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What to expect from CAP's full year result - THE CITIZEN

By The Citizen

Chemical and Allied Products [CAP] Plc is consistently generous in compensating shareholders. It is expected to raise dividend per share for 2012 operations with the likely strong recovery in earnings per share in the year. Dividend pay-out ratio is one of the highest in the entire stock market and the company is one of the few that pay interim dividends.

In 2010, the CAP's N3.0 dividend per share represented more than 95% of its earnings per share. In 2011, it paid a dividend of N1.60 per share, which was 88.9% of earnings per share. Based on the pay-out ratio in 2011, the company is expected to pay about N2.25 in cash dividend from its 2012 operations.

A greater part of the dividend expectation for 2012 has been paid at the end of the third quarter when the company declared an interim dividend of N1.25 per share. Investors can therefore expect another N1.0 or a little more as final dividend when the full year result is announced in the coming weeks.

CAP is a slow but stable company on the earnings track and seems to have a perfect technique of keeping expense lines at comfortable proportions of revenue. In this way the company has so far succeeded in securing the interest of shareholders in maximising profit on a consistent basis.

Profit growth has stabilised over the past three years after a two-year drop in 2008 and 2009, which followed the end of a stream of extra-ordinary incomes. After tax profit is expected to grow for the third year running in 2012 and come to an estimated new peak of N1.4 billion. Earnings per share is however expected to remain well below previous highs, which means that dividend isn't also expected to come close to previous top records.

The company's reduced dividend per share is a reflection of the doubling of its volume of shares to 560 million in 2011 following a bonus of one for one made at the end of 2010. Fiscal 2012 is therefore the first year of rebuilding earnings per share after the bonus issue-induced drop in 2011. Based on the growth rate in the third quarter, the company is expected to raise earnings per share from N1.80 in 2011 to N2.50 in 2012.

The strength of the good company's profit performance expected from 2012 operations are growing revenue and improving ability to convert the earnings into profit. The company grew revenue by 29.1% to N3.83 billion at the end of the third quarter and improved net profit margin from 20.5% to 23% over the same period. That enabled the company to grow after tax profit ahead of revenue at 45% during the period.

The company appears to be in firm control of its costs as if the costs are strictly measured to fit into pre-determined proportions of revenue from year to year. For instance in 2011, cost of sales claimed 52.3% of sales revenue, just a slip from 52.6% in the preceding year. Administrative expenses accounted for 15.1% of turnover in 2011, also a slight decline from 15.8% in 2010.

The ability to achieve a stable cost profile in an unstable operating environment speaks highly of able corporate leadership. Building value for shareholders seems to follow a clearly spelt out step by step process in the company's operations. Its mission is to grow the top-line by 20% annually and pre-tax profit by 28%.

The company's balance sheet is entirely free of debts, which is presently a burden to many companies in the present high interest rates situation. This has helped the company to improve profit margin in an otherwise tight market where it operates. Improving profit margin is supported by high asset turnover at 1.5% in 2011, indicating that rates of return are likely to keep improving.

CAP's net profit margin of 23% in the third quarter interim report compares with Berger Paint's 6.2% during the same period. About five years ago, the company's annual sales revenue was below that of Berger Paints.

By third the quarter interim reports, CAP's sales revenue was almost twice Berger Paint's at N3.83 billion and N1.94 billion respectively. According to the company's officials, product innovation is the company's key strategy in growing market share.

CAP Share Price Track 2/1/2013 - 15/3/2013