Associated Bus Company Plc is the only company presently under the Transportation Sector of the NSE but that by no means that they are a monopoly. This company has shown a lot of promise because of the aggressive management team that is behind them. ABC Transport is presently a growth (future) stock because they have a lot of growth potential, which they are presently tapping into. They are presently investing heavily in growth, hence they have a high price earning multiple because they cannot afford to declare too much profit since they have a lot of use for the money they are presently making.
Their 3rd quarter results for the period ended September 2007 showed a reduction in the profit indices. They were able to grow their turnover by 20% from N1.991 billion to N2.39 billion, while profit before tax dropped by 10.19% from N219.057 million to N196.745 million. The profit after tax was also not spared as it also lost 10.19% from N159.912 million to N143.624 million. Based on these results the forward price earning ratio based on 1.507 billion shares will come to 45.77x, which is quite high at the current price of N5.95. This means that the current market price of ABC Transport is on the high side as the fair value is placed at around N3.25. But I expect my linear projections to be overtaken by a more positive results as this company makes more money in December than any other month of the year when people travel a lot.
This company is a future based stock and the price is unlikely to come that low except there is a massive market correction, which fortunately could not even bring it that low as it happened towards the ending of April. ABC is almost through with the establishment of a full subsidiary in Ghana and they presently have plans to expand operations to mass transit trains. There are also rumors that they want to go into the aviation industry, but I do not know how true that is. A singular results by a company like this have the tendency to slash the price earning multiple by half and increase the value suddenly, which is one of the reasons such companies have high valuations, much more than their fair values and is rather difficult to bring down even with profit taking activities because of the confidence a lot of investors have in them to deliver.
There have also been unconfirmed rumors in the market that the company is likely to give bonuses and dividends when they release their full year results for the period ended December 2007. I will not expect them to do that as they still have a lot of room to invest in capacity building since their marginal revenue is still on the high side.
Even though this company has such a high entry price point based on its current financial status but their potentials will make me buy this stock for future purposes because I believe they have what it takes to deliver.