Caverton Offshore Support Group Plc: A better year ahead


Caverton Offshore Support Group Plc: A better year ahead

By Folakemi Emem-Akpan



The 2016 financial year was not a profitable one for Caverton Offshore Support Group Plc. It was unable to grow revenue and earned less income during the course of the year in  continuation of the trend in 2015 when it recorded a decrease in income. Despite decreases in cost of sales and finance costs, the company yet suffered significant damage to its bottom line.

Both pre and after tax profits were significantly lower than those of the prior year, and this adversely affected both profitability ratios and dividend payment to shareholders.

We predict that the 2017 financial year will be a slightly more profitable one for Caverton Offshore Support Group Plc than the 2016 financial year was, going by its available unaudited results.



Core operations

The company earned significantly less revenue in 2016 than it did in 2015, and this was in continuance of the preceding year’s trend when it made less revenue than 2014. Meanwhile, it had spent a little less on cost of sales in 2016 to achieve the level of sales that it did. Revenue for the year was N19.3 billion, 16.8 per cent less than the N23.2 billion recorded in 2015.

Caverton was able to curtail its finance costs during the course of the year, cutting such costs by more than ten per cent. Even then, the level of pretax profit dropped over that of the prior year, declining to N1.1 billion, 37.9 per cent less than the N1.77 billion recorded in 2015. It also recorded a 38.1 per cent decline in after tax profit during the course of the year, with the after tax profit declining to N612 million.

Earnings per share (EPS) was thus predictably lower than those of the prior year. At 18 kobo, the EPS was 37.9 per cent less than the 29 kobo recorded before. There was no dividend.


Profitability ratios

Because of lower revenue and profit profiles for the year, profitability ratios took a downward swing during the course of the year. For the year, it recorded a profit margin of 5.7 per cent, lower than 7.6 per cent in 2015. Analysis shows that for every N100 earned by the company in the course of the year, it recorded a profit of N5.70, lower than a profit of N7.60 in the preceding year.

As per return on assets (ROA) and return on equity (ROE), the company also did not perform in 2016 as well as it did in 2015. ROA for the year was 2.7 per cent, down from 7.6 per cent in the prior year, and not as high as the services industry average for 2016. ROE was 4.6 per cent in 2016, down from 7.8 per cent in 2015 and was equally lower than what most other companies recorded for 2016.

Perhaps because of the harsher Nigerian economic climate, the company employed fewer employees during the course of the year and its employee number decreased to 525 from 602. Earnings per employee then declined to N36.76 million on the average, down from N38.53 million in 2015. This is not particularly indicative of employee productivity and company efficiency.


Other ratios

Not only did Caverton have a lower capital adequacy in 2016 than it did in the prior year, the result also fell a little short of industry standards for the period under review.  At 49.3 percent, and lower than the 54.1 per cent result recorded in the prior year, the company’s result is still low and suggests that its financial strength in the future is a little shaky.

As per the liquidity position of the company, it is now better able to convert assets into needed funds very quickly, recording a current ratio of 1.01 times in 2016, higher than 0.8 times in the preceding year. This suggests efficiency of the company’s operating cycle and its ability to turn its products into cash. The company had a debt to equity ratio of 2.14, and this shows that the company is using N2.14 of liabilities in addition to each N1.00 of stockholders equity. In other words, the company is using N3.14 of total capital for every N1.00 of equity capital, almost on par with what it recorded in the prior year.


Sustainable growth

Caverton recorded a profit margin of 5.7 per cent during the course of the year, as compared to 7.6 per cent in the prior year. This means that every N100 worth of turnover made a profit of N5.70, as compared to N7.60 in the prior year. For the review year, the company recorded an after tax profit of N612 million, and chose to retain all of it, declaring no dividend, just as it did not declare any dividend in 2015.  Thus, retention ratio was 1.0 times, same as it was in 2015. With a profit margin of 5.7 per cent, a retention ratio of 1, a profit margin of 5.7 per cent, an asset turnover of 0.47 times and an asset to equity ratio of 3.12, the company had a sustainable rate of 8.4 per cent. This means that using only the resources it generated, the company had the capacity to grow by 8.4 per cent during the course of the year. It was however unable to grow at all, as indicated by its negative actual growth.

This is understandable in the light of Nigeria’s economic recession and a reduced consumer purchasing power.



Stock value

Our analysis determines that it the Caverton stock is undervalued. Currently trading at a share price of N1.00 (as at August 18 2017),  nets assets per share is a much higher N3.94, and this is almost four times the size of the current market price. This is a clear indication of undervaluation. Secondly, the book value to market value ratio is much higher than one, another clear indication of overvaluation. While book value is N13.2 billion, the market value is a mere N3.35 billion. It is obvious that the company is worth much more in reality than the price it is currently trading at.


Unaudited results

Caverton’s half year results for the 2017 FY shows much promise, in respect to profitability. Not only did the company manage to earn a higher revenue this period than it did in the last, it was also able to maintain its growth momentum to the profit level. Revenue for the period was N10.1 billion, higher than N9.1 billion before while profit after tax was N594 million, as compared to a loss of N2.43 billion before.

If the company continues in this vein, it might have a better showing come year end 2017 than it did in 2016.



Unique strategies

Caverton Offshore Support Group Plc is a fully indigenous company and is the first fully integrated offshore support company in sub Saharan Africa offering quality aviation and marine logistics services to support operators within the oil and gas industry. Caverton over the past decade has worked to raise the bar in areas such as helicopter availability, service and maintenance quality, and on-time departure, and has done this while pursuing a robust local content strategy.



While we recommend the Caverton stock for a buy, investors should however note that they may have to wait a while before they start reaping dividends from their investment.

*Source: Caverton’s 2016 financial report

*Caverton’s 2017 half year unaudited results

*The Nigerian Stock Exchange


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