How sustainable is Livestock Feed Plc Dividend Payout in 2015?

HISTORY

Livestock Feeds was established in 1963 by Pfizer as a subsidiary to the pharmaceutical business which was introduced to Nigeria few years earlier. Following importation of exotic milking cows and hybrid chickens into the country by Germans, Dutch and later Americans, the need to provide health and nutritional products led to creation of animal health division and then the feed division.

The first mill of 5MT/hr was installed at Ikeja in 1963, followed by Aba 1964 and Kaduna in 1965 with 4MT and 3.5MT per hour capacity respectively. Accelerated growth in urban and sub-urban population and demand for poultry meat and egg impacted positively on the feed business leading to phenomenal growth in Livestock Feeds business nationally. The impressive performance propelled upgrade of the milling output to 10MT/hr automatic machines at Ikeja, Aba and then Benin between 1983 and 1985, while Kaduna was given a 6MT\hr back-up mill. The era of boom also witnessed the establishment of franchise business marketing system.With installed capacity of 40MT\hr single shift and network of 12 franchise millers, Livestock Feeds was the dominant brand and benchmark in the industry then.

In 1996/1997 Pfizer divested its interest in Livestock Feeds and its interest was acquired by Adset Ltd through an M.B.O.  Later, First Capital Trust Limited was engaged as turnaround managers in 2005 and the company replaced Adset as the core investor in the newly invigorated company. Also, Cashcraft Asset Management became the second largest shareholder.
But, today Livestock Feeds Plc is a subsidiary of UAC of Nigeria Plc after it acquired more than 51 percent of the company and since the entrance of UACN just few years ago, the company have been revitalized to drive profitability and create value for its stakeholders.

LIVESTOCK FEEDS
Share Holding Structure
Uacn	51.01%
First Capital Ltd	8.02%
Cashcraft Assets Mgt	5.06%
Other Nigerian Citizens & Ass.	35.01%
Other Statistics
Shares Outstanding (MN)	1,199,999,418
Opening Price (2014)	N4.30
Closing Price (2014)	N2.28
Closing Price as at 24/4/ 2015	N2.31
Date Listed[I1]	December 1978
Year End	December 31st

2014 Performances Analysis

The company management team of 20 experienced personnel and professionals including the board of directors have thriving on strong business strategies and influence to post an impressive performance.

In the period under consideration, the company has an uptrend earnings power on quarterly basis, from 2 kobo in the first quarter to 4kobo in second quarter represent 100 percent increase, 8 kobo in third quarter to full year EPS of 13 kobo that  supported the first dividend for its shareholders in the last 10 years. The company had a strong price rally in 2013 prior to UACN entrance to solidify turn-around and chart a new course for the company by re-positioning it in order to restore its vibrant and dominance in the sector.
The price performance for the year was opposite of its earnings performance because EPS was up on quarter by quarter basis, while price declined due to market sentiment. On the long run, it’s expected that earnings will drive price in the future if the company maintains impressive result.

Five Years Financial Performance Analysis.

A critical look at the financials of Livestock Feeds revealed improvement over the years as the prolonged period of non-payment of dividend was broken in 2014 as shareholders were rewarded with cash dividend of 10k. Regular release of its financials in compliance with the post listing requirement made investors to keep faith in the company. The top line of the company for the period under review grew from N2 billion in 2010 to N7.91 billion, an increase of 295.57 per cent.
Also, its profitability level was up by 800.86 per cent to N254.98 million from N28.30 million in 2010. This significant growth in the company performance has consistently attracted investors to the stock to support the price movement.  In the same direction, shareholder’s funds for the period grew from N422.17 million in 2010 to N1.98 billion, representing a growth of 369.74 per cent.
Similarly, retained earnings had equally grown over the years but with the payment of 77 per cent of its earnings as first dividend after many years it will be difficult for retained 23 per cent to support business expansion and further dividend.

