NEIMETH Plc: Weak Revenue Performance Halts Momentum

NEIMETH Plc: Weak Revenue Performance Halts Momentum

Weak revenue performance halted growth momentum as Neimeth International Pharmaceutical Plc. earnings went south amidst rising operating cost.

In its first quarter of financial year 2021 earnings report, Neimeth Pharmaceuticals International Plc recorded a 35% revenue decline, reason remain unknown as WSTC Securities Limited accused the company of poor disclosure.

By business segments, the Pharmaceuticals division revenue deteriorated by 44% year on year, from N561 million in Q1-2020 to N316 million in Q1-2021.

WSTC Securities Limited explained that the second business segment, Animal Health, recorded a 71% revenue growth from N46 million in Q1-2020 to N79 million in Q1-2021.

“The revenue results came as a negative surprise to us due to our expectations of improved market share and increased demand, amid the wave of the coronavirus pandemic”, the firm added.

It posited that the resulting health consciousness by household should drive an increased demand for one of the Company’s core products (NCP – a disinfectant).

Overall, analysts at WSTC Securities explained that they are unable to adequately estimate the factors behind the revenue decline in the Pharmaceuticals business segment due to nondisclosure.

“In our view, we think that lower production activities (resulting from exchange rate pressures and unavailability), and the social unrest (the EndSARS protests) in October 2020 (which possibly affected some weeks of sale) affected revenue performance in this business segment”.

On the other hand, the Animal Health segment continued to grow significantly.

Analysts attribute the topline growth to increased investment in the business and the drive to expand market share in the industry.

It was observed the revenue contribution of the Animal Health division, relative to the Company’s total revenue, rose from 8% in Q1-2020 to 20% in Q1-2021.

Higher Cost Margin Drive Bottomline Decline

Analysis of the company’s performance indicates that higher cost margin reported was key to profitability drop in the period.

Neimeth’s cost of sales declined by 2% year on year, from N304 million in Q1-2020 to N297 million in Q1-2021.

However, analysts said the 2% decline in cost of sales relative to the 35% decline in revenue, suggests that there were significant cost pressures during the period.

Neimeth Pharmaceutical financials revealed its cost margin rose significantly from 50% in Q1-2020 to 75% in Q1-2021.

Consequently, gross profit dipped by 68% from N303 million in Q1-2020 to N98 million in Q1-2021.

WSTC Securities noted the bottomline was further depressed, on the back of a 22% year on year rise in operating expense from N200 million in Q1-2020 to N244 million in Q1-2021.

Analysts noted that employee cost which accounted for 19% of total operating expense was the major driver of the increase in operating expense.

The company’s financial statement showed operating expenses jerked up by 16% year on year during the period.

“We also note the 34% year on year increase in marketing and distribution expense”, analysts at WSTC Securities Limited said.

The impact of higher operating expense incurred during the period resulted to N143 million operating loss in Q1-2021, from a N112 million operating profit in Q1-2020.

This was partly due to rising finance cost which expanded 23% year on year from N29 million in Q1-2020 to N36 million in Q1-2021.

WSTC said the increase in finance cost reflected the higher borrowings of the Company, from an average of N1.06 billion in Q1-2020 to an average of N4.27 billion in Q1-2021.

Therefore, the Company’s bottomline losses widened, as loss before tax stood at N179 million, relative to a profit before tax of N83 million


“As mentioned above, the result in Q1’2021 was below our expectations and there is a poor disclosure about the operating performance of the Company in Q1-2021, particularly on the steep revenue decline.

“However, we note that the first quarter is typically the weakest quarter for the Company.

“We expect to see earnings recovery in the subsequent quarters of the financial year”, WSTC Securities explained.

Analysts at the firm said owing to the performance of Q1-2021, the firm has revised earnings per share (EPS) estimate lower to N0.03 from N0.15.

“The decline in our EPS estimate stem from our growth rate revision for 2021 due to the current macroeconomic challenges, especially as it affects the Company’s cost structure”, WSTC added.

Recalled that Neimeth Plc recently announced plan to raise a N5.00 billion equity capital for the purpose of establishing a new plant in Anambra State.

See Also: Analysts Maintain Sell Rating on Neimeth Stock Despite Rally

The proposition is yet to get shareholders’ approval; hence, analysts did not incorporate the capital raise in the model yet.

“We have a revised fair value estimate a N1.18 for the stock from previous estimate of N1.59”, WSTC said.

At current market price, analysts guided that the stock trades at a 37% premium to fair value estimate. Therefore, WSTC Securities maintains SELL recommendation on the ticker.

NEIMETH Plc: Weak Revenue Performance Halts Momentum