Dividend of Good Deal; Caverton-Offshore Builds 3-Months Earnings by 170%

Coy: Caverton Offshore Support Group Plc (Caveton)
Rating: Buy
Current Market Price: N2.40
Year High: N3.26
Year Low: N2.40
Fair Value: N5.44
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Investment Ratios

This report on Caverton dwells on its first quarter financial analysis for the period ended 31^st March, 2019, compare same with corresponding quarter in 2018 to establish growth.
Meanwhile, the full year financials for the year ended 31^st December, 2018 metrics were used in the valuation analysis of Caverton Offshare shares.
We have slightly stepped up our value/share for Caverton to N5.44 from our last valuation of N5.31.
Judging by the soaring nature of the current first quarter financial indices over the comparable quarter of 2018, we are of the opinion that the company is beginning to reflect the dividend of its 5 years contract with NNPC
We have therefore rated Caverton a Buy, given the current difference between our Fair Value and the current market price.

Note: For One on One Technical Analysis of the equities market Training, Installation of Charting Tools, Special Reports on Quoted Equities, Staff Training on Research Skills, Outsourcing Your Firms Research Works e.g. Daily Market Update, Earnings Report, Market News Update & Economic News Update…..Call Us on 08098865598, 08037155684

CAVERTON OFFSHORE
Bourse	Nigerian Stock Exchange
Code Name	CAVERTON
Sector	SERVICES
Market Classification	MAIN BOARD
Nature of Business	MARINE & AVIATION
Date of Incorporation	June 2nd 2008
Date Listed	May 20th 2014
End of Accounting Year	31st December
Website	caverton-offshore.com
Registrar	United Securities Limited
Auditor	Ernst & Young
Share Price@Relsd (N)	2.70
Earnings per Share	19,176,377,000.00
Intrinsic Value(N)	5.44
Share Outstanding	3,350,509,750
Market Capitalisation	9,046,376,325

Company figures

The Turnover (TO) posted at the end of the first three months of 2019 stood at N8.34 billion as against the N4.56 billion achieved during similar quarter in 2018. Difference between the two figures is 82.89%
Cost of Sales grew by 73.51% to 77 billion as against the N2.79 billion posted in 2018 first quarter
Operating Profit is estimated at N1.68 billion, this is 89.98% above the N886.98 million of 2018 first quarter
Operating Expenses run through the quarter is estimated at N1.92 billion compare to the N961.40 million of 2018
Finance Cost improved by 12.05% to stand at N467.34 million against the N417.08 million in 2018 first quarter finance
Profit before Tax (PBT) jerked up to N1.21 billion compared to N476.52 million made in 2018
Profit after Tax (PAT) soared to N793.06 million, same as 170.18% over the N293.53 million earned at the end of the first three months business activities of 2018

CAVERTON OFFSHORE
Statement of Comprehensive Income
	2019(000)	2018(000)	%CHG
Turnover	8,340,523	4,560,466	82.89
Cost of Sales	4,771,300	2,749,896	73.51
Operating Profit	1,685,082	886,988	89.98
OPEX	1,928,322	961,404	100.57
DEPRECIATION	476,540	265,658	79.38
AMORTISATION	1,350	2,592	47.92
FINANCE COST	467,345	417,083	12.05
NET FINANCE COST	467,095	410,468	13.80
PBT	1,217,987	476,520	155.60
TAX	424,922	182,987	132.21
PAT	793,065	293,533	170.18
TOTAL COMP INCOME	793,065	293,533	170.18
Statement of Financial Position
Current Assets	19,887,517	19,595,815	1.49
Non-Current Assets	39,431,714	28,217,985	39.74
Total Assets	59,319,231	47,813,800	24.06
Current Liabilities	19,716,149	17,137,073	15.05
Non-Current Liabilities	20,426,706	14,579,507	40.11
Total Liabilities	40,142,855	31,716,580	26.57
Net Assets	19,176,377	16,097,220	19.13
Retained Earnings	10,762,970	7,707,996	39.63
Shares Outstanding	3,350,509	3,350,509

Current Assets inched north by marginal 1.49% to stand at N19.88 billion as against the N19.59 billion estimate of 2018
Non-Current Assets on the other hand grew by 39.74% over comparable period to stand at N39.43 billion against N28.21 billion
Current Liabilities is currently estimated at N20.42 billion, this is 15.05% above the N17.13 billion in 2018
Meanwhile, Non-Current Liabilities appreciated by 40.11% at the present estimate of N20.42 billion against N14.57 billion
Net Assets improved to N19.17 billion against N16.09 billion in 2018 first quarter
Retained Earnings equally improved by 39.63% at the current estimate of N10.76 billion compared to N7.70 billion posted in 2018 first quarter result

Financial Strength/Solvency Ratios

Debt Ratio is currently estimated at 0.68x higher than the 0.66x estimated from 2018 first quarter financials. This implies that, Total Liabilities is same as 68% of Total Assets.
Total Debt to Equity was estimated at 2.09x as against 1.97x estimated in the comparable quarter.
We also tested the Equity Ratio, and established that Equity is same as 32% of the Total Assets Value stated at the end of the quarter, this is fairly below the 34% ratio estimated from 2018 financial indices
Beta Value at the time of this report stood below unity at 0.83x, slightly below the industrial average of 0.88x.

