May & Baker Plc.’s Earnings Jumped on Virus-Induced Sales
May & Baker Nigerian Plc. one of the pandemic winners experienced a turning point in financial year 2020 amidst the outbreak of coronavirus pandemic, after two consecutive years of revenue contractions, equity analysts said in a review.
In the Nigerian Stock Exchange, investors valued the company at ₦7.245 billion on 1.725 billion shares outstanding with share price traded at ₦4.20.
Amidst pandemic-induced economic and health stress, demand expanded significantly as the company’s Pharmaceutical division anchored topline growth.
Specifically, analysts at Meristem Securities noted that company’s topline expanded double digits, up by 16.21% year on year to ₦9.39 billion.
The increase was actually fueled by the 16.46% growth in revenue from the pharmaceutical division which printed at ₦9.32 billion from ₦8.00 billion in 2019.
“An increase in health consciousness amongst the populace considering the COVID-19 pandemic, coupled with the associated rise in the demand for drugs and other pharmaceutical products, contributed to the positive performance recorded by the firm during the year”, said Meristem Securities in the review.
On the contrary, analysts noted the pandemic-induced constraints on distribution chains suppressed revenue from the firm’s beverage division- Lily Water. Revenue from this unit shrank by 9.64% to ₦69.74 million from ₦77.18 million in 2019.
“Going forward, we expect the uptick in the firm’s demand to be sustained and supported by the essential nature of the firm’s products and the improving level of health consciousness amongst the populace.
“Waning consumer wallets and competitive pressures, however, pose a downside risk to our optimistic revenue projection, up by 14.50% to ₦10.75 billion”, Meristem added.
Profitability Metrics Unfettered by Increased Cost Pressure
While the company’s profit for the year improved by 34.69% in 2020 to ₦964.56 million, implying a higher net margin of 10.27% from 8.86% in 2019, production cost also expanded.
In its 2020 audited financial statement, May and Baker’s production cost expanded by 8.38% to ₦5.61 billion from ₦5.17 billion in 2019.
The increased production cost was particularly influenced by 4.6% increase in raw materials costs and 63.63% upsurge in direct expenses – both adding pressure to revenue.
However, analysts explained that the double-digit revenue growth of 16.21% provided support to margins, resulting in a decline in cost-to-sales ratio to 59.73% from 64.04% in the corresponding period last year.
It was noted that that the company’s cost-to-sales ratio is also significantly lower than its five-year average of 64.73%, implying improved cost efficiency.
On this note, the Pharmaceutical Company’s gross margin widened to 40.27% from 35.96% in 2019 whilst operating margin improved to 14.99% from 12.48% in 2019.
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Meristem Securities hinted that there was a notable increase of 46.56% in finance cost to ₦228.80 billion, influenced by additional debt facilities booked during the year.
The firm’s debt profile expanded to ₦4.15 billion on the back of the ₦3.50 billion intervention loan obtained to finance proposed capital projects and augment working capital.
The company’s interest coverage ratio dipped slightly to 6.15x from 6.46x in 2019, a result of the increase in finance cost, analysts explained.
Overall, profit for the year improved by 34.69% in 2020 to ₦964.56 million, implying a higher net margin of 10.27% from 8.86% in 2019.
“In the absence of a significant disruption to supply chains, we expect costs to hover around current levels inching up slightly in response to inflation, to result in a cost-to-sales ratio of 58% and a net margin of 8.75% in 2021”, Meristem estimated.
Capital Restructuring improves Liquidity position
Analysts registered that May & Baker’s capital restructuring effort did improve the company’s liquidity position despite the pandemic-induced economic stress.
It was noted that the ₦3.50 billion intervention loan obtained from the Central Bank of Nigeria in 2020 is divided into ₦1.00 billion with a tenor of 5 years and a ₦2.5 billion with a tenor of 10 years.
Both tenor however have moratorium period of 6 months 1 year respectively
“This debt injection also improved the company’s liquidity position with quick and cash ratios improving to 1.77x and 1.04x from 1.09x and 0.23x in 2019”, Meristem Securities explained.
Analysts at the investment firm project a 2021 expected earnings per share of ₦0.55 and a target price earnings of 7.50x. This yields a price target of ₦4.09 per share, and an implied 2.66% downside potential based on the N4.20 yesterday’s closing price.
May & Baker Plc.’s Earnings Jumped on Virus-Induced Sales
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