Vitafoam

Vitafoam is one of the companies under the Industrial and Domestic Products Sector. They are into the production of foam and mattresses and have just introduced a composite panel for the construction of poultry houses, called Vita Span, into the market. This company is affiliated to Vita Plc, UK.

It released its half year results for the period ending March 2008 on the floor of the Nigerian Stock Exchange recently. It was able to grow its turnover by 44.41% from N2.844 billion to N4.107 billion and then its profit before tax grew by 43.93% from N304.492 million to N438.254 million. The after tax profits also rose by 43.93% from N207.055 million to N298.013 million. This means that the company has not been able to manage their costs effectively as there has been no significant change in the operational margin ratio. The profit before tax has grown at the same rate as the turnover; they may run into problems if there is a sudden drop in turnover, which is quite possible as there are many importers of foam in the country, which are cheaper because of the high cost of production here. The only cheery news is that they have been able to grow their turnover at a steady rate of 47% per quarter for the past five quarters.

Based on this result, Vitafoam has an earning per share of 36K with 72K as a projected year end figure. This means that the forward price earning multiple at the current price of N10.32 is 14.33 with its fair price placed at N15.84. This means that Vitafoam is currently selling at a discount of 53%.

I just hope they find a way to manage their costs more effectively so that it will not impact negatively their profit margins. If they do, this company will become an investor delight overnight.