Can CAP Plc maintain its 2018 impressive performance

The Nigerian Paint industry is very competitive with several players jostling for market share. The industry has also witnessed significant improvement in terms of product quality as every manufacturer is forced to up his game or become irrelevant.

In the past, some of the paint companies were mostly subsidiaries of foreign companies, at the same time, indigenous paint manufacturers also sprang up and completely bought over the shares of these foreign companies and continued to expand and increase their profitability, one of such company is Chemical and Allied Products CAP Plc.

CAP Plc was established originally as Imperial Chemical Industries ICI investments limited in 1957 but became ICI Nigeria Limited in 1965. However, following the promulgation of the Indigenization decree in 1972 and 1977, ICI Nigeria Limited sold 40%, and then 60% to the Nigerian Public and changed its name to Chemical and Allied Products Limited.

In 1992, ICI Nigeria Limited finally disposed-off its minority 40% shareholding in CAP Plc when it sold 35.7% of its equity to UAC of Nigeria Plc. and the rest to the Nigerian public on the floor of the Nigeria Stock Exchange and currently UAC of Nigeria Plc holds about 50.09% of the company’s equity.

The paint industry has done fairly well in the face of unflinching obstacles and harsh operating environment in the country.  Over the years, CAP has become one of Nigeria’s leading paint manufacturers with a wide range of paint brands such as the Dulux and Caplux brands. It also has a technical support agreement with the AkzoNobel United Kingdom in respect of paints produced and sold.

The drivers of growth in the paint industry are high demand for real estate properties and growing construction market and industrial production, higher disposable income of paint consumers as the economy transitions from the last recession

As one of the leading paint makers in Nigeria, CAP Plc has a target market that cuts across both private paint users and industrial ones. In other words, paints manufactured by the company are patronised by both everyday Nigerians seeking to paint their homes, as well as construction companies and real estate firms who build homes for the purpose of reselling.

The paint industry is highly fragmented with over 500 operators in the organised and unorganised market.  However, the structured market accounts for 60-65 percent market share as the largest industry segment is decorative paints, accounting for about 80 percent of the revenue annually.

CAP has consistently acted as a lender to other members of the UACN Group. Figures from financial statements for the 12 months ended December 2016, shows that the company lent N500 million to Livestock Feeds Plc, another UACN subsidiary, which has since been repaid. UPDC Properties financial statements for the half year ended June 2017 also show that the company borrowed N263 million from CAP Plc.

The last five years – 2014 through 2018 – have brought great fortunes for Cap Plc both in terms of profitability and turnover as the paint maker continuously increased sales except in 2016 when the nation slumped into its worst economic woes in 25 years.

From a gross income of N6.99 billion in 2014, the company made as much as N7.76 billion as sales proceeds as its variant products enjoyed increased patronage, even as the cost of production continued to rise faster, no thanks to the country’s inflation rate which remained double-digit since February 2016.

In spite of all these travails, the managers of the company showed efficiency in utilising its resources as the company retained more as profit from sales in 2018 more than it did in previous years. For instance, the net income margin of the company was 23 percent in 2014, this hovered around 24 percent three years after to fall to 21 percent in 2017.

Reduction in the company’s finance cost coupled with lower tax expense in 2018 helped it retain 26 percent of its revenue for the year. This means that for every N100 recorded by Chemical and Allied Products from sales in 2018, N26 was eventually held as profit after all expenses were taken care of.

However, administrative as well as selling and distribution expenses remained an issue for the company. Directors’ emoluments rose 7.5 percent to N74 million in 2018 from N69.6 million, even as costs on other staff fell to N542 million from N551 million.

Over N137 million was devoted to marketing, communication, and entertainment in the year as against N105.7 million in 2017. Security expenses were slashed to M10 million from N11 million, while fund for tour and traveling ballooned to N48 million from N36.8 million.

Net income surged 35.4 percent to N2.03 billion in 2018, an unusual feat for the company to have recorded decline in its bottom line in the previous two years. This significant achievement recorded by the pant maker in 2018 compared to the previous year was not only evident in its income statement, but an analysis of Cap’s balance sheet for the year also shows the profit boost bolstered its shareholders’ fund to N2.81 billion as against N2.24 billion accrued by the owners of the company in 2017.

It is still worrisome why the company was yet to record any major improvement in reducing the ratio of its total liabilities to assets. BusinessDay gathered that the proportion has grossly remained around 55 percent compared to its total assets within this five-year period.

The performance of Chemical and Allied Products (CAP) on the Nigerian Stock Exchange in the last five years between May 11, 2015, and May 10, 2019, was mixed, but investors who bought ownership stakes in the company five years ago would probably have their investments shrink by 8.45 percent.

This owes to the fact that Cap’s share price rippled through the years from N40.85 to close at N34 on Friday after remaining unchanged for thirteen straight sessions at the local bourse. At the current price, the stock is 32 percent close to its 52-week low of N25.75 and 15 percent off its 52-week high of N40.

The future of this paint manufacturer looks bright as it relies on big-ticket projects, economic recovery in the real estate sector which is still sluggish, and the passage of the 2019 budget should have positive effects on the paints sector. The Standard Organization of Nigeria must also ensure that only paint products that meet the standards are allowed in the market.