VITAFOAM: DIVIDEND EQUALISATION POLICY SUPPORT PAYOUT, DESPITE 2017 RED ACCOUNTS

The management of Vitafoam Nigerian Plc recently presented its full year-audited report for the period ended September 30, 2017 to the investing community slightly later than the release date for that of 2016, coming below market expectation as it revealed bigger loss than in the corresponding period. The company’s unstable quarterly recovery during the financial year under review finally resulted in a loss, despite the Q1 earnings per share of 6 kobo that graduated to 25 kobo by second quarter, before sliding to 16 kobo at Q3 and thereafter a 12 kobo Loss per share, making it two consecutive years of red numbers.

Despite these negative numbers the company has continued to reward its shareholders by going into the reserve, a development that is not healthy for the company and shareholders, regardless of the fact that operating cash flow turned N1.61bn positive from a N2.36bn negative position in 2016.

The company’s post-merger, expansion outside Nigeria and the introduction of new products are yet to reflect fully on it earnings capacity due to the high financing cost, despite the relative stability in exchange rates which has boosted the books of many companies in the manufacturing sector. The negative accounts notwithstanding, the company has recommended a higher dividend payout of 15 kobo as projected by INVESTDATA, from 12 kobo in 2016.

A review of the financials showed that sales revenue increased to reflect the results of the successful repositioning of its operations, while venturing into spare parts production and strategic repackaging of the insulation business for enhanced value creation. The negative profit margin however suggests the need for better and enhanced cost management, while plugging loopholes, if shareholders must reap the expected revitalization of the group’s subsidiaries through injection of the single-digit loan recently sourced from the Bank of Industry (BoI) to turnaround its fortune and improve profitability.

The full-year statistics revealed mixed numbers for the period under consideration, with a loss of N127.69m as against the N32.03m recorded in 2016, despite by 30.43% turnover growth to N17.7bn from N13.57bn in 2016, translating to Loss per share (LPS) of 0.12 kobo, up from three kobo in the 2016. Return on Equity (ROE) also came in negative at 3.78%, as against the prior year’s -0.91%.

As mentioned earlier, the Vitafoam's profit margin is poor by all standards at negative 0.72%, even when compared to the negative 0.24% in the corresponding period of 2016, just as Book Value declined to N3.24 from N3.47, as a result of the loss and declining retained earnings.

VITAFOAM NIGERIA PLC.
FULL YEAR  2017
COY	2016	2017	% Chg
	(N)	(N)
Date Released	January 2, 2017	January 8, 2018
Price As @ Released Date	2.31	3.25	40.69
Turnover	13,569,873,000	17,695,820,000	30.43
Loss After Tax	-32,032,000	-127,690,000	-498.7
Shareholders' Fund	3,432,488,000	3,373,697,000	-1.75
ESTIMATED RATIOS
Earnings Per Share	-0.03	-0.12	-500.0
PE Ratio	-75.17	-26.53	-135.3
Earnings Yield	-1.23	-3.77	-406.5
Book Value	3.47	3.24	-6.63
Price to Book Value	0.69	1.00	44.93
ROE(%)	-0.91	-3.78	-515.4
Profit Margin	-0.24	-0.72	-104.0

 Source: Company Financial & Investdata Research

The unstable performance of the company in the last three financial years has extended to the period ended September 30, 2017, which has also reflected on its price performance and payout for these periods. As the market expects its first quarter score-card this month, just as the impact of the N2bn loan might offer new hope for turnaround for the good of investors in the ongoing 2018 financial year and beyond.

Technical View

The price action of Vitafoam shows an uptrend that started since March at the back of positive sentiments on its quarterly financials and ongoing bull market. It remained trendy in the rising channel chart pattern with resistance price of N3.55 and first support level of N3.09. The chart reveals a high possibility of the uptrend continuing to breakout the next resistant if Q1 is positive and the market remains in this uptrend.

On a daily time frame, the stock is strong, trading above its year open and 50-Day moving average. Despite the possibility of pullbacks as result of profit taking, the stock has the momentum to retrace up.

Analysts Opinion/Recommendation

The equity is good for dividend investors as it guarantees annual returns due to its equalization policy. Also, traders may enjoy a likely rally if Q1 financials beat expectations as inflow into market and the stock continues ahead of this year’s first Monetary Policy Committee meeting of the Central Bank of Nigeria (CBN), which may possibly cut the benchmark Monetary Policy Rate. This may have commenced technically with the authorities seemingly bringing down cost of funds to drive the expected growth in 2018 and after.

But the management of Vitafoam must continue with its strategic business plan to reposition its subsidiaries and boost performance with the loan, while utilising modern research and development exposures to cut costs and enhance profit.

