First Aluminium (Nigeria) Plc: Mixed results

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Introduction

Our analysis of First Aluminium’s newly released 2017 results shows that it enjoyed some level of positivity during the course of the year, not just enough. It was able to step up the level of its operations, but did not maintain such momentum to its after tax profit.

Some of its profitability ratios were better than those of the prior year while some were worse. All in all, it did not record an absolute loss, still managed to hold on to a little bit of profitability, but such profitability was so little that it couldn’t give shareholders dividend.

 

Core operations

First Aluminium was unable to record a growth in turnover for its 2017 financial year and this had an ill effect on its profit level for the year. Turnover for the year under review was N7.88 billion, and this was a decline of 13.9 per cent over the preceding year’s N9.15 billion level. While the company then had a higher pre tax profit rather than that which it recorded in the prior year (pre tax profit was N346 million, and this was 27.2 per cent better than the profit of N272 million recorded in the prior year), the company could not sustain such a momentum to its after tax profit.

After tax profit was much lower than that of the preceding year. After tax profit declined by as much as 74.5 per cent to N42 million, dramatically down from the N165 million profit that was recorded in the prior year.

Predictably, earnings per share was lower than what was recorded in the preceding year, and the company recorded an EPS of 2 kobo per share, lower than the EPS of 7.8 kobo recorded in the prior year. The company thereafter chose not to reward shareholders with any dividend during the course of the year.

Total assets employed during the review period was higher than the level it was in the preceding year while the equity level also increased over the prior year’s.  Assets deployed was a lower N9.88 billion (as compared to N9.34 billion before), while equity employed was a higher N5.16 billion (as compared to N4.93 billion before).

 

Profitability ratios

The company’s profitability ratios were a mixed lot for its 2017 review year. While some were higher than those of the preceding year, others were lower. It recorded a profit margin of 4.4 per cent during the course of the year, as compared to a profit margin of 3.0 per cent in the prior year. This means that every N100 worth of turnover made a higher profit of N4.40, as compared to a profit of N3.00 in the prior year.

As per return on assets (ROA), the company also performed better in 2017 than it did in 2016. It had a return on assets of 3.5 per cent, as compared to a return on assets of 2.9 per cent in the prior year. Meanwhile, return on equity was a lower 0.8 per cent in 2017, as compared to a return on equity of 3.3 per cent in 2016.

Analysis shows that the company recorded a pretax profit of N3.50 on every N100 worth of assets employed and an after tax profit of 80 kobo on every N100 worth of equity employed. Both are as compared with a pretax profit of N2.90 and an after tax profit of N3.30 respectively in the prior year.

In terms of staff matters, the company did not perform as well for year ended December 31 2017 as it did in the prior year. On the average, each employee contributed N35.5 million to the company’s earnings, down from N41.8 million in the prior year. It is important to note that the company increased its workforce during the course of the year, employing a total of 222 employees in 2017, as compared to 219 employees in 2016.

 

Other ratios

In terms of capital adequacy, First Aluminium performed at almost the same level that it did in 2017 as it did in 2016. Its shareholders’ funds could finance about 44.4 per cent of its total capital, as compared to the 44.2 per cent ratio recorded before. The capital adequacy ratio is still a little low to be considered healthy.

A common feature of the manufacturing industry for the 2017 financial year is that most companies had high current ratios, having the ability to meet short term liabilities with short term assets. First Aluminium was one of the exceptions, not toeing the trend by having a current ratio of 0.88 times, as compared to an already low 0.91 times in the preceding year.

Having a debt to equity ratio of 0.91 shows that the company is using 91 kobo of liabilities in addition to each N1.00 of stockholders equity. In other words, the company is using N1.91 of total capital for every N1.00 of equity capital. This is as compared to N1.89 in the prior year.

 

Sustainable growth

For the review year, the company recorded an after tax profit of N42 million, and retained all hundred per cent of it. With a profit margin of 4.4 per cent, a retention ratio of one time, an asset turnover of 0.80 times and an asset to equity ratio of 1.91, the company had a sustainable rate of 6.7 per cent. This means that using only the resources it generated, the company had a 6.7 per cent inherent capacity for growth during the course of the year. It however declined, recording a decline rate of 13.9 per cent in its turnover.

 

Stock value

As at July 28 2018, First Aluminium’s stock traded at a mere 37 kobo. Not only was this one of the lowest priced stocks on the floor of the Nigerian Stock Exchange (NSE), our analysis shows that the stock was undervalued at this price.

As at analysis date, the company had a net assets per share (NAPS) value of N2.44, and this was significantly higher than the 37 kobo at which it traded on the floor of the stock exchange. Also, the company had a book value of N5.16 billion and a market capitalisation of N780 million, putting its book value/market cap ratio at more than 6. Traditionally, a book to market value ratio that is higher than one indicates an undervalued stock.

Even though we have determined this stock to be undervalued, we do not classify it as one that can bring capital appreciation to investors, and we don’t see its share price rising dramatically any time soon. It is also not a stock takes dividend payment seriously, and investors did not get any dividend for the most current year.

 

Unique strategies

First Aluminium Nigeria Plc, often referred to as FAN, is one of the first Nigerian listed companies. It deals with the production of aluminum sheets, and took its present name First Aluminium Nigeria Plc in 1991 and became quoted on the Nigerian Stock Exchange in 1992.

Being one of the few vertically integrated aluminum companies, First Aluminium controls the whole process from the chemical composition of the aluminum alloy to the installation of the roof, and thus guarantees one of the highest quality available in the Nigerian market.

 

Conclusion

This has not all in all being a bad year for First Aluminium, but whichever way the dice rolls, the 2018 FY will be a deciding one for the company.

 

*Source: First Aluminium’s 2017 financial report

*The Nigerian Stock Exchange

Nbillion 2017 Percentage change 2016
Turnover 7.88 -13.9 9.15
Profit pre tax 0.346 27.2 0.272
After tax profit 0.042 -74.5 0.165
Total assets 9.88 5.8 9.34
Equity 5.16 4.7 4.93
Liabilities 4.72 7.8 4.38
Kobo
Earnings per share 2 -74.4 7.8
Dividend per share 0 0.0 0
Core operations
Turnover growth rate -13.9 -12.6
Profit growth rate 27.2 530.2
Profitability ratios
Profit margin (%) 4.4 3.0
Return on assets (%) 3.5 2.9
Return on equity (%) 0.8 3.3
Earnings per employee (Nm) 35.5 41.8
Other important ratios
Capital adequacy 44.4 44.2
Current ratio 0.88 0.91
Debt to equity ratio 0.91 0.89
Actual Vs sustainable growth
Profit margin (%) 4.4 3.0
Retention ratio 1.00 1.00
Asset turnover (times) 0.80 0.98
Assets/Equity (times) 1.91 1.89
Sustainable growth 6.7 5.5
Actual growth -13.9            (12.6)

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