Redstar Express

Selected indices
Current price: N5.43
Shares outstanding: 590 million
Market Capitalization: N3.6 billion
PAT: N196 million
EPS: 33K
PE ratio: 16.45x
Dividend paid: 25K
Dividend yield: 4.6%
Payment date: 29 July 2008
Estimated PAT (2009): N323.4 million
Estimated EPS (2009): 54K
Estimated Dividend (2009): 41K
Estimated Dividend yield: 7.6%
Forward PE: 10.06x
Current Liquidity: low

Analyst opinion
Redstar expess Plc is one of the three companies listed under the Commercial Services Sector of the Nigerian Stock Exchange. I analyzed this company when they released their third quarter results a few months ago. They released their full year results a few weeks ago and I have decided to take another look at the company again to determine if it is still viable for investment.

The results show a turnover figure of N3.098 billion in 2008, as against N2.668 billion in comparable previous year 2007 indicating 16% growth rate; profit before tax of N305.544 million, as against a previous year 2007’s figure of N221.692 million indicating 38% growth; and profit after tax of N195.683 million, as against previous year 2007’s posting of N118.484 million, which shows a 65% growth.

A deep look at this result, and comparing it with the one that was released last quarter, leave a lot of questions unanswered. Why did the profit after tax grow more than the profit before tax? Is it a matter of deferred taxes or was it due to a massive loss (which I have not been able to confirm) they incurred in the last quarter of their financial year? The profit before tax dropped from the third quarter to the last quarter from N308 million to N306 million (0.01% reduction) and the profit after tax dropped from N215 million to N196 million (0.09% reduction). The same trend was also noted in the full year results of the previous financial year, March 2007, when the indices also went down from the third quarter to the last quarter; the profit before tax dropped from N228 million to N222 million (0.03% reduction) and the profit after tax from N160 million to N118 million (26% reduction).

Redstar express seem to be running at a loss in the last quarter of their financial year, a trend that has repeated itself twice over the past two years. What expenses is eating into their books in the last quarter? The interesting thing is that their turnover grew from N2.409 billion to N3.098 billion from the third quarter to the last quarter in 2008 (29% increase) a trend that was also observable in 2007 from N2.075 billion to N2.668 billion (29% increase). So, the company does not have any problems with growing their turnover in the last quarter after all, just the profits.

The assumptions that one can make sense from this issue is that the company may be paying a lot of interest or discarding their debt, which is good for the long term; they may also be incurring a lot of depreciation from their plant, property and equipment; they may be actually investing in some capital projects too, which is also good for the long term. An analysis of their earning before interest, tax, depreciation and amortization (EBITDA) would have cleared all these confusions. I will have to take a look at their annual report, which I am yet to receive before I can have a grasp of the full picture of events, especially from their footnotes and management’s discussions and analysis.

Based on the full year results released and with 590 million shares in issue, Redstar express has a full year earning per share of 33K out of which they have paid 25K as dividends indicating a 76% payout ratio, which is quite healthy, meaning that they are retaining little. This goes a long way to buttress my gut feelings that the company is actually investing a lot, considering my analysis of their income statement. At the current price of N5.43, the price earning multiple comes to 16.45x. Assuming a consistent growth rate of 65% of profit after tax, the projected earning per share will come to 54K and a forward price earning multiple of 10.06x for 2009 financial year.

Using the average values based on the price earnings and dividend yield, the fair value of Redstar express is N8.47, which is likely to grow to N13.98 by 2009.