John Holt Plc

JOHN HOLT PLC

Company Overview
JOHNHOLT which began the business of  distribution and exporting produce  in Lagos in 1897 has grown to a conglomerate distributing a wide range of consumer and industrial products such as high capacity generators, air conditioners, fire-fighting equipment, boats, transformers, hybrid generators, gas generators  and pre-paid meters. The company is also engaged in oil and gas, inventory management, construction and non-oil exports.

JOHNHOLT is a subsidiary of John Holt & Co (Liverpool) Ltd, which owns 51.5% of its total outstanding shares. The company was incorporated in Nigeria in August 1961 and its shares were listed on the Nigerian Stock Exchange in 1974. It has two subsidiaries of John Holt Construction Limited and John Holt Oil and Gas Limited.

Chief Christopher Ikechi Ezeh is the chairman of the board of directors while the management team is headed by Dr. Christopher Ezeh, the managing director of  the company.

Investment Thesis
JOHNHOLT has increased gross earnings at a three-year compound annual growth rate of 3.31% while Profit After Tax (PAT) declined by 186.6%. Sale of finished goods which amounted to NGN2.1 billion  increased by 43.9% year-on-year while property rent and warehousing added 5.4% from NGN223 million to NGN235 million within a year. However, revenue from services and repairs lost 34.9% from NGN567 million in 2017 to NGN369 million in 2018. Earnings chart of John Holt Plc

Revenue from direct leasing has shown a downward trend in the past five years; it declined from NGN256 million in 2013 to NGN7 million in 2018. Similarly, sale of spare parts went down 89.7% to NGN4 million from NGN39 million in just a year.

Though earnings growth has been unstable, we believe that the property, warehousing and central business unit is promising. With assets of NGN9.3 billion, this unit accounts for 90.3% of total assets. Despite producing 8.8% of total revenue or NGN235 million in 2018, it was responsible for 31.3% of total gross profit. Gross profit margin is 69.4% unlike 19.5% for the whole company.

JOHNHOLT has been finding it difficult to generate operating profit and cover its interest payment.  Total debt is about NGN5 billion out of which NGN4.7 is owed to its related companies. It has paid down the debt owed to non-related parties from N3.7 billion in 2012 to NGN264 million at 2018 financial year end. Total debt exceeds its shareholders' fund of NGN2.8 billion but trails its total assets of NGN10.3 billion.  Debt service costs, which has been on the decline, has been responsible for the company's inability to grow its net earnings consistently. With total assets in excess of NGN10 billion, we believe there is adequate cover for the creditors of JOHNHOLT. Working capital management has improved. Besides, it enjoys the support of its parent company and its bankers which makes settlement of creditors possible.  Though its operating profit cannot meet debt obligation, JOHNHOLT in our opinion does not have long term solvency problem.Graph of returns of John Holt Plc

Though JOHNHOLT trades below our estimated fair value, we would like to maintain a hold recommendation. We would like to keep a watch on the company's effort at turning around the business.

Valuation
We have valued JOHNHOLT and arrived at an estimate ranging from NGN4.6 to NGN5.3 per share. At the current price of NGN0.52, a share of the company is trading at a hefty discount to our estimated value. Its Earnings Power Value (EPV) is NGN4.1. It should generate an expected return of 156.4%.

Financial Overview
Revenue expanded from NGN2.3 billion to NGN2.7 billion gaining 16.9% year-on-year. This was largely driven by 29.1% growth in the sale and leasing of technical products such as generators, Holt Star air conditioners and fire-fighting equipment. This segment, on the average, accounts for 76% of revenue and 10.2% of total assets.

Gross profit margin decreased from 27.4% to 19.5% owing to a rise in cost of sales to turnover ratio by 7.9%. JOHNHOLT had an operating loss of NGN4.4 billion in 2018 compared to an operating profit of NGN7 million of 2017. Despite the operating loss, the company had a Profit Before Tax (PBT) of NGN160 million compared to NGN223 million Loss Before Tax (LBT) of the prior year. This is attributable to NGN4.3 billion debts waved by its subsidiary companies recognised as other operating income. Consequently, total comprehensive income moved up to NGN182 million from -NGN657 million of the year before.

Return on Equity (RoE) of 6.5% and Return on Assets (RoA) of 1.8% represent an improvement on the negative returns of the previous year. Current ratio and acid test ratio were more or less 1.7 and 1.6 times respectively. Though loans and borrowings jumped to NGN264 million from NGN86 million, they accounted for 9.4% of shareholders' fund. However, NGN4.7 billion is owed to its parent company, John Holt & Company (Liverpool) Ltd. This makes the company highly indebted. Both operating profit  and operating cash flow could not cover its debt obligation in the period under review.

Business Risk
The company faces stiff competition from cheap imports which makes earnings vulnerable. In addition, high cost of sales is harmful to gross profit margin. Exchange rate fluctuations can also wipe out its profits as it imports products and components from abroad.

Recommendation: Hold

Vital Statistics of John Holt Plc