Red Star Express Plc: Need to Improve Performance for Better Valuation

Coy: Red Star Express Plc (REDSTAREX)
Rating: Hold
Current Market Price: N4.95
Year High: N5.50
Year Low: N4.20
Fair Value: N4.89
By: JeariogbeTundeSegun (Equity Analyst)

Key Investment Ratios

In this report we have observed the full year financial statistic of Red Star Express for the year ended 31^st March, 2019. In other to effectively rate the result, we have compared same with similar result in 2018
Our valuation technique utilized the Free Cash Flow for Equity (Stable Growth), thus, we have conservatively valued each unit of Red Star Express at N4.89, this is within the market trading range for Red Star Express for the past 3 years. In other words, market seems to have rightly placed the equity over the years.
In our opinion, outstanding performance by the company will definitely attract higher valuation by the investing public.
Please understand that, for the financial year currently being analysed, the management of Red Star Express had announced 43k cash dividend, which is scheduled for closure between 17^th and 19^th July, 2019. Thus, the qualification date will be 16^th July, 2019
See below for comparison of released figures/our opinions

RED STAR EXPRESS PLC
Bourse	Nigerian Stock Exchange
Code Name	REDSTAREX
Sector	SERVICES
Market Classification	MAIN BOARD
Nature of Business	Courier Services, Freight Services, Logistics, warehousing and General Haulage
Date of Incorporation	July 10th 1992
Date Listed	November 14th 2007
End of Accounting Year	31^st March
Website	www.redstarplc.com
Registrar	United Securities Limited
Auditor	Ernst & Young
Share Price@Relsd (N)	4.95
Earnings per Share	2,762,923,000.00
Intrinsic Value(N)	4.89
Share Outstanding	589,496,310
Market Capitalisation	2,918,006,735

Company figures

Turnover figure for the year stood above comparable year of 2018 by 19.73% having moved from the previous N8.40 billion to N10.05 billion in the just concluded financial year
Cost of Sales equally increased by 29.60% to stand at N7.29 billion compared to N5.62 billon posted at the end of 2018 financial year
Operating Profit is estimated at N764.58 million, this is same as 24.54% above the N613.93 million in 2018
Meanwhile Operating Expenses was well controlled at 2.79% improvement over 2018. The index is currently valued at N2.25 billion against N2.18 billon
Finance Cost improved to N33.90 million against N27.66 million in 2018
Profit before Taxation was therefore estimated at N743.46 million, same as 21.76% above the comparable year estimate
Having Considered Tax expenses of N277.22 million, the management of Red Star posted N466.24 million as profit for the year as against the N383.63 million in 2018

RED STAR EXPRESS PLC
Statement of Comprehensive Income
	2018 (Mill)	2017	%CHG
Turnover	10,066,576	8,407,507	19.73
Cost of Sales	7,290,061	5,625,188	29.60
Operating Profit	764,581	613,931	24.54
OPEX	2,250,728	2,189,564	2.79
DEPRECIATION	140,747	110,980	26.82
AMORTISATION	25,495	13,404	90.20
FINANCE COST	33,906	27,660	22.58
NET FINANCE INCOME	21,112	4,342	386.23
PBT	743,469	610,589	21.76
TAX	277,221	263,031	5.39
PAT	466,248	383,637	21.53
TOTAL COMP INCOME	504,644	331,338	52.30
Statement of Financial Position
Current Assets	4,020,887	3,668,882	9.59
Non Current Assets	1,527,144	1,325,113	15.25
Total Assets	5,548,031	4,993,995	11.09
Current Liabilities	2,532,573	2,129,792	18.91
Non Current Liabilities	252,535	336,618	24.98
Total Liabilities	2,785,108	2,466,410	12.92
Net Assets	2,762,923	2,527,585	9.31
Retained Earnings	2,171,742	1,936,404	12.15
Shares Outstanding	589,496,310	589,496,310

Current Assets reported at the end of the just concluded year stood at N4.02 billion same as 9.59% over the 3.66 billion of 2018.
Non-Current Assets equally improved by 15.25% to stand at the current estimate of N1.52 billion as against the N1.32 billion posted in 2018
Current Liabilities was valued at N2.53 billion as against the N2.12 billion posted at the end of 2018 financial year
Non-Current Liabilities dropped by 24.98% to N252.53 million compared to the N336.61 million stated in the 2018 full year result
Net Assets builds marginally by 9.31% to stand at N2.76 billion from N2.52 billion
Retained Earnings is currently valued at N2.17 billion from N1.93 billion in the corresponding year

