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African Paints is on life-support, extends loss with negative Net Assets in Q3�

Category: Public Offers Private Placements

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African Paints is on life-support, extends loss with negative Net Assets in Q3�

Monday, March 25, 2013/ Proshare Research


African Paints Nigeria Plc reported an unimpressive Q3'12 performance, closing the year with another loss of N19.92million for the period ended 30th September 2012, extending losses as its net assets plunged into the red zone.


Though, the posture appears improved when compared with the loss of N36.13million recorded in the previous year’s comparable period.


The company's bottom-line appears however to be heading out of the woods when compared with the N49.24million loss recorded in its 2011 audited reports, signifying an improvement of 60.00% within a nine (9) months period.


Yet, this does not provide the hope needed by investors as profit margins  stand at -98.40%, while the company appears to be losing market share considerably with a significant plunge of -49.0% (YoY) in its turnover results; to close at N20.24million as against N39.72million recorded in the previous year.


Further analysis revealed a steep decline of -65.51% in top-line performance when compared with its 2011 audited position.


This unimpressive top-line position could not be isolated from the sustained negative working capital in addition to a significant plunge in its inventory - a pointer to an illiquid state in the face of continued borrowings which has depressed the company’s' net assets into the negative zone, putting ROE at -1147.75%. 


Also, the debt-to-equity ratio of -19394.93% is scary as this shows the company is not too far from insolvent.  This situation may require some type of life-support machine in the face of consequential negative net asset worth.


This might indicate the basis for the proposed right-issue by the company wherein the it posits to issue rights of 130,000,000 ordinary shares of 50k each at N1.25kobo per share.


Looking at the price trend, the stock recorded an unimpressive price appreciation of +5.15% in the last 52-weeks while it traded flat at N2.86kobo in the last one year.


In the current year thus far, the stock remained flat as against impressive performances recorded by its peers, as the sub-sector average returns stood at +26.02%.


Analyst Opinion

The negative position of current assets of the company with and attendant significant plunge in its inventory and net assets gives strong credence to the need for a rights issue/offer in order to inject life into the company, if successful.


We are of the opinion that the over-leveraged posture of the company may continue to hamper the potential of the company if this does not come along with a restructuring plan, considering the market potential of the industry.


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