Ikeja Hotels Plc: Improved performance

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Introduction

The 2016 financial year was quite a profitable one for Ikeja Hotels Plc, especially when its results are compared with what it recorded in the prior year. Growth indices and profitability ratios generally picked up a bit over the preceding year’s, and were mostly on par with industry standards for the period.

The company has however suffered many setbacks in the past couple of years, the latest being months of protracted ownership crisis, which was recently resolved by the Securities & Exchange Commission (SEC). Because of this, it is yet difficult to predict if the company will be able to carry forward its winning streak into the next financial year.

 

Core operations

The company earned more revenue in 2016 than it did in 2015. In contrast to the preceding year when it made less revenue, revenue for the year was N10.9 billion, 10.2 per cent more than the N9.86 billion recorded in 2015. This is as compared to a decline rate of 2.2 per cent in the prior year.

The level of pretax profit grew over that of the prior year, but at a much faster rate than the turnover growth rate. Profit before tax was N1.61 billion, a whopping 96.3 per cent more than the N820 million recorded in 2015. It also recorded a 98.2 per cent growth in after tax profit during the course of the year, with the after tax profit growing to N1.1 billion.

Earnings per share (EPS) was thus predictably higher than that of the prior year. At 53 kobo, the EPS is as compared to the earning per share of 27 kobo recorded before. This translated into a 96.3 per cent growth rate.

As was the case in 2015, the hospitality company paid no dividend in 2016.

 

Profitability ratios

Because of the growths in turnover and profit, profit margin (which measures a company’s ability to squeeze as much profit as is possible from income) grew to 14.8 per cent from 8.3 per cent before. This means that every N100 sales/income made translated into a profit of N14.80, and this is much higher and therefore better than the N8.30 recorded in the preceding year.

The company also performed better in 2016 than it did in 2015 in terms of return on assets (ROA) and return on equity (ROE). ROA for the year was 6.5 per cent, up from and better than 3.9 per cent in the prior year. This was about on par with the services industry average for 2016. ROE followed the same pattern, growing to 14.7 per cent in 2016 from 8.7 per cent in 2015. This result was also on par with what most other companies recorded for 2016. Our analysis shows that every N100 worth of assets deployed translated into a pretax profit of N6.50, while every N100 worth of equity deployed translated into an after tax profit of N14.70.

The company employed fewer employees during the course of the year and its employee number decreased to 1,080 from 1,086. Earnings per employee then improved to N10.06 million on the average, up from N9.08 million in 2015. This is indicative of both employee productivity and company efficiency.

 

Other ratios

While Ikeja Hotels had a higher capital adequacy in 2016 than it did in the prior year, the result still underperformed when compared with the industry standards for the period under review.  At 47.5 percent, and higher than the 44.7 per cent result recorded in the prior year, the company’s result is still however low and doesn’t suggest that its financial strength in the future is solid.

As per the liquidity position of the company, it was unable to convert assets into needed funds as quickly as it did before, with current ratio dipping to 0.83 times in 2016, lower than the 1.1  times it recorded in the preceding year. This suggests a dip in the 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 2.26, and this shows that the company is using N2.26 of liabilities in addition to each N1.00 of stockholders equity. In other words, the company is using N3.26 of total capital for every N1.00 of equity capital, much lower than the N3.30 recorded in the prior year.

 

Sustainable growth

Ikeja Hotels recorded a profit margin of 14.8 per cent during the course of the year, as compared to 8.3 per cent in the prior year. This means that every N100 worth of turnover made a profit of N14.80, as compared to N8.30 in the prior year.

For the review year, the company retained all of its profit, same as it did in the prior year. With a profit margin of 14.8 per cent, a retention ratio of 1, an asset turnover of 0.44 times and an asset to equity ratio of 3.26, the company had a sustainable rate of 21.2 per cent. This means that using only the resources it generated, the company had the capacity to grow by 21.2 per cent during the course of the year. It however grew more slowly, as indicated by its actual growth of 10.2 per cent. This is as compared to the preceding year when the company declined rather than grew.

 

Unique strategies

Ikeja Hotel Plc operates as an integrated hotel development and management company in Nigeria. It operates through three segments: Rooms, Food and Beverage, and Other Services. The company operates five service and full service hotels comprising approximately 1300 luxurious rooms. It is also involved in operating restaurants; hotel development and construction management; accounting services; casinos; recreational centers; conferences, such as halls and decorations; and offshore/onshore catering services. In addition, Ikeja Hotel Plc engages in apartment letting; operating night clubs and a business centre; and renting office space activities, as well as providing advisory and consultancy services.

 

Conclusion

Our analysis shows that the Ikeja Hotels stock is not one that pays dividend, so it is not an ideal stock for the investor who is interested in a regular dividend income.

*Source: Ikeja Hotels Mills’ 2016 financial report

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