History

Vitafoam Nigeria is a leading manufacturer of flexible foam, reconstituted foam and other household products. It has the largest foam manufacturing and distribution network which facilitates just-in-time delivery of products throughout Nigeria, with off-shore operations in Ghana and Sierra Leone.

The company was established on August 4, 1962 by British vita and Unilever and listed on the NSE in 1978. Vitafoam is currently Nigeria’s most prominent and leading producer of Polyether, foam products, furniture, upholstery products and adhesives. In 2010, it became a major shareholder of Vono Products and established two sister companies; Vitapur Nigeria (an insulations products manufacturing company) in the Oil & Gas industry and Vitablom (a fibre processing and soft furnishing company). Finally in 2012, it established its youngest subsidiary- Vitavisco for production and sales of Visco elastic foam and latex products.

Vitafoam Nigeria PLC
Share Holding Structure
Chief S.O. Bolarinde	12.59%
Other Nigerians and Associates	87.41%
Other Statistics
Shares Outstanding (MN)	1,042,370,053
Opening Price (2017)	2.87
Closing price as @ Sept 30 (2017)	2.57
Current Price as @ Jan 12, 2018	3.39
Date Listed	1978
Year End	30th September

Source: Company Financial & Investdata Research

Five-Year Financial Analysis

In the past five years as shown in the table below, management grew revenue year-on-year to a high of N17.bn in 2017, from 2016 low of N13.57 million after recording N16.71bn, N16.81bn and N17.19bn respectively in 2014, 2013 and 2015. Bottom-line for the period has been undulating, slipping into a loss of N127.69m in 2017, from N32.03m in 2016, even as profit level in 2013 to 2015 remained unstable, rising from N390.23m in 2013 to N529.14m in 2014, before falling to N249.05m in 2015, before slipping into a loss in the five-year period.

The company’s earnings power has been inconsistent due to the high cost headwind in its operations, as finance cost grew by 53.94% from N895.06m 2016 to N1.38bn in 2017, wiping out its profit for the year. Profit margin for three years was poor before falling into negative margin for the two most recent years with 0.24% and 0.72% in 2016.and 2017.

Return on equity for the five years had been up and down, growing by 17% in 2014 from 13.19% in 2013, before nose-diving to 5.04% in 2015 before slipping to negative Return on Equity of 0.91% in 2016 and 3.78% in 2017, an indication of the increased costs and tax during these periods.

In the same direction, shareholders' fund which has been unstable for the period grew from N2.71bn in 2013 to N3.37bn in 2017 after touching a high of N4.95bn in 2015. This also reflected in the up and down movement in Book Value per share that affected the price movement for this same period.  The book value was down to N3.24 in 2017 from N5.03 in 2015.

The reverse is the case when the said growth is compared to investors’ response in terms of market price valuation/judgment, as Vitafoam’s unit price on the Nigerian Stock Exchange continued to trend up and down. This was however before the current market rally that propelled vitafoam’s price.

Five Years Financial Figures of Vitafoam Plc
Company Figures
	2013		2014		2015		2016		2017
Turnover	16,808,851,000		16,712,922,000		17,185,741,000		13,569,873,000		17,695,873,000
Profit After Tax	390,231,000		529,135,000		249,051,000		-32,032,000		-127,690,000
Net Assets	2,706,450,000		3,029,070,000		4,946,205,000		3,508.458,000		3,373,697,000
Dividend	0.30		0.30		0.25		0.12		0.15
Bonus			1:5
Estimated Ratios
EPS	0.50	0.53		0.25		-0.03		-0.12
Pay Out Ratio	59.88	46.15		100		nil		nil
PE/RATIO	7.62	8.23		21.35		-75.17		-26.53
E/YIELD	13.11	12.14		4.68		-1.33		-3.77
Price to Sales	0.19	0.26		0.93		0.69		0.20
BOOK VALUE	3.80	3.70		5.03		3.37		3.24
ROCE	13.19	17.00		5.04		-0.91		-3.78
PROFIT MARGIN	3.46	3.17		1.45		-0.24		-0.72
YEAR END	September	September		September		September		September

Source: Company Financial & Investdata Research

Estimated Performance Ratios

The company  earnings per share for the five-year period has been declining to reflect  weak earnings power, even as the additional shares arising from the bonus have weakened the Earnings Per Share (EPS) for the period under review. The amount earned per share moved from 50 kobo in 2013 to a loss of 12 kobo after recording 3 kobo in 2016.  The dwindling  earnings  and increase in share price within the period had elongated investors waiting period to -26.53x at the market value as at released date, after it had recorded a  P/E ratio of  7.62 times in 2013. Book value during the period decline to N3.24 from N3.80 in 2013, considering the market price of the stock as at released date.
Other performance ratios remained mixed, but profit margin is still pointing at high cost of operations.

On the strength of the figures posted and dividend declared over the years, the stock is fairly priced at N3.50. 

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