LIVESTOCK FEEDS PLC  FIVE YEARS FINANCIAL POSITIONS
	2014	2013	2012	2011	2010
Date Released	March,25,2015	Mar. 28,2014	July 13, 2013	Mar. 30, 2012
Price @ Released	2.02	3.27	4.78	1.82	0.50
Turnover	7,914,488,000	6,113,864,000	5,433,057,000	3,623,939,000	2,000,767,000
Profit After Tax	254,981,000	210,746,000	144,102,000	97,864,000	28,304,000
Total Equity	1,983,089,000	1,729,730,000	633,311,000	489,208,000	422,164,000
Dividend	0.10	nil	nil	nil	nil
Bonus	NIL	NIL	Nil	NIL	NIL

Estimated Performance Ratios

Livestock Feeds  earnings per share for the period of five years was up to reflect the earnings power of the company since there is no additional shares to weaken the EPS for the period under review. The amount earned per share move from one kobo in 2010 to 13 kobo in 2015.  The improved earnings with relative low has reduced investors waiting period at 15.84x at the market value as released date, after it had recorded a high  P/E ratio of 66.34x in 2012 from 35.33 times in 2010.  Book value during the period grew from below par value of 50 kobo to 100 kobo which is relative low considering the market price of the stock.
Other performance ratios are looking up but low especially the yield and profit margin indicating high cost of operations regardless of the relative low interest rate the sector is enjoying from the government. On the strength of the figures posted and dividend declaration over the years, the stock is fairly priced at N2.20.

LIVESTOCK FEEDS PLC- ESTIAMATED RATIOS
	2014	2013	2012	2011	2010
Earnings Per Share	0.13	0.11	0.07	0.05	0.01
PE Ratio	15.84	31.03	66.34	20.85	35.33
Earnings Yield	6.31	3.22	1.51	4.80	2.83
Book Value	1.00	0.86	0.32	0.24	0.21
ROE	0.13	0.12	0.23	0.22	0.07
Profit Margin	3.22	3.45	2.65	2.70	1.41
Year End	Dec	Dec	Dec	Dec	Dec

CURRENT 2015 RESULT

The  company first quarter result for the period ended March 31, 2015 was made available  to the market last week in consistent with release date of 2014. The scorecard shown a mixed performance as the company top line where in the north direction whereas the profitability level declined significantly. Sales revenue stands tall over the corresponding period by 18 percent from N1.59 billion in 2014 to N1.87 billion. Bottom line dropped by 65 percent to N12.82 million from N39.33 million in 2014.  The company cost of operation has hampered its profit for the period as financial chargers and taxation increased by 176 percent and 46 percent respectively while turnover was up by just 18 percent. Net assets bounced up to N1.98 billion from N1.73 billion last year. Its earnings per share for the period decline to 1 kobo from 2 kobo in 2014.  The one kobo EPS for first quarter is a replicate of price in 38.63x which is high but slight lower than 39.23x recorded last year. The trilling book value for the period stood at N1.00. The low profit margin evidence in full year and the quarterly result indicates high cost operation that calls for management attention.

LIVESTOCK FEEDS PLC
FIRST  QUARTER
COY	2015	2014
	(N)	(N)	% Chg
Date Released	April 24, 2015	April 26, 2014
Turnover	1,871,478,000	1,591,976,000	18.00
Profit After Tax	13,820,000	39,333,000	-65.00
Shareholders' Fund	1,997,720,000	1,729,673,000	15.50
ESTIMATED RATIOS
Earnings Per Share	0.01	0.02	-100
PE Ratio	38.63	39.28	-1.65
Earnings Yield	0.30	0.64	-53.13
Book Value	1.00	0.87	15.00
ROE	0.01	0.02	-50.00
Profit Margin	0.74	2.47	-70.00
Year End	Dec	Dec

Technical View

Price action of Livestock Feeds shows that the stock have been trending down for more than a year from high of N4.29  as at February 17, 2014 to a support level of N1.93, where it reverses to make double tops.  Any breakout of the green line is a continuation of the pull back.
Meanwhile, traders and investors should wait to confirm a bearish breakout or reversal before any position is taken. RSI is currently at 49.36, and other indicators like MACD, CCI and Money flow are signaling sell as funds is leaving the stock.

Recommendation /Analyst Opinion

The sector within which the company operates  has been enjoying one digit interest rate from the government to boost food production and which will likely continue in the new dispensation as economic diversification of the country remain crucial. We recommend hold for long term investors and traders should wait for retracement before jumping. The stock currently trades 38.37(times) of its first quarter earnings.