LIVESTOCK FEEDS: NO SUCCOUR, DESPITE CBN AGRIC FUND

The management of Livestock Feeds recently presented its result for the first quarter ended March 31, 2016, three days later than the release date of 2015. The scorecard shown a mixed performance as the company's top line closed marginally northward, whereas profit declined significantly to reflect the high financing and operating cost for the period.

Sales revenue inched up, compared with that of the corresponding period by 11.76 per cent from N1.87 billion to N2.09 billion, while bottomline dropped by 83.14 percent to N2.33 million from N13.82 million in 2015.  The company's cost of operation and financial charges for the period hampered its profit, as cost of sales, marketing anddistribution increased by 15 percent and 19 percent respectively. Net assets for the period was flat at N1.951 billion from N1.948 billion last year, just as earnings per share fell to 0.001 kobo. 

The 0.001 kobo EPS for first quarter is a replica of price in 193.38x which is high, while at the same time prolonging investors waiting, beyond than 86.83x recorded last year. The trailing book value for the period stood at N0.98. The low profit margin that was evident in the recent full year and the result under consideration indicates high cost of operation that calls for the attention of any discerning management, especially at a time when it was expected that the CBN's special intervention for the sector will reduce the burden of high cost of financing. 

LIVESTOCK FEEDS PLC
FIRST  QUARTER
COY	2015	2016
	(N)	(N)	% Chg
Date Released	April 24, 2015	April 27, 2016
Turnover	1,871,478,000	2,091,393,000	11.76
Profit After Tax	13,820,000	2,327,000	-83.14
Shareholders' Fund	1,948,799,000	1,951,126,000	0.10
ESTIMATED RATIOS
Earnings Per Share	0.01	0.001	-90.00
PE Ratio	86.83	193.38	122.71
Earnings Yield	0.29	0.13	-55.17
Book Value	1.00	0.98	-2.00
ROE (%)	0.69	0.12	-82.61
Profit Margin	0.74	0.11	-85.14
Year End	Dec	Dec

Source: Company Financial &Investdata Research

Technical View

Price action of Livestock Feeds shows that the stock has been trending down for more than two year, from a high of N7.89 on June 14, 2013, to a recent strong support level of N0.80 before the reversal that ushered in the ongoing rally. The stock has broken out the first resistance price of 96 kobo, indicating a continuation. But a pull-back may occur due to profit booking.

Meanwhile, investors should position now and at the pull back, if it happens. MACD is currently bullish since it is trading above its signal line.The MACD crossed above its signal line 2 period(s) ago.  Since the MACD crossed its moving average, LIVESTOCK's price has increased 19.05%, and has ranged from a high of 1.00 to a low of 0.84.

RSI is currently reading 62.45, and other indicators like MACD, CCI and Money flow are signaling buy as funds are entering the stock.

Recommendation/Analyst Opinion

The sector within which the company operates has been enjoying single-digit interest rate from government to boost food production. This is likely to continue as the Federal Government starts implementing its 2016 budget to drive economic diversification through agriculture, this will have positive impact on the company's operation and performance going forward.

We recommend a buy for long-term investors, just as traders can look the way of the stock at this stage and jump in. The stock currently trades 193.38(times) of its first quarter earnings. 

HISTORY

Livestock Feeds was established in 1963 by Pfizer as a subsidiary of its pharmaceutical business introduced to Nigeria a 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 creating this Animal Health Division and then the Feed Division. The first mill of five metric tons per hour was installed in Ikeja, Lagos, in 1963, followed by Aba 1964 and Kaduna in 1965 with four metric tons 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 nationwide.

The impressive performance propelled upgrade of the milling output to 10MT/hr automatic machines at Ikeja, Aba and then Benin between 1983 and 1985. Kaduna was given a 6MT\hr back-up mill. The era of boom also witnessed the establishment of franchise business marketing system.

With an installed capacity of 40MT\hr single shift and network of 12 franchise millers, Livestock Feeds soon became the dominant brand and benchmark in the industry. In 1996-97 Pfizer divested  its interest in  Livestock Feeds. This was acquired by  Adset Limited through a Management Buyout arrangement.

Some years later, First Capital Trust Limited was engaged as turnaround managers in 2005, replacing Adset as core investor in the newly invigorated company. Also Cashcraft Asset Management became a shareholder in the company. 

