Fidson Half Year Earnings Dipped by High Interest Yielding Liabilities

Coy: Fidson Healthcare Plc (FIDSON)
Rating: Hold
Current Market Price: N4.10

Latest Dividend: N0.15
Year High: N5.05
Year Low: N3.65
Fair Value: N3.78
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Investment Ratios

• This report observe the half year financial statistics of Fidson Healthcare for the period ended 30^th June, 2019, compare same with released numbers for the corresponding quarter in 2018, so as to established growth
• Meanwhile, it is necessary to mention some key events in its full year financials for the year ended 31^st December, 2018, since the result is highly instrumental in our valuation approach
• Due to high direct cost of sales through 2018 financial year, Fidson Healthcare declared a negative earnings as against the profit position in corresponding year of 2017
• Meanwhile, despite the loss position, the management of Fidson announced a 15k cash dividend for the year. The implication of this is that, it will have to consult its reserve in other to fulfil its dividend obligation
• This position will definitely impact negatively on the calculated fair value of Fidson Healthcare for now; until it is able to reverse the position at the end of 2019 financial year
• Meanwhile, it was observed that between the previous half year and now, the company did not up its game, thus, it was only able to build income mildly above comparable period.
• Against this marginal growth, it suffered from high interest yielding loans that gulped good portion of its income, thus, posting a lower income. We are of the opinion that the management of Fidson Healthcare should consider low interest funds such as bonds and the likes
• Before we look further into the company’s numbers, it is needful to mention the different Share Outstanding between the two quarters. The difference is due to its last right issue.

Company figures

• The half year Turnover inched below the corresponding quarter by 0.83% at N7.37 billion compared to N7.43 billion
• Cost of Sales maintained rate as it marginally grew by 2.02% to stand at N4.05 billion compared to the N3.97 billion posted in its 2018 half year earnings report
• Operating Profit achieved is estimated at N1.27 billion, this is also a marginal growth above the N1.23 billion posted in its 2018 half year earnings report
• Commendably, Operating expenses was controlled as the figure stood at N2.17 billion, same as 4.89% below the N2.28 billion of the corresponding period
• Nevertheless, as the company continue to take advantage of various opportunities in its field and researching further on products, it engaged more interest yielding liabilities, thus it serviced its Bank loans with N866.87 million, this is 83.50% above the N483.90 million used at the end of 2018 half year business cycle
• Considering all expenses and incomes, Profit before Tax for the period was valued at N405.78 million as against N766.76 million in similar quarter of 2018. As noted above, the high amount used in servicing loans is chiefly responsible for the low income

• Current Assets is currently valued at N10.73 billion, this is same as 45.74% above the N7.36 billion estimated at the end of the first six months of 2018
• Non-Current Assets held by the leading indigenous healthcare fire firm is currently valued at N13.08 billion as against N12.92 billion in 2018 half year
• Current-Liabilities stood at N9.40 billion same as 19.12% above the N7.89 billion stated in its 2018 half year result
• Non-Current Liabilities grew by 11.45% to stand at N4.73 billion as against N4.24 billion in 2018
• Net Assets posted for the period therefore is valued for N9.68 billion above the N8.14 billion in 2018
• Retained Earnings on the other hand dropped by 16.15% to stand at N3.70 billion versus N4.42 billion in 2018; this is the backlog of the last cash dividend paid when it made a loss

Financial Strength/Solvency Ratios

• Debt Ratio is currently estimated at 0.59x, 0.84% below the 0.60x estimated in the similar period of 2018. This implies that, Total Liabilities is same as 59% of Total Assets.
• Total Debt to Equity was equally estimated at 1.46x as against 1.49x estimated in the comparable quarter. This simply implies that debt used in servicing its assets through the quarter is higher that equity
• It was established that Equity is same as 41% of Fidson Assets Value, estimate from 2018 half year performance indices yielded 40%
• Nevertheless, we can conclude that Fidson shares in fairly liquid although the estimated Beta which stood slightly below market beta

Profitability Ratios

• EBITDA margin estimated for the period stood at 17.72%, slightly above the 16.67% estimated from 2018 half year earnings numbers
• Pre-Tax Margin equally dropped by 46.64% to 5.51% against the 10.32% estimated at the end of 2018 half year
• Effective Tax Rate was stable through the period as shown in the table below
• Cost of Sales is 55.01% of the Turnover figure, this is only 2.87% above the 53.74% estimated in 2018. This is a confirmation of the management effort to control its direct cost
• Return on Equity stood at 2.85% against 6.40% of 2018

Efficiency Ratios

• Operating Expenses to Turnover value is same as 29.48%, this is 4.10% drop in efficiency during the quarter
• Turnover to Total Assets Ratios stood at 30.93% against 36.63% a 15.54% drop in management efficiency when compared to estimate from 2018 half year performance indices
• Working Capital Ratio, a ratio that indicates a company’s effectiveness in using its working capital was estimated at 5.54x a 7.99% from the negative ratio of the corresponding quarter
• Further testing the management efficiency, we tested the Working Capital Ratio, which confirmed that Current Assets is higher than the current liabilities at the end of the period.

Investment/Valuation Ratios

• When compared with 2018 half year earnings performance, the amount earned per unit shares dropped by 32.68% to N0.13 from the previous estimate of N0.35. Please understand that aside the reduced profit reported, the difference between the shares outstanding within the two periods compared is also responsible for lower EPS
• P/E-Ratio grew by 76.92% having moved to 31.3x from 17.69x, please understand that the high P/E-Ratio is also an indication of positive investors’ sentiments in the shares of Nigerian Breweries
• The said Earnings per Share is yielded 3.19% of the current market price of Fidson Healthcare shares on the floor of the exchange as at the time the result was made available to the investing public
• The Book Value of Fidson shares is currently estimated at N4.64 this is slightly above the market value of its shares on the floor of the exchange
• Confirming and under-priced status of Fidson shares on the floor of the exchange is the Price to Book Value which stood below unity (0.89x)

Valuation

As noted above, the last full year negative performance recorded by Fidson Healthcare is a major dent on its valuation, nevertheless, the high probability of consistent investors’ reward is another factor worthy of consideration. Haven measured all visible risk including the harsh business platform within which Fidson operates, we have fairly priced each units of Fidson Healthcare shares at N3.78 and Rated it a Hold.