Fidson Healthcare Plc: Huge profitability growth to boost shareholders confidence

from N1.36 billion which was recorded in the same period of 2016.

Fidson Healthcare Plc is a leading pharmaceutical manufacturing company in Nigeria founded in 1995. Fidson have relentlessly pursued the goal of becoming a leading player in the pharmaceutical landscape in Nigeria. It has crafted the pharmaceutical architecture of the industry over the years of our existence, playing very defining roles in the emergence of the new generation of industry players. Fidson’s long standing certification as an NIS:ISO 9001:2008 is a good evidence of its high standards of processing and operations. The completion of a brand new WHO compliant ultra-modern manufacturing plant, which is arguably the largest pharmaceutical manufacturing facility in Africa will enhance production of Fidson Healthcare Plc 6 distinct product lines (intravenous infusions and other sterile preparations, tablets, capsules, oral liquids, creams & ointments and dry powder).

INCREASE IN REVENUE AS HOUSEHOLD CONSUMPTION CLIMBS

Fidson has constantly faced stiff competition from cheap imported healthcare and consumer goods from China and India besides local competition. This is in addition to reduction in sales witnessed in the North Eastern part of the country earlier in the year. However, half year 2017 financial results of Fidson Healthcare Plc which was recently released shows an outstanding 155.34% improvement in revenue to N6.67 billion from N2.61 billion in June 2016. The increase in top-line earnings was triggered by the increased spending by households as the domestic economy stabilises. The Central Bank of Nigeria policy towards efficient foreign exchange management is yielding result which has increased investors’ and consumers’ confidence. Also, the Fidson Healthcare Plc will continue to experience notable growth in revenue as it strengthens the manufacturing of its six distinct pharmaceutical products - intravenous infusions and other sterile preparations, tablets, capsules, oral liquids, creams & ointments and dry powder – with the introduction a brand new WHO compliant ultra-modern manufacturing plant in June 2016, arguably the largest in Africa. This we believe will immensely contribute to the nation’s medicine needs and extend opportunities for exportation. Cost of sales in June 2017 also followed suit with a massive 158.60% to N3.25 billion from N1.26 billion year on year. Hence, an extraordinary 152.32% was recorded in gross profit to N3.42 billion

PROFITABILITY NOT MARRED BY INCREASED EXPENSES

Other operating income declined to N7.38m in June 2017, indicating a decrease of 12.42% when compared with June 2016 figure of N8.43m. Another huge part of operating income is the drop of 69.98% in other operating expense to N8.45m billion from N28.13m over the period under review. Hence, Fidson’s profitability is enhanced by effective management and therefore absorbs administrative expenses and distribution expenses which grew by 60.30% to N1.13 billion from N704m in June 2016 and by 337.07% to N1.20 billion from N274m in June 2016 respectively. Consequently, operating profit for the half-year ended 2017 reported a massive rise of 205.54% from N1.09 billion from N358m year on year.

MASSIVE GROWTH IN PROFITABILTY

Pre-tax profit stood at N685.39m indicating an enormous growth of 1077.47% from N58.21m in the corresponding period 2016. The Company’s finance income and cost grew by 42.16% and 100% to N425m and 18m for the half year ended, June 2017 respectively. Expectedly, net income grew to tenfold its June 2016 figure to N466m from N39.6m in the preceding corresponding period, indicating a growth of 1077.47%. Income tax expense also grew massively by 1077.46% to N219m for the half-year ended, June 2017 from N18m recorded in June 2016.

KEY FINANCIAL METRICS REFLECTS PERFORMANCE FIGURES

Total assets rose by 1.82% to N16.97 billion as at half-year ended, 30th June 2017 from N16.67 billion as at December 2016. The growth was driven by substantial increase in inventories and trade receivables which grew by 49.82% to N1.63 billion and 4.53% to N2.53 billion respectively. Total liabilities decreased marginally by 0.87% to N9.99 billion from N10.07 billion as at 30th December 2016. Shareholders’ equity increased on the back of retained earnings by a modest figure of 5.93% in the period under review to N6.98 billion from N6.59 billion recorded in December 2016. Profitability ratio strengthens significantly. Return on asset (ROA) and return on equity (ROE) reflects bottom-line earnings as each grew to 2.75% from 1.90% and 6.67% from 4.80% respectively as at half year ended, 30th June 2016. Fidson’s quick ratio currently stands at 0.66 compared to 0.60 as at December 2016. Furthermore, price to sales (P/S) positions at 0.68 while price book value (P/BV) at 0.64.

WE PLACE A BUY RECOMMENDATION

The performance of Fidson for half year 2017 has been impressive due to increased consumption spending and foreign exchange gains which reflected in both Company’s revenue and profitability. Fidson still enjoys significant patronage across its product brands and Nigerian economy is an attractive market for consumable goods, largely supported by the growing population size of over 180.1 million people. With the introduction of ultra-modern manufacturing plant, we hold strong opinion that Fidson Healthcare Plc has an opportunity to deliver high level of product innovations, operational excellence and create an opportunity to deepen its market which would significantly boost performance beyond current results. However, the Company’s management must review and action sound strategic plan towards improving revenue and effectively manage its expenses to positively impact further earnings and shareholders return. Considering the foregoing with respect to intense of and other macroeconomic factors, we have valued the Fidson’s share using a combined valuation methods of book value, and adjusted price to sales (P/S) which resulted in a 6-month target price of N4.00 per share. Since this represents an upside potential of 11.24% on the current stock price, we place BUY recommendation on the Company’s shares.

WITH THE INTRODUCTION OF ULTRA-MODERN MANUFACTURING PLANT, WE HOLD STRONG OPINION THAT FIDSON HEALTHCARE PLC HAS AN OPPORTUNITY TO DELIVER HIGH LEVEL OF PRODUCT INNOVATIONS, OPERATIONAL EXCELLENCE AND CREATE AN OPPORTUNITY TO DEEPEN ITS MARKET WHICH WOULD SIGNIFICANTLY BOOST PERFORMANCE BEYOND CURRENT RESULTS. HOWEVER, THE COMPANY’S MANAGEMENT MUST REVIEW AND ACTION SOUND STRATEGIC PLAN TOWARDS IMPROVING REVENUE AND EFFECTIVELY MANAGE ITS EXPENSES TO POSITIVELY IMPACT FURTHER EARNINGS AND SHAREHOLDERS RETURN