Multiverse Mining and Exploration Plc is a Nigerian mining company engaged in the business of exploration, extraction, sale, and distribution of stones and other extractive solid minerals. The company’s primary products include zinc, copper, gold, lead tantalite, tine and barite ores.
Multiverse Mining and Exploration Plc (Multiverse) sits on top of NGX in terms of year-to-date capital gain with YtD gain of 1,050% as at close of trading on Tuesday, August 17, 2022. The company began the year with a share price of N0.20 and since then, its share price has moved to N2.30 per share, even at 9% lower than its 52-week high. This means that Multiverse investors have gained N2.10 per share year-to-date.
Further, shareholders and investors can be optimistic about the company knowing the stock has accrued 11.2% over the past one week, 42% over the past four weeks, 995% over the past 3 months, 995% over the past 6 months and 1,050% over the past one year.
Multiverse’s trading volume is relatively high but very volatile. Over the past 3 months; from May 17 to August 17, 2022, it has traded a total volume of 109 million shares, valued at N134 million. On the flip side, share movement has been volatile; more volatile than 90% of NG stocks; typically moving +/- 109 a day with weekly volatility increasing from 121% to 244% over the past year. Investors should note that investing in a volatile stock is inherently riskier, but the chance for success is increased.
The YtD gain and trading volume are good indicators, considering the YtD gain of other stocks, nominal returns from other asset classes, the company’s low market capitalization, low revenue, low earnings and of recent, the drop in revenue, and earnings growth as seen in Q1 and H1 2022.
Let us look at the company’s market capitalization first. Multiverse does not have meaningful market capitalization, but the company’s market capitalization has increased from N85.24 million it started with this year to N980 million, which is about 0.0037% of the Nigerian Stock Exchange equity market, ranking it the 128th most valuable stock on the NGX.
It is important to note that market capitalization does not affect share price. The share price of a company is influenced by market forces; demand and supply, based on a variety of factors. For instance, fundamental factors drive stock prices based on a company’s past earnings/profitability, news releases on earnings and profits, and future estimated earnings.
On an earnings trend, over the past 5 years, earnings have grown by 30% per year. The company became profitable this year and managed to overcome losses in 2021. In 2021FY, the company reported profit after tax of N14.028 million from (N197.505) million in 2020FY due to tax credit of N15.869 million as profit and loss before tax stood at (N1.841) million from (N202.045) million. For H1 2022, the company’s unaudited financial statements for the period ended June 30, 2022, shows that earnings grew to N60.660 million from (N28.639) in H1 2021.
A cursory analysis of the company’s financial statements over the years shows that the low net margins, culminating in loss after tax, low earnings, is at the backdrop of high administrative/operating expenses and finance costs. The company’s gross profit margins have been high due to high growth in revenue and low growth in cost of goods sold. Over the past five years, revenue has grown by 287% per year, while cost of goods sold has been very low and on a declining trajectory. In 2021, gross income margin grew to 69% due to the growth in gross income by 842% to N200.399 million.
The company’s high-cost centres are the operating/administrative expenses and finance cost, which are the major reasons behind the company’s poor performance over the years. For instance in H1 2022, administrative/operative expenses and finance constituted respectively 46% and 32% of the company’s total costs.
On the balance sheet side, over the past five years, debt to equity, though has reduced from 938% to 632%, is still high. The company’s Debt is not well covered by operating cash flow and interest payments on debts are not well covered by EBIT, retained earnings is negative; all, culminating to a high balance sheet risk.
Share Price YtD gain trigger
On June 2, 2022, the Nigerian Exchange (NGX) slammed full suspension on Multiverse Mining and Exploration Plc, halting activities on the shares of the mining company. In a circular, NGX Regulation, which regulates the NGX, stated that the full suspension was sequel to ongoing process of share capital reconstruction by Multiverse. With the full suspension, there was no trading or price movement on the share of the company as against technical suspension where price movement is only halted.
As a result of the share reconstruction, shareholders of Multiverse were expected to surrender nine out of every 10 shares held in a massive share capital reduction that saw the company cancelling about 3.84 billion ordinary shares from its total issued share capital of 4.5 billion ordinary shares of 50 kobo each, culminating to total number of issued ordinary shares after the reconstruction exercise to 426.194 million ordinary shares.
A share reconstruction also known as a reverse stock split is a process where a company reduces the total number of outstanding shares it has by cancelling out shares. Theoretically, share reconstruction does not affect the market value of a stock as it is expected to remain the same, but when a company thinks its share price is stagnant, it can embark on share reconstruction.
For ten years (2012 – 2022), Multiverse share price has been stagnant. Between September 3, 2012, and February 5, 2018, it remained stagnant at N0.50, but dropped to N0.20 on April 30, 2018, and on average traded at that price till June 30, 2022. Having traded at that average price of N0.20 per share for too long, the company undertook the share reconstruction exercise; calculated at 20 kobo per share and then listed at N2 per share, thus the company’s share price jumped from N0.20 band to N2 band on July 1, 2022. Nonetheless, valuing on post share reconstruction basis, it has gained 15%, having closed trading on Tuesday, August 17, 2022, at N2.30.
After last week’s (August 15, 2022) gain to N2.25, the stock traded at a trailing price-to-earnings ratio of 9.5x. Compared to the peer average P/E ratio of 70.2x, Multiverse is good value, but it is expensive compared to the African Metals and Mining Industry P/E ratio of 7x.
Though the company’s fundamentals are weak now, it is hoped that market positive sentiment may continue to sustain the price gain. Investors should note that a major positive takeaway from the share reconstruction exercise is the opportunity it affords a company to issue bonus shares in future; hence Multiverse can afford to issue bonus shares to its shareholders in future as its share premium account continues to grow from its present low N337.805 million status.