Financial Strength/Solvency Ratios

Debt Ratio is currently estimated at 0.50x higher than the 0.49x estimated from 2018 full year financials.
Total Debt to Equity is estimated at 1.01x up from the 0.98x estimated in the comparable quarter.
We also tested the Equity Ratio, and established that Equity is same as 50% of the Total Assets Value stated at the end of the quarter, this is slightly below the 51% ratio estimated from 2018 financial indices
Beta Value at the time of this report stood below unity at 0.62x, below the industrial average of 0.72x.

Financial Strength/Solvency Ratio
TICKERS	2018	2017	%CHG
Debt Ratio	0.50	0.49	1.64
Total Debt to Equity Ratio (MRQ)	1.01	0.98	3.30
Equity Ratio	0.50	0.51	1.61
TICKERS	2018	Industrial Average	%CHG
Beta Value	0.62	0.72	13.89

Profitability Ratios

EBITDA margin estimated for the year stood at 7.60%, 4.01% above the 7.30% estimated from the corresponding year’s numbers
Pre-Tax Margin appreciated by 1.69% to 7.39% against the 7.26% estimated at the end of 2018 financial year
Effective Tax Rate adjusted down by 13.28% to 59.46% against 68.56% of 2018
Cost of Sales figure posted at the end of the quarter is same as 72.42% of the Turnover figure, this shows an upward marginal adjustment of 8.24% from the previous estimate of 66.91%
Return on Equity stood at 16.88% against the 15.18% of 2018
See the below table for details

PROFITABILITY RATIOS
TICKERS	2018	2017	%CHG
EBITDA MARGIN	7.60%	7.30%	4.01
PRE-TAX MARGIN	7.39%	7.26%	1.69
EFFECTIVE TAX RATE	59.46%	68.56%	13.28
CS TO TO	72.42%	66.91%	8.24
ROE	16.88%	15.18%	11.18
ROA	8.40%	7.68%	9.40

Efficiency Ratios

Operating Expenses is currently estimated to be 22.36% of Total Turnover figure for the year. This is 14.15% below the 26.04% achieved in the corresponding year.
Meanwhile, Turnover is same as 181.44% of Total Assets figure posted for the year. This is a marginal improvement over 168.35% of previous financial year
Working Capital Ratio, a ratio that indicates a company’s effectiveness in using its working capital was estimated at 6.76x against the 5.46x that was estimated in similar 2018.
Further testing the company efficiency, we checked the Working Capital Ratio, which confirmed that Current Assets is 1.59x higher than current liabilities as against the 1.72x multiple of last year

EFFICIENCY RATIOS
	2018	2017
OPEX TO TO	22.36%	26.04%	14.15
TO TO TA	181.44%	168.35%	7.78
Working Capital Turnover	6.76	5.46	23.82
Working Capital Ratio	1.59	1.72	7.84

Investment/Valuation Ratios

At the end of 2019 financial activities, the management achieved earnings per share improvement to the tune of 21.53% from the previously N0.65 to N0.79
P/E-Ratio slipped by 37.34% having moved to 6.26x from 9.99x,
The said Earnings per Share is a 15.98% yield of the current market price of Red Star Express 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 for Red Star Express shares at N4.69 against the previous estimate of N4.29.
Confirming that each units of Red Star Express is rightly priced on the floor of the exchange is the Price to Book Value Ratio that is currently estimated below unity at 1.06x

Investment/Valuation Ratios
Tickers	2018	2017	%Chg
Price at Released	4.95	6.50	23.85
EPS	0.79	0.65	21.53
TCIP/SHARE	0.86	0.56	52.30
P/E-Ratio	6.26	9.99	37.34
Earnings Yield	15.98%	10.01%	59.59
BV/Share	4.69	4.29	9.31
PBV	1.06	1.52	30.33
CAPEX/SHARE	1.36	4.73	71.32

Valuation

As stated above, our blend of valuation models conservatively valued each units of Red Star Express Shares for N4.89, this is 2.06% below the current price as at the time this report was compiled. We have therefore rated Red Star Express a Hold.