FY14 Results
BVN released its results for the year ended 30 June 2014. The firm posted reasonable results in light of the difficulties the fishing division finds itself in. EPS fell 10.6% to 129.6cps and HEPS decreased 10.4% to 129.5cps.
Costs almost sunk the ship
While BVN managed to grow revenues by 10.4% y/y to N$3.7bn, mainly attributed to the commercial businesses, cost of sales grew at 13.8% and operating costs by 36.9% to N$385.3m from the N$281.4m reported for FY13. The main reason for the witnessed cost increase was a sizable increase inquota rentals fees, following a reduction in direct quota allocation to BVN from the Ministry. Trading profit shrunk by 16.7% y/y to total N$501.3m. As usual, the fishing division supplied the largest chunk of trading profit, coming in at N$407.1m or 81%. This figure is 23.0% lower than the N$528.5m seen in FY13, despite the division’s individual revenue increasing by 4.6% y/y, reflecting depressed margins.
Price pressure
Price regulations in the Democratic Republic of Congo, coupled with artificially reduced demand from Nigeria following import restrictions, resulted in an oversupply in the company’s traditional markets, leading to a 18.6% decline in average realised selling price in US$ for horse mackerel. The weaker Namibian Dollar offset the lower US Dollar price effect on revenue, but also had a significant impact on costs. The weaker N$ is expected to remain the silver lining for this division, amidst cloudy conditions that prevail.
Uncertain outlook for Bidfish
The outlook for the fishing division remains challenging according to company management with uncertainties surrounding quota allocations. Additionally, we foresee the market price for horse-mackerel remaining depressed over the next year, as supply continues to outstrip satiable demand. The urgent application by Namsov against the Ministry of Fisheries and Marine Resources as well as the Government over reductions in fishing quotas will be heard in the High Court on 9 October 2014, and the outcome of this courts decision will have a significant impact on the performance of the fishing division, especially in the first half of the 2015 financial year.
Valuation and Recommendation
The stock is currently trading on a FY16 yield of 4.68% based on full year dividends of 61cps at an assumed 54% payout ratio. This compares negatively to its average yield of 4.8% since listing, but remains a good yield in general.
The positive economic environment bodes well for the revenue growth in the commercial businesses, however weaker selling prices of horse-mackerel and lower quota allocations add strain torevenue growth in the fishing division, while the cost of securing additional quota will negatively affect the company’s bottom line, thus revenue and trading profit margins are expected to contract further through FY15 and decrease earnings visibility.
We have adjusted our earnings forecast and target price following a detailed analysis of the full year results. We forecast FY16 earnings of N$1.10 per share and calculate a warranted price of N$12.30 per share based on a justified PE ratio of 11.2 times. We are concerned about the possibility of a dividend cut given the outlook of the company, however we do not expect the stock to trade lower from current levels given the illiquidity of the stock and the possibility that once sold units may be difficult to rebuy in future, thereforewe change our BUYrecommendation to a HOLD recommendation.Based on our target price of N$13.00, the 12m total return is expected to be 4.3%.
