Stockbrokers say Vitafoam’s equity is undervalued

Nigeria’s securities traders have ascribed the ongoing massive demand for shares of Vitafoam Nigeria Plc on The Nigerian Exchange (NGX) to investors’ belief that the stock is underpriced relative to its intrinsic value.

Following heated demand, the company’s share which opened at N12.40 per unit on Monday rose steadily by N1.85 per unit to hit N14.25 on Friday, an increase of 15 percent despite market volatility. The capital gain within one week was significant, compared to the current Monetary Policy Rate (MRR) of 11.5 percent.

“Vitafoam has been doing very well over the years but the market didn’t reward it accordingly. It is glaring that the company’s share is undervalued, compared with its consistently outstanding performance. With Earnings per Share (EPS) of N2, why should Vitafoam be trading at N8? The company’s share price has the capacity to move higher. This I believe has triggered demand for the stock by discerning investors”, says Kanmi Osobu, Executive Director, Reading Investment.

The manufacturer of rigid foam, furniture and other household equipment which recorded an outstanding financial performance last year also posted a net profit after tax of N1.11 billion in the first quarter of this year. Already, the group is showing sustained improvements across key performance indicators.

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Corroborating him, the Managing Director and Chief Executive Officer, Network Capital, Oluropo Dada explained that Vitafoam had always maintained a stable board and management structure with a seamless succession plan.

Dada noted that Vitafoam enjoyed the premier position of being the only company listed in its sector. According to him, the company has remained resilient in the wake of the ongoing tough operating environment.

“A good company operates under a stable board and management. The succession plan in Vitafoam is seamless. The company has always rolled out innovative products. But the company’s performance has not really reflected in the pricing of its shares in the secondary market. There is no doubt that undervaluation of the stock is fast attracting investors into the company at the moment”, said Dada.

Vitafoam’s Group Managing Director, Taiwo Adeniyi had earlier noted that the company placed a premium on innovative human capital, product and services.

“As a matter of corporate policy, we do continuous improvement on our products. We sell high margin products. We are highly connected with our customers. We know their different needs and as such our products always gain acceptance in the market. Our foams and other products meet specific needs.

“We launched Buy Rights, last year when our research revealed that different weights require different types of foams. We do not just sell to customers, we offer health counselling to advise on the specific foam for individual customers. This has greatly endeared us to our customers.

“Vitafoam is not just about only rigid foams. We have a strong footing in furniture and other household equipment such as Sandwich Panels, Insulation Board and Spray Foam. Quality product is our second name. Our current performance was not driven by sales due to COVID-19. The margin from this is insignificant and we even donated foams to Lagos State government as our corporate support.”, Adeniyi said.
He stated the performance in recent period was not by accident as every performance demands that a lot of work has gone behind it.

“Our pride as shown by our financial results for the year 2020 is the fact that we never rested on our oars; we are resilient. We had also decided not to give in to excuses of what was going on in the country because if you look at it, you will realise 2020 was one year belaboured with a lot of activities that had a negative impact on the economy and businesses. It started with COVID-19 shock. Just within that same period, we had #ENDSARS protests and before you knew what was going on, the nation was on lockdown and the year 2020 closed. Even at that, Vitafoam has been able to weather the storm by coming out with the impressive financial results for the year 2020,” Adeniyi said.