Fidson’s return to profitability may halt steep stock decline, or not
Investors in Fidson are now breathing a huge sigh of relief after the company released its 2019 financial results last Friday which showed that the company returned to profitability during the financial year. Fidson, one of Nigeria’s largest pharmaceutical companies posted a profit of about N312 million during the 2019 financial year rebounding from a loss position of N97.4 million in the preceding year.
The poor financial performance in 2019 triggered a massive selloff in the stock which caused the share price to decline from N5.05 in mid-2019 to as low as N2.60 at market close on Friday, representing a decline of almost 50 percent.
Investors are now optimistic that the return to profitability could send the stock back to where it was at the middle of the past year. A stockbroker who spoke to BusinessDay stated “it is not unlikely we see in a rebound in the stock performance seeing that the company has returned to profitability. It is a dividend paying company and these companies typically get preference from local investors who usually only buy dividend paying stocks. If the stock makes even a modest upward run in the coming months, we could see the stock returns impress a lot of investors.”
However not all analysts think there may be an upward surge in prices. Obinna Uzoma, chief economist at EUA Intelligence told BusinessDay that he thinks the stock may trend lower and settle around the N1.5-2 region given that the 2019 trailing earnings was only about N312 million and the company has a market capitalization of around N5.4 billion, translating to a price to earnings ratio of around 17x and an earnings yield of just 5.7 percent in an environment where long dated bonds yields are around 10 percent.
“Investors are currently seeking stable and growing companies that are lowly priced and offer dividend yields that surpasses the treasury yields. Its unlikely we see much interest in healthcare stocks considering a lot of them are still struggling to grow sales in this slow growth economy,” Uzoma added.
Fidson revenue declined from around N16.2 billion in 2018 to N14.06 billion in 2019, representing a decline of more than N2 billion, however significant improvements in cost efficiency helped the company post a profit during the past year unlike its loss performance in 2018.
Fidson share price remained unchanged during the day, opening and closing at N2.60 even though about 174,454 shares were traded last Friday.
Fidson Healthcare PLC develops and manufactures a wide range of pharmaceutical products such as anti-infective, anti-arthritis, endocrinology, gastro-intestine, anti-retroviral, cardiovascular, pain relievers and consumer goods.