But, today Livestock Feeds Plc is a subsidiary of UAC of Nigeria Plc which acquired 51 per cent of the company as part of the conglomerate's diversification into agribusiness. Since this entry of UACN just few years ago, Livestock Feeds has been revitalized to drive profitability and create value for stakeholders. In 2015 till the recent first quarter all the companies in which UACN acquired stakes are struggling to post impressive numbers which has equally affected the performance of UACN the parent company. 

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 (2015)	N2.28
Closing Price (2015)	N1.33
Closing Price as at 13/5/ 2016	N1.00
Date Listed	December 1978
Year End	December 31st

2015 Performance Analysis

The company's management team and the board of directors have continued to thrive on strong business strategies to post an impressive performance, but the scorecard of 2015 revealed the reverse as high cost of finance and others eat into the profit, leading to the non-payment of dividend for it shareholders, indicating that the company cannot sustain dividend payout it started again in 2014 after more than a five-year break.

In the period under review, the company has an uptrend earnings power on quarterly basis, rising from one kobo in the first quarter to two kobo per share at the end of second quarter representing 100 per cent increase. It grew to three kobo by third quarter, before soaring to full year EPS of nine kobo.

The price performance for the year was a reflection of its weak earnings performance, because EPS was on quarterly basis while price was unfortunately on the decline, this was due mainly to market sentiments.

On the long run, it is expected that earnings will drive price if the company's future results turn positive and become sustainable.

Five-Year Performance Analysis

A critical look at the financials of Livestock Feeds show improved performance over the years as the prolonged period of non-payment of dividend was broken along the line but went back again to no dividend, after shareholders were rewarded at the end of the financial year ended 2014 with cash dividend of 10 kobo and in 2015 no dividend. The company regular release of its financials in compliance with the post-listing requirement has made investors keep fate, forecast the company's numbers and plan their investment.  

The topline of the company for the period under review grew consistently from N3.62 billion in 2011 to N8.96 billion, an increase of 147.51 per cent. Its profitability level rose at 92.03 per cent to N187.92 million, from N97.86 million in 2011 after hitting a profit high of N254.98 million with the period under review. This significant growth in the company's performance has consistently attracted investors to the stock that support the price movement.In the same direction, shareholder’s funds for the period has grown on a yearly basis from N489.21 million in 2011 to N1.95 billion, representing an increase of 298.36 per cent in the company net assets. Similarly, retained earnings equally grew over the years from a negative position of N317.53 million in 2011 to positive retained earnings of N478.12 million.

LIVESTOCK FEEDS PLC  FIVE YEARS FINANCIAL POSITIONS
	2011	2012	2013	2014	2015
Date Released	Mar. 30, 2012	July 13, 2013	Mar. 28,2014	March,25,2015	March,28,2016
Price @ Released	1.82	4.78	3.27	2.02	1.20
Turnover	3,623,939,000	5,433,057,000	6,113,864,000	7,914,488,000	8,963,290,000
Profit After Tax	97,864,000	144,102,000	210,746,000	254,981,000	187,917,000
Total Equity	489,208,000	633,311,000	1,729,730,000	1,983,089,000	1,948,799,000
Dividend	nil	nil	nil	0.10	nil
Bonus	NIL	Nil	NIL	NIL	Nil

Source: Company Financial & Investdata Research

Estimated Performance Ratios

Livestock Feeds' earnings per share for the five-year period increased, reflecting the company's earnings power since there is no additional shares to dilute the EPS for the period under review. The amount earned per share increased from 5 kobo in 2011 to 9 kobo in 2015 after high of 13 kobo EPS in 2014. The improved earnings with relatively low capital has reduced investors waiting period to 12.77x at the market value as released date, after it had recorded a high  Price/Earnings ratio of 66.34x in 2012.

Book value for the period has grown from below a par value of 50 kobo to 97 kobo, which is reflecting a fair value of the market price of the stock. Other performance ratios are looking downwhile some are looking up especially the return on capital employed and profit margin, indicating high cost of operations regardless of the relative low interest rate the sector seem to enjoy from government.

LIVESTOCK FEEDS PLC- ESTIAMATED RATIOS
	2011	2012	2013	2014	2015
Earnings Per Share	0.05	0.07	0.11	0.13	0.09
PE Ratio	20.85	66.34	31.03	15.84	12.77
Earnings Yield	4.80	1.51	3.22	6.31	7.83
Book Value	0.24	0.32	0.86	1.00	0.97
ROE	22.00	23.00	12.03	13.00	9.64
Profit Margin	2.70	2.65	3.45	3.22	2.10
Year End	Dec	Dec	Dec	Dec	Dec

Source: Company Financial & Investdata Research