C & I LEASING: SURPRISING EARNINGS THAT WILL DRIVE PRICE, DIVIDEND

Leading equipment leasing and rental service provider quoted on the Nigerian Stock Exchange (NSE), recently released its earnings report for the nine months ended September 30, 2017, with top and bottom lines pointing northward, to support price rally that made the stock one of most frequent equity on the top advancers log in the recent months.   

This surprising performance is a consolidation of its quarterly numbers since the beginning of the current financial year, which is attributable to the commitment of management to deliver value for clients and shareholders, backed by aggressive product innovation and marketing. Of course, the company’s robust performance cannot be divorced, especially at this time when the leasing and outsourcing industry in Nigeria continues to wax strong; while corporations try to cut operating cost, remain in business and of necessity, remain profitable.

The company's outstanding performance since the beginning of this year has expectedly reflected in the price performance, beginning from when the full year result of 2016 hit the market in April 2017, triggering the price movement as discerning investors started taking position as the intrinsic value slowly became more and more visible.

According to the nine-month result presented by the board, gross earnings rose by 28.02% to N17.18bn from N13.42bn in 2016, which was boosted by lease rental, outsourcing, interest and other operational incomes from its core service area.   

Within the period also, profitability grew at a faster 184.67% to N950.02m from N333.73m in 2016 full year, which is relatively insignificant, judging by the high cost embedded in lease financing, as provision for impairment charges grew by 41.37% to N228.29m from N161.48m.  

Also, there was an increase in tax income from N40.15m in 2016 to N207.24m.

The up-trend in the company’s quarterly results so far has supported its share price which is currently at N1.87 per unit, representing more than 266% above it price of 50 kobo when the 2016 report was released.

The market price of the stock is still below the N4.76 Book Value, which means the shares are still undervalued for discerning investors, despite the significant growth recorded over the period. Also, Price to Earnings Ratio is 1.20x, even as investors' waiting period remains short, as a result of which earnings continue to look up.

C&I LEASING PLC
THIRD QUARTER REPORT FOR  2017
COY	2016	2017	% Chg
	(N)	(N)
Date Released	November,  1,2016	October 26,  2017
Price as@Rel.Date	0.50	1.82	264
Gross Earnings	13,418,714,000	17,181,694,000	28.02
Profit After Tax	333,732,000	950,023,000	184.67
Shareholders' Fund	8,073,027,000	8,955,382,000	11.03
Earnings Per Share	0.18	0.50	177.78
PE Ratio	0.94	1.20	27.66
Earnings Yield	35.45	27.72	-21.81
Book Value	4.29	4.76	10.96
Price to Book Value	0.12	0.38	216.67
ROE	4.13	10.61	156.90
Profit Margin	2.49	5.53	122.09
	Dec	Dec

  SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Valuation/Recommendations

The continued improvement in the company's earnings is a major source of attraction for investors, regardless of the poor profit margin of 5.53%. This should ordinarily begin to attract the attention of management and the need to urgently work on reducing operating cost, and in the process creating value for shareholders by enhancing top and bottom-line growth and in the process spiking a further rally.

The latest Q3 score-card is therefore an indication that the company would beat market expectation for 2017, just as 10.16% Return on Equity is the point of attraction for a company that in the last four years has paid dividend except for 2016. On the strength of its numbers for Q3, the chances for a juicier dividend payout at the end of the year are high, but as has been highlighted above, the management should deliberately work on the cost of operation, so that this positive trend will continue. On the improving profitability and investment ratios, investors and traders should look the way of the stock.    

Technical View

C&I Leasing  has side trended before forming a rising channel that was trendy, with different pullbacks that created buy opportunity within the channel but finally, price action is yet to break out its strong resistant level of N2.15 to the all-time high of N3.47 per share.  Traders should watch out for breakout at the blue trend line for continuation up trend or reversal to first support level at N1.66, second support price of N1.42. The strength of the trend is strong above 20 ADX.

Management

It is true that the scorecard of a company is the shortest way to assess its management's competence and commitment. The earnings performance of this company reveals the calibre of its management and at the same time the strategic inputs in its products or services that are driving profitability. 

The company’s impressive performance as shown in its latest result, points to the need to encourage the management to continue working on cost efficiency that will drive strong earnings needed to support its share price. 

The management team should be even more proactive in capturing more market share and building top line to further boost profit in an environment where competition is daily becoming keener.

Performance Analysis

Looking at the numbers posted over the past four years, it is obvious that the business environment remains challenging but the company has remained resilient, following which it has continually posted positive numbers that have supported payment of dividend for three times. This is why its share price has consistently remained above the 50 kobo par value since April 3, 2017.  

The company's performance for the four-year period (2013 to 2016) reveals that management has been focused and committed for it to produce the recent numbers that are now impacting positively on its share price.  

Gross income for the period grew by 38.37% to N17.02bn from N12.3bn in 2012; a rise that was paled by the significantly profit after tax growth to N920.87m from N161.6m, representing a giant 670% leap. Profit margin for the period under review remained below the 15% standard, just as shareholders' fund moved to N8.09bn from just N5.12bn in 2013 revealing an uptrend in the last four years.

There is a greater need for management to sustain the tempo, leaning on Nigeria’s improving economic fundamentals that continues to favour the company, helping it to grow its earnings power.

C & I LEASING PLC  FOUR YEARS FINANCIAL PERFORMANCE
	2013	2014	2015	2016
Date Released	June 24,2014	May 6, 2015	April 4, 2016	April 3, 2017
Price @ Released Date	0.50	0.50	0.50	0.50
Gross Earnings	12,229,439,000	13,883,942,000	14,577,657,000	17,015,799,000
Profit After Tax	161,597,000	178,067,000	148,657,000	920,867,000
Shareholders' Fund	5,118,442,000	5,804,642,000	5,688,793,000	8,093,270,000
Dividend	0.04	0.08	0.04	-

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Estimated Performance Ratios

The company's financial ratio for the period under review shows that the amount earned by investors and management were better at 0.08 kobo in 2014 than 4 kobo in previous year, which was also paid in 2015. This is a reflection of the stable earning power.

Price Earnings Ratio is okay and attractive at the current estimate of 1.20% from a low of 0.12x in 2016. The last full year EPS is a yield of 97.82% of the market price as of the release date. This signifies an improvement in the stock's valuation by the market as against the posted numbers.
This was further confirmed by the Book Value that ranges between the low of N2.72 and high of N4.76. The enhanced Book Value for the period resulted from the company’s rising and retaining some of it its earnings which moved from N5.12bn in 2013 to N8.09bn, that has supported shareholders’ funds tremendously.

Putting this ratio and the market price of C&I Leasing side-by-side points to opportunities for medium and long term investors, not minding the fact that profit margin over the years remained poor.  

C & I LEASING  PLC  ESTIMATED RATIOS
	2013	2014	2015	2016
EarningsPerShare	0.09	0.09	0.08	0.49
PE Ratio	5.83	5.29	6.33	1.02
Earnings Yield	17.17	18.91	15.79	97.82
Book Value	2.72	3.08	3.02	4.30
Price To Book	0.18	0.16	0.17	0.12
ROE	3.16	3.07	2.61	11.38
Profit Margin	1.31	1.28	1.02	5.41
Year End	Dec	Dec	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH