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Livestock Feeds - an Investment Opportunity in Agriculture(AllAfrica Via Acquire Media NewsEdge) The agricultural transformation agenda of the federal government is taking shape with many investors looking for ways of keying into it and benefit. Government commitment's towards making the agriculture sector the mainstay of the economy is not in doubt given pronouncements of President Goodluck Jonathan and the Minister of Agriculture and Rural Development, Dr. Akinwumi Adesina. While some investors with the financial power are investing directly in the agricultural sector of the economy, others are investing through portfolio investment by buying the shares of companies in that sector. The Nigerian Stock Exchange (NSE) is currently providing the platform for portfolio investors to participate in the various subsectors of the agriculture sector, from crop production and fishing to livestock. Although only five companies are quoted in the in agriculture sector of the NSE, they provide a good investment opportunity for investors. A look at the performance of the stocks listed in the sector in recent past showed that investors have reaped significantly from their investments either in form of dividends or capital appreciation. One of such companies that has rewarded its shareholders significantly is Livestock Feeds Plc. While the company has not declared dividend for some time due to a rough patch it went through, investors who staked their funds on the equity in the past one and have years ago have are counting a capital gain of about 170 per cent. The stock closed at N3.06 per share. That price is 28 per cent below its opening price of N4.30. However, given its performance last year, the price is an opportunity for investors to buy into the company given its future prospects. Corporate profile Livestock Feeds was established in 1963 by Pfizer as a subsidiary to the pharmaceutical business which had been introduced to Nigeria few years earlier. Following importation of exotic milking cows and hybrid chickens into the country by Germans, Dutch and later Americans, the need to provide health and nutritional products led to creating animal health division and then the feed division. The first mill of five metric tonnes per hour( MT/hr) was installed at Ikeja, Lagos in 1963. Another was installed in Aba 1964 and in Kaduna in 1965. They have 4MT and 3.5MT per hour capacity respectively. However, accelerated growth in urban and sub-urban population and demand for poultry meat and egg impacted positively on the feed business leading to phenomenal growth in Livestock Feeds business nationally. The impressive performance propelled upgrade of the milling output to 10MT/hr automatic machines at Ikeja, Aba and then Benin between 1983 and 1985. Kaduna was given a 6MT\hr back-up mill. The era of boom also witnessed the establishment of Franchise business marketing system. With installed capacity of 40MT/hr single shift and network of 12 franchise millers, Livestock Feeds was the dominant brand and benchmark in the industry. At peak of business the company had 55 per cent of the market share. But in 1996-97, Pfizer divested its interest in Livestock Feeds and its interest was acquired by Adset Limited through a management buy-out. Later, First Capital Trust Limited was engaged as turnaround managers in 2005 as First Capital Trust Limited replaced Adset as the core investor in the newly invigorated company. Also Cashcraft Asset Management became the second largest shareholder. Livestock Feeds experienced another change in ownership when UAC of Nigeria Plc commenced investment interest by way of special placement. As at 2013, UAC of Nigeria held 51.01 per cent of Livestock Feeds shares. First Capital Trust Limited held 8.02 per cent while Cashcraft Asset Management Limited held 5.06 per cent. The remaining 35.91 per cent is held by other Nigerian shareholders. According to the company its vision is "to promote better quality life through nutrition", while its mission "is to be the foremost nutritional products provider in Africa." The company's core values include: excellence in its products and services, diligence in its work practices, creative solutions to customer needs and belief in people. Board of directors Livestock Feeds Plc is led by a Board with directors who have varied experience in animal feed, and finance. The Board is responsible for setting strategic directions for the company. It has Mr. Larry Ettah, who is the group managing director of UAC of Nigeria, as chairman. Mrs. Modupe Asanmo is the managing director/chief executive officer. Mr. Babajide Adegbite is Executive Director(operations). Other non-executive directors include: Mr. Biodun Oyapero; Mr. Anthony Ikpea; Mrs. Omolara Elemide; Mr. Godwin Samuel and Joseph Dada. Acquisition by UAC Like every sector of the Nigerian economy, the livestock feed industry has witnessed mixed fortunes with operators struggling to with the various challenges and adopting strategies to survive the tough business environment. While the company has survived over the years and remain a leader in the industry, the acquisition of 51 per cent by UAC of Nigeria Plc brightened the future prospects of Livestock Feeds. At the conclusion of the transaction last year, Ettah said the acquisition would go a long way to strengthen the company's activities and position if for further growth. He said: "This strategic acquisition is industry-defining and underscores our strategy to position UACN Group as a portfolio of companies with exposure to the growth segments of the Nigerian economy. "The addition of Livestock Feeds to our business brings our combined share in the Nigerian animal feeds market to 32 per cent. It enhances our response to demand in the industry and provides us with an immediate opportunity to diversify our manufacturing and sales locations. "Further benefits will accrue from the attractive synergies in the supply chain as well as in distribution. We are delighted by the prospect of these outcomes and the value they will add for shareholders of UAC and Livestock Feeds." Financial performance A look at the performance of the company showed that its turnover fell in 2009 and 2010 but rose from 2011, 2012 and 2013. Specifically, turnover fell by 8.05 per cent in 2009 to N2.178 billion. It fell by 8.1 per cent in 2010 to N2.0 billion. However, the turnover rose by 81 per cent to N3.623 billion, slowed to 49 per cent in 2012 and ended with N5.43 billion. The turnover grew slower in 2013, rising by 12 per cent to N6.113 billion in 2013. Despite the challenges, Livestock Feeds has maintained a profitable status. Profit before tax rose from N38 million in 2009 to N52.8 million in 2010, N151 million in 2011, N216 million in 2012 and N282 million in 2013. In terms of profit after tax, Livestock Feeds' performance fell slightly from N30 million in 2009 to N28 million in 2010. But it improved to N97 million in 2011 and N139 million in 2012 before hitting N211 million in 2013. Although the company has not paid dividend in recent times, the prospects for dividend payment keep rising as its basic earnings per share (BPS) have witnessed a consistent growth in the last three years. EPS rose from 8.16kobo in 2011 to 12.01kobo in 2012, and later 17.56 kobo in 2013. Bright prospects Ettah told shareholders recently that they should look to improved performance in 2014 and beyond. "The board and management remain confident that with increased focus on improved brand building, product portfolio expansion, increased production capacity and cheaper cost of funds, the company is poised for improved performance," Larry Ettah, chairman, Livestock Feeds, told shareholders at the meeting. According to him, the feed industry had been projected to grow by 20 per cent with greater contribution from the fish and aquaculture sector, adjudged as one of the fasted growing sectors in 2013. Ettah said: "As part of efforts to boost its revenue base and diversify its product portfolio, your company is poised to launch its own brand of fish feed which is positioned to be the fish farmers choice across the country. The installation of the 12 MT/hr feeding milling machine in the Ikeja Mill is planned for completion in the course of the year. The new plant will enhance capacity and production of premium quality poultry feeds to meet the demands of our customers. Furthermore, sourcing of strategic raw materials and procurement would be intensified to support sustainable growth." The company has begun 2014 on an impressive note, growing turnover and profit by 24 per cent and 32 per cent respectively in the first quarter. Turnover grew from N2.7 billion in 2013 to N3.35 billion in 2014, while profit after tax rose by 32 per cent from N64 million to N85 million. Copyright This Day. Distributed by AllAfrica Global Media (allAfrica.com). |