Increased cost leaves Secure Electronic with low profit margins

Increased costs have eaten most of Secure Electronic Technology plc (SET) earnings, leaving the lottery company with very little profit margins, analysis of the third quarter (Q3) financial statement reveals.

For the nine months through September 2014, the company’s profit after tax (PAT) increased by 19,241 percent to N41.84 million from N0.216 million the same period of the corresponding year (Q3) 2013, while sales jumped by 17.50 percent to N5.37 billion.

Despite the impressive results at the both top and bottom line, the company incurred huge costs that left it with low profit margins.

BusinessDay analysis showed net margin was as low as 0.77 percent caused by a 41.97 percent increase in dealers’ commission to N1.94 billion as against N1.37 billion the preceding year. The percent of dealers’ commission to sales was 36.12 percent, which means for every one naira the company makes in sales, it pays 36.12k as dealers’ commission.

Prices/winnings expenses were up by 9 percent to N3.15 billion in Q3 2014 as against N2.89 billion the preceding year, while cost of sales margin however reduced to 53.65 percent from 63.23 percent last year.

There was better management of direct costs attributable to projects as gross profit moved by 32.33 percent to N2.21 billion in the review period compared with N1.67 billion last year, as gross margin jumped to 41.15 percent from 36.54 percent.

It will be recalled that the company is collaborating with Globalcom to launch Nigeria Centenary Lottery television where Nigerians have the chance to win fantastic prizes including 24 Hyundai Jeeps and a one hundred million naira (N100m) grand prize.

Analysts say this innovation by the company will further bolster its top-line performance and also increase its share of the market.

SET’s total assets were down by 11.14 percent to N9.09 billion as against N10.23 billion the preceding year, while total equity dipped by 3.49 percent to N5.04 billion compared with N4.87 billion last year.

The contraction in total equity was caused by a negative retain earnings of N5.04 billion.

Gearing level are high as debt to equity ratio, which measures the level of debt in  the capital structure of a firm, was 100 percent which is higher than the 86.35 percent recorded last year. Total borrowings in the review period remained flattish at N4 billion.

SET can leverage the Nigeria population of over 170 million and an economy growing at 6 to 7 percent to boost revenue and give shareholders a high return on investment. Analysts also added that the country is sitting on huge investment waiting for SET to tap into.

The company’s share price closed at N0.50 on the floor of the NSE, while market capitalisation was N2.81 billion.