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As of this writing, May and Baker’s year to date and one year return are -4.35% and 13.85% respectively. The stock’s sell-off started in 2016 after it reported a loss after tax. May and Baker’s raw materials are imported, and as such availability of forex is a key driver to the company’s bottom line; higher exchange rates lead to increased cost of sales while a lower rate is favourable.
It paid a dividend of ₦0.20 to shareholders on June 6, 2018. The dividend yield on the payment date was 7.87%
Its current share price is ₦2.49 while 52-weeks high is ₦3.42
Recent Result
Results for the half year ended June 2018 show that revenue grew from ₦4.4 billion in 2017 to ₦4.6 billion in 2018 while the cost of sales improved to ₦3billion (from ₦3.1billion).
Profit before tax jumped from ₦139million in 2017 to ₦388.9 million in 2018. Profit after tax followed suit; from ₦94 million in 2017 to ₦264.4 million in 2018. From the result, Sales increased marginally by 4.5%. On each Naira sales, cost ratio declined from 70.7% to 65%.
Gross profit margin improved from 29% in 2017 to 34% in 2018.
Debt to Equity, a measure of financial leverage, improved from 1.43 in 2017 to 0.91 in 2018. Thanks to the significant jump in retained earnings.
Technical Analysis
The above-average increase in volume shares traded last week, September 3, 2018, to September 7, 2018 (from 114,000 to 1,138,000) was an indication of fresh buying interest on May and Baker stock.
Technically, May and Baker stock’s price is above its 20-day but below 50-day moving the average price of ₦2.68. A break above the 50-day average price may set the stock up for a fresh bullish run as the relative strength index, a measure of momentum, is already at 49.
Crosses above 50, from 30, means that investors are bullish on a stock while a fall below 50 indicates a sell-off.
The long-term sentiment is clearly bullish as the price is well above the 200-day moving average of ₦1.73
Valuation
May and Baker reported a 2018 half year EPS of 26.98k, compared to 9k in 2017, a 199% increase. This is not just an impressive growth but already covers 71% of 2017 full year’s EPS of 38k.
Using a discount rate of 14%, an assumed zero growth and a TTM EPS of 50k, we assign a fair value of ₦3.57 to the stock, which is 43% above the current share price and in a close range with its 52-weeks high.
Market update
The company is seeking additional equity capital of ₦3billion via right issues to finance expansion to more Africa countries. An application to issue 980million ordinary shares at an offer price of ₦2.50 has been filed with the NSE.
Recommendation
We assign a BUY rating on May and Baker at the current price with a target price of ₦3.5.
About May and Baker Plc
May & Baker Nigeria Plc manufactures and distributes pharmaceutical products, such as vaccines, antibiotics, and sera. The Company also sells diagnostics, medical equipment and bottled water in Nigeria.