Financial Strength/Solvency Ratio
TICKERS	2019	2018	%CHG
Debt Ratio	0.68	0.66	2.02
Total Debt to Equity Ratio (MRQ)	2.09	1.97	6.24
Equity Ratio	0.32	0.34	3.98
TICKERS	2019	Industrial Average	%CHG
Beta Value	0.83	0.88	5.68

Profitability Ratios

EBITDA margin estimated for the period stood at 20.20%, 3.88% above the 19.45% estimated from the corresponding quarters’ numbers
Pre-Tax Margin appreciated by 39.76% to 14.60% against the 10.45% estimated at the end of 2018 first quarter
Effective Tax Rate adjusted down by 14.05% to 53.58% against 62.34% of 2018 first quarter
Cost of Sales figure posted at the end of the quarter is same as 57.21% of the Turnover figure, this shows a downward marginal adjustment of 5.13% from the previous estimate of 60.30%
Return on Equity stood at 4.14% against 1.82% of 2018 first quarter
Similarly, Return on Assets soared by 117.78% to stand at 1.34% as against 0.61% of 2018 first quarter

PROFITABILITY RATIOS
TICKERS	2019	2018	%CHG
EBITDA MARGIN	20.20%	19.45%	3.88
PRE-TAX MARGIN	14.60%	10.45%	39.76
EFFECTIVE TAX RATE	53.58%	62.34%	14.05
CS TO TO	57.21%	60.30%	5.13
ROE	4.14%	1.82%	126.80
ROA	1.34%	0.61%	117.78

Efficiency Ratios

Operating Expenses to Turnover value is same as 23.12%, this is 9.67% growth over the 21.08% estimated from 2018 first quarter financials
Turnover to Total Assets Ratios stood at 14.06% against 9.54%, a 47.42% improvement in efficiency over comparable period of 2018
Working Capital Ratio, a ratio that indicates a company’s effectiveness in using its working capital was estimated at 48.67x against the 1.85x that was estimated in similar period of 2018. This implies that the management is being extremely efficient in using the firm’s short-term assets and liabilities to support sale
Further testing the company efficiency, we checked the Working Capital Ratio, which confirmed that Current Assets is slightly lower than current liabilities, we also established drop in this efficiency ratio from the previous 1.14x to 1.01x

EFFICIENCY RATIOS
	2019	2018
OPEX TO TO	23.12%	21.08%	9.67
TO to TA	14.06%	9.54%	47.42
Working Capital Turnover	48.67	1.85	2,524.02
Working Capital Ratio	1.01	1.14	11.79

Investment/Valuation Ratios

At the end of the first three months of 2019, the management achieved earnings per share improvement to the tune of 170.18% from the previously estimated N0.09 to N0.24
P/E-Ratio slipped by 58.36% having moved to 11.41x from 27.39x, please understand that the reduction in this ratio is an indication that price did not follow same momentum as growth in earnings per share
The said Earnings per Share is a 8.77% yield of the current market price of Caverton Offshore Plc shares on the floor of the exchange as at the time the result was made available to the investing public
We have estimated the Book Value of Caverton Offshore’s shares at N5.72 against the previous estimate of N4.80 and slightly above our estimated intrinsic value
Confirming and under-priced position is the Price to Book Value Ratio that is currently estimated below unity at 0.47x against 0.50x

Investment/Valuation Ratios
Tickers	2019	2018	%Chg
Price at Released	2.70	2.40	12.50
EPS	0.24	0.09	170.18
TCIP/SHARE	0.24	0.09	170.18
P/E-Ratio	11.41	27.39	58.36
Earnings Yield	8.77%	3.65%	140.16
BV/Share	5.72	4.80	19.13
PBV	0.47	0.50	5.56
CAPEX/SHARE	9.79	5.72	71.07

Valuation

Stated in the below table are our valuation metrics for valuing each units of Caverton Offshore’s shares. We explored two valuation metrics and accepted the average of the two. Thus, we have fairly valued the shares at N5.44/unit and Rated it a long term Buy

Valuation Metrics: Caverton Offshore Support Group Plc
Current Earnings per share =	N1.28	Risk Premium=	8.00%
Capital Spending/share =	N3.17	Expected Growth Rate =	1.50%
Depreciation / share =	N0.56	Implied Cost of Equity =	18.14%
Chg. Working Capital/share =	(N0.15)	Gordon Growth Model Value =	N7.32
Desired debt financing ratio =	30.00%	2 STAGE H-MODEL VAL	N3.56
ROE	23.38%	AvG of FCFE & H-MODEL	N5.44
Cost of Equity	10.00%
Beta of the stock =	0.83
Riskfree rate =	11.50%