Just last month, the share price of DN Meyer rose over 200% following the take-off of market making activities. It was a reminder that perhaps, the lessons of 2007 & 2008 may have been forgotten for blood thirsty investors. DN Meyer is a chemical and paint manufacturer in Nigeria and has over the years faced an array of looses and inability to pay its shareholders dividends. According to its recently published 9 months financials, it grew revenue year on year by 11.5% to N1b. Gross profit has also seen marked improvement rising 16% to N408m just as margins have remained steady. Operating profit also turned black as they clawed back from the negative of last year to a positive N80m. At the end of the period pre-tax profits increased from a negative N91m to a negative N5m.
Whilst all this point to a gradual return to profitability revenue must grow at more than double its current rate of 11% (assuming expenses remain the same) if its to post returns 300 basis point above average inflation rate of 12%. Even that just gives you a profit of around N90m. Bottom line here is Dn Meyer needs to align its cost with its revenue. It must keep selling and admin expenses at below 30% of Gross Profit if its to mount any indication of a comeback. The chairman once complained of the negative impact of bank charges on their operations even as it constitutes just 23% of operating expenses. Though total external loans are twice shareholders funds its still half of total assets suggesting a need to inject fresh equity if the business is to expand and remain competitive.
Dn Meyer currently trades at N3.45 up 222% in just about a year!!! Imagine investing N5m in this stock this time last year, that amount will be worth about 16m today. If that is the magic of the stock market then the secret lies in shady metrics and unsustainable fundamentals. Question is can it hold? No matter how much you gloss over weak fundamentals the devil will always be in the details. DN Meyer still needs to cure the demons that is losses.
DN Meyer’s 9 months 2012 unaudited accounts is posted on the website of the NSE
