Meyer Plc


Ticker:                            MEYERNature of Business:    Building MaterialsLocation :                              Nigeria
Recent Price:           NGN0.50      52-Week High/Low: NGN0.60/0.50Estimated Fair Value:      NGN1.60-NGN2.10
Expected Return:      87.1%Consider Buy:                   Below NGN1.60Business Risk:            Average
Financial Risk:          AverageEconomic Moat:              WeakCorporate Governance: Average

Company Overview
Meyer Plc (MEYER) was founded on 20th May 1960. It went public in 1979 and was quoted on the Nigerian Stock Exchange in the same year. The company was renamed DN Meyer Plc following the acquisition of 68% shareholding by Dunlop Nigeria Plc (Dunlop) in 1994. Dunlop later disposed off its stake in MEYER. The shareholders approved a change of name from DN Meyer Plc to Meyer Plc in 2016. MEYER  manufactures and distributes flooring products, adhesives, decorative paints, wood finishes, auto refinishes, marine, industrial and heavy protective coatings.

Greenwich Trust Group possesses 35.7% of the outstanding shares of MEYER through Greenwich Trust Nominees Limited (30.8%) and Greenwich Asset Management Limited (4.9%). Bosworth Investments & Service Limited controls 25.9%. DNM Construction Limited, its subsidiary, is engaged in building and construction.

Mr. Kayode Falowo is the chairman of the board of directors. Mr. Devashish Nath was nominated managing director on 1st February 2019. Mr. Nath has considerable experience which he acquired working in the paint industry in India.

Investment Thesis
The primary business activity of MEYER is the production and sale of paints. Its paints are in three categories namely, decorative, auto and wood, industrial and marine. The decorative, and industrial and marine categories produced 94.5% of paint sales in 2019 compared to 93.8% in 2018. While paint sales have grown by 0.1% over the past three years, painting services have increased at a three-year compound annual growth rate of 8.1%. Gross profit margin from painting services hovers around 34.6% despite producing about 6% of total revenue. The paint sales business segment, which accounts for around 93.4% of total revenue, has a gross profit margin of approximately 37.6%. We believe that rendering painting services could help diversify the earnings of MEYER. The making of adhesives and floor tiles is another way of broadening the company’s product portfolio. We expect the management to intensify efforts to grow these avenues of widening its sources of revenue.

MEYER has reduced its indebtedness. Besides, management embarked on product and market development in order to improve brand awareness and brand preference. Investment in capital is expected to boost capacity. The company made an investment in capital to the tune of NGN254.4 million at the end of the 2019 financial year.  And at the end of the 3rd quarter of 2020, capital investment stood at NGN101.4 million. However, the company has been declaring operating losses for the past few years. Cost containment will improve profits and margins going forward.

Though the shares of MEYER are trading below our fair value estimate, we would recommend a hold. The management is making an attempt to revamp the company. We will have to see how things pan out.

A share of MEYER, based on our valuation, ranges from NGN1.60 to NGN2.10. Presently, MEYER trades between 23.8% and 31.3% of its fair value. This is an attractive discount for investors. In addition, the estimated return on a share of the company is 87.1%.

Financial Overview
Revenue gained 14% from NGN970.1 million to NGN1.1 billion between 2018 and 2019.  The sale of paints is responsible for 13.4% of the revenue gain while painting services accounted for the remaining 0.6%. The sale of paints grew by 14.2% as against 10.1% drop of the previous year. Painting services increased by11.6% as against -31.2% of a year before. The major driver of growth in the sale of paints is the decorative paint category.  Decorative paints generated revenue of NGN783.4 million, up by 15.5% from NGN678.5 million recorded a year earlier. In addition, it accounted for 74.8% of the total revenue from paint sales in 2019 (2018:73.9%). The industrial and marine paints category is next, contributing 19.7% of paint sales (2018: 19.9%). Auto and wood category only produced 5.5% of paint sales (2018: 6.2%).  Revenue from the sale of industrial and marine paints leaped by 12.8% while sales from auto and wood added only 2.8%.

Sales increases led to an increase in the cost of sales by NGN123.7 million or 21.2% year-on-year. Cost of sales to turnover rose from 60.3% to 64%. Consequently, the gross profit margin shrank by 3.8% in spite of a 3.2% rise in gross profit to NGN397.9 million in 2019. Operating loss of –NGN133.4 million amounted to a negative operating profit margin (-12.1%). Loss Before Tax was NGN7.2 million, unlike in the previous year when Profit Before Tax (PBT) was NGN182.3 million due to other income of NGN364.2 million. Loss After Tax (LAT) for the current period is NGN13.6 million.

MEYER has paid down its debt; the total debt was NGN1.8 million in 2019 compared with NGN345 million of the earlier year.  Total debt is now 0.3% of shareholders’ fund in contrast to the previous year when it was 52% of shareholders’ fund. Working capital has been negative in the past seven years. Operating profit has not covered interest payments. The company will shore up its capital after the conclusion of the sale of its head office building.

Business Risk
Competitive pressures and costs are pulling down profits and margins. A sluggish economy that reduces the purchasing power of consumers and construction activities will hurt sales revenue and profits of MEYER.

Recommendation: Hold

Earnings Chart of Meyer Plc

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