By Emeka Anaeto, Business Editor
INVESTORS appear to have set off speculated positioning on the stock of Seven-Up Bottling Company Plc (7UP), against the acquisition offer price. Last weekend the stock price moved up almost 5 percent on 141,000 trade volume on a single day trade to close at N101.97, leaving just 11.05 percent premium for any new buyer who may be holding the shares to sell off under the acquisition scheme.
Market observers believe the recent announcement by the majority shareholder of the company, Affelka S.A., to acquire 171,542,574 ordinary shares of 50.00 kobo each, representing 26.78 percent of the company’s total share outstanding of 640,590,363 ordinary shares is the key driver of the last weekend’s price appreciation.
Affelka S.A is offering N112.70 per share for the outstanding shares and this consideration represents a premium of 16.04 percent on the last traded share price of N97.12 of the company on December 7, 2017.
The initial response of the market to this development was indifference as the stock recorded zero trade and price movement since the announcement previous week.
Share price appreciation
But not a few observers expected that there will be some bids which may lead to share price appreciation as traders/investors take position on the premium attached to the acquisition price. A court ordered meeting of the general shareholders has already been scheduled for January 11, 2018 to legitimise the acquisition and the scheme of arrangement.
At the backdrop of the lack-lustre performance of 7UP so far in the recent full and interim results, investment analysts at Afrinvest West Africa Limited, a Lagos based investment house has given a basic outline that advises investors to off-load their shares.
Following the planned acquisition of the ordinary shares, minority investors are faced with the decision to either ‘SELL’ or ‘HOLD’. But then a few investors are buying.
On this decision the analysts at Afrinvest stated: “On the consideration of the options, our overall analysis favours a ‘SELL’ decision premised on the following factors:
“In the event that the shares of minority shareholders are being bought over, investors who decide to ‘HOLD’ would be faced with illiquidity challenge associated with the stock. As such, prices of the stock will remain rather unreflective of fair market pricing, thereby indicating an increasing likelihood of a substantial loss in value of investments.
“The share price of 7UP has suffered negative investor sentiment on the back of disappointing performance scorecards with a Year-to-Date, YtD, loss of 32.8 percent, underperforming that of the Consumer Goods Index (+37.1%) and benchmark index (+47.1%) as at (07/12/2017).
“More so, despite investor’s negative sentiment for the stock our outlook for full year, FY:2017 performance remains rather bleak given the Company’s high leverage and cost inefficiency.”
Moreover, Afrinvest analysts believe that the acquisition price premium is good enough for the investors to cash out now, rather than get stuck in an uncertain future.
They stated: “Despite the underwhelming performance so far in the year, the offer price of N112.70 presents an attractive opportunity for investors to recoup losses which have weighed on portfolio and invest in more liquid and fundamentally driven stocks to boost overall portfolio performance. Hence, on the consideration of the downside risks of a ‘HOLD’ we advise a ‘SELL’ recommendation on 7UP.”
Beyond the issue of pricing, the move by the majority shareholder of the Company’s shares outstanding to completely buyout minority shares most observers see the outcome as exit of 7UP from the Nigerian Stock Exchange, NSE, sooner than later. Consequently, any shareholder opting to remain in the company’s equity would likely be stuck with unsellable investment afterwards.
The analysts at Afrinvest stated: “While the planned purchase is still subject to approval by the shareholders at a Court-Ordered meeting, the Company has received a “No Objection” from the Securities and Exchange Commission (SEC).
“Given the recent weak financial performance, historical illiquidity characterizing 7UP as a stock – which will possibly worsen post-acquisition – and the premium offered by Affelka relative to the current market price, we recommend investors tender their shares for the price consideration.”
Weak financial performance
In its latest FY:2017 financial results, 7UP’s performance deteriorated on the back of rising direct and indirect cost profiles as well as finance charges despite growing revenue.
The Company recorded a N108.3 billion expansion in revenue but ended with a loss after tax of N10.8 billion. Revenue rose 26.5 percent year-on-year, YoY (from N85.6 billion in FY:2016 to N108.3 billion in FY:2017).
Performance remained primarily supported by local sales (up 26.3 percent YoY to N108. billion) despite remarkable growth in exports to neighbouring countries (up 1430.7 percent YoY to N274.0 million). Nevertheless, faster growth in Cost of Sales (up 57.4 percent to N95.3 billion) muted the growth in top line despite marginal support from Other Income (up 34.5 percent YoY to N427.0 million).
Sustained high net finance costs (up 25.0 percent YoY to N4.0 billion) hauled profitability, receding from a profit after tax of N3.3 billion in FY:2016 to a loss after tax of N10.8 billion in FY:2017.
Similarly, in its first half, H1:2018, interim report, 7UP recorded a loss after tax of N3.8 billion. Revenue for the period rose 5.4 percent YoY to N21.5 billion while cost of sales stayed flattish at N18.2 billion, albeit taking up 84.0 percent of revenue.
Likewise, net finance costs continued the uptrend, surging 96.9 percent YoY to N1.9 billion thereby bringing the company to a loss after tax of N3.8 billion. 7UP’s performance has remained underwhelming in recent time especially in terms of cost efficiency and finance cost. This, the analysts said, will continue to put pressure on share price performance; hence, compounding the illiquidity typical of the stock on the exchange.
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