How To Pick Great Nigerian Stocks To Buy Using Quarterly Result – Learn How To Spot Stocks That Will Rise Faster Than Its Peers And Trade For Profit.
A lot of investors make the mistake of using a company’s annual financial statement to analyse performance and possibly know whether the company’s equities is profitable to invest in or not. For me, I feel it’s a complete waste of time; the annual report of a company isn’t the best tool you need to pick the best stocks to buy as a short-medium term trader, even though, it contains a summary of the financial performance, what you actually need is the quarterly results.
The quarterly result is an interim report that contains the profit or loss, statement of financial position and cash flow statement of a company in the last 3 months, it’s fresh and new; you can actually rely more on it to forecast the growth pattern of your potential stock. A company’s annual report, on the other hand, lets you analyse past performance in the last one year.
Do you really think that waiting for a whole year to pass before analysing the company you invested is the best strategy to be on top of your stock investing game? Not all, you to constantly monitor current trends as it happens real-time which is only available in the company’s quarterly result. Besides, since, the aggregation of the four (4) quarterly results makes an annual report, isn’t it wiser to always track financial result on a quarter by quarter basis?
A company that will do well in a particular year would have posted series of impressive results on its quarterly statement. As a smart short-term trader, your focus should always be on how the company had performed in the latest quarter relative to the same comparable period in the previous year.
Key points to note:
- When you analyze the first quarter result of a stock, make sure the previous annual results are better than the preceding year.
- IWhen you analyze the second quarter result of a stock, make sure the first quarter result is better than the comparable quarter in the previous year (by at least 25%).
- When you analyze the third quarter result, make sure the half-year result beats the company’s previous half-year result.
Why you should follow the quarterly result:
Take a look at the financial results of companies that performed well on a year-to-year basis in the Nigerian stock market, you will notice that before the massive jump in their share price, their quarterly sales, and profit figures were already rising faster than expected. Stocks like Dangote Sugar, Nestle, Zenith, UBA, GTB, among other top stocks reported impressive double-digit growth in their quarterly report prior to the impressive run in 2017 and if you are to spot the same opportunity today, you must focus on companies that are growing by double-digit figures too.
In this guide, I will be sharing one stock that is currently showing a double-digit run so far and analyze the performance using their recent Q1, 2018 result. The stock is Transcorp Nigeria Plc.
I have already discussed the annual performance of this stock, check it out here
Transcorp Plc Q1, 2018
- Revenue for Q1, 2018 was N26.3 billion against N15.7 reported in Q1, 2017 (67% growth). The key drivers are room sales, food and beverage, energy segment of the conglomerate.
- Cost of sales ratio declined from 56% in Q1, 2017 to 54% in Q1, 2018 while gross profit margin increased from 43.9% to N45% in the same period.
- Interest cover remains strong at 3.5 times (from 1.82) – the company can finance its interest expenses from operating profit.
- Profit before tax rose by 242%; from N1.7bn to N5.9bn while profit after tax expanded significantly, up from N1.4bn to N5.4bn, representing 285%.
- Net profit margin also from 8.9% to a double-digit figure of 20.5%
- Transcorp plc EPS figure for Q1, 2018 is up by 510%, 5.5k vs 0.91k. The company reported a half-year EPS of 3.87k in 2017 which is less than Q1, 2018 figure. By the third quarter, Transcorp should surpass its 2017 full year EPS. No doubt, shareholders are in for a bumper harvest this year if the company maintains this growth level for the rest of the year.
- Return on equity stands at 5.3%, against 1.4% in Q1, 2017 while debt to equity declined from 88.9% to 81.9% which implies that the company is reducing its debt and earning more with shareholders’ fund.
- Although the liquidity position isn’t impressive, there seems to be a significant improvement compared to last quarter (Q1, 2017) and I hope the company finds a way to lower their short-term borrowings.
- Transcorp PE ratio stands at 16X, an indicator that investors are currently betting on the future potential of the company. Can this stock meet up to expectation? Watch the EPS growth, Transcorp reported an EPS figure of 11.7k, which is 631% higher than the 2.2k loss in 2016. The current Q1, 2018 is 510% higher than Q1, 2017 EPS, and had already covered the half-year EPS in 2017. Transcorp, no doubt, is fundamentally strong and can meet up considering the higher revenue figure from room/food and beverages as the company’s hotel in Abuja is believed to enjoy much patronage from top politicians as 2019 election draws near.
- The stock is up by 10% YTD, still outperferming the NSE index.
When you compare quarterly result like this, I bet you, spotting great stocks won’t be a challenge again because you will quickly know which company is growing at a double-digit rate ( of at least 25%), a clear sign that dividend payout is sure and since investors love fast-growing dividend income stocks like this, it is natural for demand to drive the share price upward.
On a final note, do your homework, check out the quarterly results of stocks that were ranked top performers in 2017, you will notice that they posted double-digit growth in their 2 or 3 quarterly earnings before their share price moved up.
My rule of thumb is this:
- Sales/Revenue should be up by at least 10-15% Q on Q.
- The cost of sales/revenue should also be stable or in a fall.
- Profit before and after tax should also be up by at least 15-20% on Q on Q.
- EPS should be up by at least 25% Q on Q to beat the previous years’ annual EPS.
I hope you found this guide useful?
I just Reviewed this Transcorp PLC stock you used in your example and the very first thing I always check is their debt/equity ratio and based on their most recent Q1 balance sheet it stands at 1.0 which is high, any vigilant company should maintain 0.50 or less. As they make profits it goes into settling debts. Needless to say I stopped the review and won’t be buying into this company.
Hi Tochi, thank you for sharing important and useful tips, Debt to Equity, no doubt, is key but at times, it’s not best analyzed on a single-year basis, a trend analysis will help understand better, is the company debt to equity increasing or reducing? a company with debt to equity of 0.1 could post a d/e of 0.5 in the following quarters while that of another could reduce from 1 to 0.2.
But your point is valid.
Thanks… That makes sense, I’ll go back to check the trend.