MAYBAKER: Earnings Growth Signals Better Value for Shareholders
Analysts say May and Baker (ticker: MAYBAKER) earnings growth signal better value for shareholders in the financial year 2020.
With the outbreak of coronavirus pandemic across the world, health care industry’s fundamentals have improved significantly as their services and products are in high demand.
In the first half of 2020, May & Baker Nigeria Plc printed strong operating performance as its profit after tax (PAT) swelled by 50.91% to ₦0.44 billion on account of lower cost of sales.
Also, revenue rose marginally by 0.41% to ₦4.07 billion in H1 2020, thereby increased the company’s profit margin to 10.81% from 7.14% recorded in H1 2019.
Equity analysts at Cowry Asset said in a note that the revenue from pharmaceuticals segment which constitute 99.16% of the total revenue surged 0.58% to ₦4.04 billion.
However, segment revenue from beverage that account for 0.84% of the topline moderated by 15.89% to ₦34.21 million in H1 2020.
Notably, analysts detailed that M&B Nig. Plc partnership with FG to produce vaccines via Biovaccines Nigeria Limited is expected to further contribute to the company’s growing revenue.
Recalled that May and Baker entered into a 10-year agreement, ready for signature, with the Federal Government to supply 15% of the national requirement of five vaccines: BCG, Hepatitis, Measles, TB and Yellow Fever.
Meanwhile, increase revenue is also expected from M&B’s manufacturing facility which is World Health Organisation (WHO)-certified – currently used by a French pharmaceutical giant, Sanofi Nigeria Limited to manufacture about five of its products.
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Cowry Asset noted that the pharmaceutical company also reactivated its hand sanitizer production line in the course of the year to locally mass produce “Smartans” – its brand of hand sanitizer.
“Given the positive developments and the attendant impact on revenue, as well as the reduction in M&B Plc’s costs, we expect the company’s margin to increase in FY 2020”, Cowry Asset remarked.
Hence, analysts recognised possibility of M&B Plc increasing its dividend payout in financial year 2020, from the ₦0.25k paid in FY 2019.
Cowry Asset stated that MAYBAKER’s performance amongst other players was well above industry average (of equally listed companies) based on financial ratio analysis, hence the ‘A’ rating.
Any Threat of Foreign Currency Risk?
In its equity analysts’ note, the investment firm said May & Baker Nigeria Plc’s exposure to foreign currency risk is limited to purchase of raw materials and some specialized items
However, analysts highlighted that the company minimised this risk by restricting imports to circumstance where no local alternative exists.
More so, analysts explained that the Pharmaceutical Company’s total borrowings were denominated in local currency.
MAYBAKER’s foreign exchange loss stood at ₦26.38 million as at H1 2020 when the major devaluation of the local currency against the greenback happened.
Recalled that Naira was devalued year to date by 6.27% to ₦381/USD at the official window, thus impacted the company’s balance sheet.
“Going forward, we expect Naira/USD to stabilise given the numerous intervention by CBN in recent times, especially the resumption of fx sales to the BDC segment”, analysts stated.
Meanwhile, Cowry Asset explained that May and Baker’s balance sheet appears strong as debt to cash settles below 1x.
In the period, cash position improved to ₦1.54 billion from ₦0.44 billion in H1 2019, given the additional ₦1 billion loan which it got at relatively low rate of 7%.
Though, most of the borrowings were from CBN intervention fund.
In addition to the lower cost of sales, Cowry Asset said it expects finance costs to remain low in 2020 even as Debt to earnings before interest, tax, depreciation and amortisation (EBITDA) eased to 1.44x in H1 2020 from 2.38x in H1 2019.
Finance costs moderated by 62.39% to ₦41.34 million in H1 2020 from ₦109.93 million in H1 2019, a reflective of the significant reduction in bank overdraft.
The company’s overdraft dropped to ₦552, 000 from ₦399 million which was obtained at a rate of 18% to 21%.
In the same period under review, borrowings fell to ₦1.39 billion from ₦1.73 billion; albeit, analysts said they saw borrowings spike year to date amid additional ₦1 billion inflow.
Cowry Asset said: “for a real sector company trading below its equity per share of ₦3.41, and with expectation of increased profitability at 2020, resulting from an increase in revenue as well as lower cost of sales and finance costs, we recommend a BUY position”.
Analysts also explained that the CBN intervention fund, suspended import duties will boost liquidity, increase revenue & ease costs pressure.
Recalled that amid COVID-19 pandemic challenge, the CBN floated ₦100 billion intervention fund in the health sector for the players to expand capacity in order to cushion the negative effects of the virus on the local economy.
This is expected to give May and Baker a strong leverage to increase operating performance with financing opportunities.
Over all, this is expected to bear on the shareholder wealth as the firm reflate top and bottom line performance, thus strengthening earnings per share.
Among the trend in the industry is the fact that the Federal Government suspended import duties on medical equipment, medicines and personal protective gears required for treatment and management of COVID-19 for, at first, three months, effective from March 1, 2020.
This was further extended by the Minister of Finance to September 30, 2020.
“We expect the above mentioned policy pronouncements to further strengthen MAYBAKER’s liquidity level, boost revenue and ease pressure on costs”, Cowry Asset explained.
MAYBAKER: Earnings Growth Signals Better Value for Shareholders
