C&I Leasing
Computer and Industrial Leasing is a company that has generated a lot of wealth for investors over the past 12 months in terms of capital appreciation. It is a company that has also paid dividends consistently over the past three years, which is probably one of the reasons the price has been astronomical in the past few months since its year end was in January 31, 2007. Investors are presently awaiting its full year results, which is said to be with auditors at the moment.
I have had it in my portfolio for a while and was warming up to sell it off but circumstances have overtaken my decision. News coming from the stable of C&I Leasing says that they are billed to hold an Extra Ordinary General Meeting (EGM) on April 29, where they want to seek shareholders’ approval to increase authorized share capital from N1bn to N1.5bn. The increase will create additional units of 1bn ordinary shares of 50kobo each. That means that the company will soon announce plans to raise fresh equity capital after creating the new shares. After creating the new shares, the number will increase from 2 billion to 3 billion.
The financial analysis of the company revealed that in their 3rd quarter results released on the floor of the NSE for October 2007 showed that they grew their profit after tax by 228% within a year from N85 million to N279 million. That means they were able to make good use of the money they raised from the market in June 2006 when they increased their shares by 1.4 billion. Their current ratio increased from 0.68 to 1.7 while their quick ratio rose from 0.67 to 1.69. That simply means that if they have to pay off their liabilities at once for some extraneous reasons, they will still be in business. At the current market price of N14.35 the projected full year PE is 77, which is quite high.
My interpretation of C&I Leasing financials is that it is a growth stock and that they have discovered that their marginal revenue is still high but not as high as it was when they first came to the market in 2006 considering the number of shares they want to issue this time around; just 1 billion compared to the initial 1.4 billion. Despite their incursion into the West African sub-region and acquiring the license as the only Suzuki franchise in Nigeria for their auto brands, they still have room for expansion and know they still have the capacity to make more money and diminishing returns have not set in on their financial capital. Despite the massive increase in number of shares in 2006 by 233%, the return on equity was stable at 0.28 based on the 3rd quarter results, which means that they are yet to finish tapping into their capacity for increased production.
Well, I guess I will have to forgo the opportunity cost of purchasing Oceanic bank and stick to C&I Leasing for now. That does not mean that Oceanic bank is not a good or even a better buy given the high PE ratio of C&I Leasing but one cannot but keep their fingers crossed and wait for the pre-technical suspension price increase that happens to stocks on the NSE. I believe that it will also be buoyed by the fact that their full year result is going to be a superb one going by the quarterly results they have released thus far. I believe this is a good time for me to increase my stake in C&I Leasing.