%. Single-digit rates on treasury bills have led to a movement of funds from the fixed income market to the equities space. Savvy investors are positioning in stocks for short term play during the earning season.
The expectation of most analysts is that rates may remain at the current level for the first half of the year. Thus, there may be room for further upside for the market as a whole. When the tide rises, all boats are lifted. Year to date, Vitafoam is up by 13.6%, outperforming the NSE All-Share Index. A pullback at this point would not be far-fetched.
While it has hit a 5-year high, there may be room for further upside, as the stock is trading at a price-earnings ratio far lower than the average on the Nigerian Stock Exchange (NSE). Vitafoam is trading at a PE ratio of 2.7 times earnings. The average PE on the NSE is 7.8 times earnings.
Holding the earnings constant, the PE ratio can be used to estimate the number of years it will take for the company to pay back the amount paid for each share. That would translate to 2 years and 7 months.
Vitafoam’s Q1 2019/2020 results should be out in a few weeks from now and will be a pointer as to the company’s ability to sustain last year’s performance. The results are for the three months ended December 2019, which witnessed increased consumer spending.
First Bank’s board replacement won’t affect profitability – Fitch
CBN’s remedial actions will not have a material effect on the group’s asset quality, profitability and capitalisation.
Fitch Ratings has affirmed that the recent First Bank board replacement will not affect the bank’s profitability and asset quality, as it rates the bank at B- with a negative outlook.
This was disclosed by the rating firm via a statement seen by Nairametrics.
According to the rating firm, the development reflects its view that the impact of the Central Bank of Nigeria’s replacement of FBNH and FBN Ltd boards, the identification of corporate governance failings and the imposition of corrective measures are tolerable at the rating level.
What Fitch is saying
It stated, “We have assessed the near-term financial impact of these actions on FBNH and FBN and believe this is tolerable at the rating level, even though the final outcome is uncertain. In our view, any remedial actions imposed by the CBN, including a potential reclassification of related-party exposures as impaired, will not have a material effect on the group’s asset quality, profitability and capitalisation.
However, this does not consider any possible additional actions by the CBN, especially if FBN fails to implement the regulator’s corrective measures or if there were any further uncovering of corporate governance irregularities.
The Outlook remains Negative, reflecting FBNH’s pre-existing asset quality and capitalisation weaknesses as well as the group’s corporate governance weaknesses highlighted by the CBN. These could put pressure on the ratings.”
What drives First Bank’s rating
FBNH is the non-operating holding company that owns FBN. FBNH’s ratings are aligned with those of FBN (which represents around 90% of consolidated group assets) due to high capital and liquidity fungibility within the group, and low double leverage (at 95% at end-1H20) at the holding company level.
It added that FBNH’s IDR is driven by its intrinsic creditworthiness, as defined by its ‘b-‘ Viability Rating (VR). The rating, according to Fitch, considers the group’s exposure to Nigeria’s volatile operating environment and also factors in vulnerability in its capital position in the context of moderate earnings generation and asset-quality pressures, where headroom above the minimum regulatory capital requirements is also moderate. Capitalisation is a factor of high importance to VR.
“The new boards appointed to FBNH and FBN comprise individuals with sufficient experience and expertise. However, we view such major change as hugely disruptive. There are no changes in FBNH and FBN’s executive management team.
“We believe the governance shortcomings cited by the CBN reflect poorly on FBNH’s reputation and on the group’s governance and control practices. As a result, we have revised down our assessment of FBNH’s Management and Strategy score to ‘b-‘ from ‘b’.
“We also assigned a negative outlook to this factor, which reflects the uncertainty surrounding additional remedial actions that the CBN may impose due to these related party exposures as well as the potential for further uncovering of governance irregularities. It also captures the lack of track record of the new board and its ability to restore confidence in FBNH and FBN,” it added.
Asset quality remains a rating weakness. FBNH reported an improved impaired loan ratio of 7.9% at end-1Q21 (end-2020: 7.7%). However, FBNH’s reported reserve coverage of 54.5% at end-1Q21 (end-2020: 48%) remains significantly weaker than domestic peers’.
“Our assessment indicates that if the related-party loan highlighted by the CBN were classified as impaired, the ratio would be unlikely to be above 10% (excluding any new impaired loan generation from ordinary business),” Fitch added.
What you should know
On 29 April 2021, the CBN removed the non-executive directors on the boards of FBNH and FBN and replaced them with new individuals appointed by the apex bank, according to Nairametrics.
The CBN gave a series of reasons for its action including the unjustified and unapproved change of the bank’s MD/CEO by the former board, corporate governance failings pertaining to long-standing insider loans that were affecting the bank’s capitalisation and failure to comply with regulatory directives.
Airtel Nigeria announces appointment of Surendran as new Chief Executive Officer
Airtel Nigeria, has announced the appointment of Mr C. Surendran as the new MD/CEO with effect from August 1, 2021.
Telecommunications giant, Airtel Nigeria, has announced the appointment of Mr C. Surendran as the new Managing Director and Chief Executive Officer with effect from August 1, 2021.
Surendran would be replacing the outgoing Managing Director and Chief Executive of Airtel Nigeria, Olusegun Ogunsanya, who has been elevated to the position of Chief Executive Officer of Airtel Africa Plc with effect from October 1, 2021.
According to a report from the News Agency of Nigeria, this disclosure is contained in a statement issued by Airtel on Wednesday, May 5, 2021, in Lagos.
The statement says that Surendran would also be appointed to the Executive Committee (ExCo) as Regional Operating Director, reporting to the CEO of Airtel Africa plc, and onto the Board of Airtel Networks (Nigeria) Limited.
Airtel in its statement said, “Surendran has been with Bharti Airtel since 2003 and has contributed immensely in various roles across customer experience, sales and business operations.
He was the Chief Executive Officer of Karnataka, which is the largest circle in Airtel India, with over one billion dollars in revenue.
Surendran delivered an exceptional performance with significant movement in Revenue Market Share (RMS) over the last few years, currently at 54 percent. He has over 30 years of business experience, including 15 years at Xerox.’’
Airtel said that Surendran would transition into his new role from June 1, 2021, and spend the time onboarding into the business until July 31, 2021.
In case you missed it
It can be recalled that a few days ago, Airtel Africa Plc, a leading provider of telecommunications and mobile money services in Nigeria and 13 other countries, announced the appointment of Mr Olusegun Ogunsanya as the new Chief Executive Officer, following the notice of retirement given by the current Managing Director/Chief Executive Officer, Raghunath Mandava, to the Board.
In the notification sent by Airtel Africa to the Nigerian Exchange, Ogunsanya is expected to join the board of Airtel Africa with effect from October 1, 2021.
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