Introduction
Unlike many other companies in 2016, Livestock recorded a higher turnover and a profit rather than a loss, even though the profit was lower than that of the preceding year. Despite the slowdown in its profit, the company still had passable profitability ratios, unlike those of some other companies that had negative profitability ratios.
All in all, Livestock Feeds seems to be well grounded enough to be able to engineer better profitability in the coming years.
Already, the available unaudited results for its 2017 FY shows promise in this regards. Its first quarter results show a growth on almost all levels. Shareholders are however not assured of a dividend come year end, because this is a company that is not in any way dedicated to dividend payout.
Core operations
While a lot of manufacturing companies recorded less sales of their products in 2016, Livestock Feeds broke the unsaid rule by earning more income in 2016 than it did in 2015. Gross earnings for the year stood at N11.1 billion, 23.9 per cent up from N8.96 billion in the prior year. The company was however unable to curtail cost of sales and administrative expenses.
The interaction between increasing administrative expenses and a lower finance cost in 2016 (when compared with the prior year) made for a lower pre-tax profit. Pre-tax profit for the year was N224 million, down from N300 million before and translating into a 25.3 per cent decline rate. On its own, after-tax profit was a lower N152 million when compared with N187 million before, translating into an 18.7 per cent decline rate.
Livestock Feeds then declared an earnings per share of 7.61 kobo, 19 per cent lower than the 9.40 kobo recorded in the erstwhile year. Shareholders did not get any dividend, just like they didn’t get any in 2015.
Profitability ratios
As is usually the case when higher turnovers and lower profits intersect, Livestock’s profitability ratios for 2016 did not improve. For the year, it recorded a profit margin of 2.0 per cent, lower than the 3.4 per cent recorded in 2015. Analysis shows that for every N100 earned by the company in the course of the year, it recorded a profit of N2.00, as compared to a profit of N3.40 in the preceding year. This is a very low result.
Assets deployed also got a lower return in 2016 than it did in 2015. Return on assets for the year stood at 3.0 per cent in 2016, as compared to a return on assets of 6.6 per cent in 2015. The same was the case for return on equity (ROE). For the 2016 financial year, Livestock Feeds recorded an ROE of 7.4 per cent, lower than 9.6 per cent in the erstwhile year, translating to mean that the company made an after-tax profit of N7.40 on every N100 worth of equity employed, a regression over the N9.60 made in 2015.
Other ratios
For the year under review, Livestock Feeds’ had a higher shareholders’ funds to work with, and this equity could finance a very high 93.4 per cent of its total capital. While this was slightly lower than the 94.2 per cent recorded in the preceding year, the result was still high enough to be commendable. This result was also well above industry standard for the period under review, and is to be lauded.
Current ratio, which measures whether or not a firm has enough resources to pay its debts over the next 12 months, was 1.2 times; lower than 1.5 times in the prior year. While lower than in the prior year, the result was still high enough to suggest efficiency in the company’s operating cycle and its ability to turn its products into cash.
Having a debt to equity ratio of 2.56 shows that the company is using only N2.56 of liabilities in addition to each N1.00 of stockholders equity. In other words, the company is using N3.56 of total capital for every N1.00 of equity capital. This was higher than the N2.34 result the company recorded in 2015.
Sustainable growth
For the review year, the company recorded a profit of N152 million, lower than N187 million in the preceding year, and chose not to pay any dividend, just like it didn’t pay in 2015. Retention ratio was therefore 1.0 times.
Meanwhile, profit margin for the year was 2.0 per cent, down from 3.3 per cent. This means that the company was able to get a profit of N2.00 from every N100 sales made in 2016, as compared to a higher N3.30 in the prior year.
With a lower asset turnover, the company recorded a sustainable growth rate of 9.8 per cent, meaning that it had the capacity to grow by 9.8 per cent using only the resources it generated (this is as compared to a sustainable growth rate of 14.4 per cent in the prior year). It however grew by a higher 23.9 per cent during the course of the year.
Stock value
On May 19 2017, the market price of Livestock Feeds was 82 kobo. While a penny stock and therefore acquirable by almost anyone, our analysis shows that the stock is overpriced even at 82 kobo. As at analysis date, net assets per share was 52 kobo, lower than the current market price and therefore suggesting that the stock is overvalued.
The company is also worth a little less in reality than it is selling for on the NSE at now, as shown by a higher market value as compared to its book value. While book value is N2.1 billion, current market capitalisation is a higher N3.04 billion. This also, is a sign of overvaluation.
While this stock is relatively low priced when compared to other listed stocks, it doesn’t really make sense for investors to buy into it at this point, because it is already selling at a price that is above its potential. And this is not a stock that is consistent with dividend payout.
Unique strategies
Livestock Feeds Plc was incorporated in 1963. The company is one of the few in Nigeria that is principally engaged in the manufacturing and marketing of animal feeds and concentrations.
With over 50 years’ experience, it has an excellent distribution network that allows it to conveniently deliver products to clients’ locations.
2017 Q1 result
Contrary to expectation, Livestock Feeds had a good showing for its 2017 first quarter. The company recorded a higher turnover for the period than it did the same period in 2015, and was able to sustain the momentum up to the profit position. Pre tax profit was N25 million, higher than N3 million in the corresponding period of 2016. It also recorded an after tax of N18 million, better than N2 million in the year before.
For the investor, that means there was an earnings per share for the period, rather a loss per share as many other companies recorded. EPS was 0.88 kobo, better than 0.12 kobo in the preceding year.
Conclusion
While this is a company that seems to be managing its affairs well enough, we do not consider it an investor’s dream, simply because it is not known for its dividend payout, and there is no room for capital appreciation.
*Source: Livestock Feeds’ 2016 financial report
*The Nigerian Stock Exchange