C&I Leasing Plc, a key player in Nigeria’s leasing and business services, posted an impressive financial performance for Q2 2024, growing its pre-tax profit by 187% year-on-year, to N555 million beating its Q2 2024 pre-tax profit forecasts by over 82%.
This boosted the first half-year pre-tax profit to N1.16 billion, which is 82% of the 2023 full-year figure.
The company’s bottom line continues to be driven by strong growth in gross earnings, primarily from lease rental income, which accounts for over 80% of total earnings on average.
This indicates that the company is on track to surpass its previous year’s performance.
It appears that the company had envisaged this growth. In commenting on the 2023 results, Group Managing Director Lenin Ugoji emphasized the positive outlook for 2024:
“The year 2024 is expected to see the company benefit from an increased global and local oil production rally amidst the need for greater oil revenue by the Federal Government.”
This outlook, along with the actual results; beating its estimate, reinforces confidence and could attract more investors, leading to potential share price appreciation.
The company announced on August 5, 2024, a dividend of 5 kobo dividend for the 2023 financial year. Following the announcement, the share price jumped from N2.86 to N4.14, but still lower the 52-week high of N4.45 reached on January 17, 2024. This suggests the potential for the stock to rise back to its 52-week high, especially as the company continues to deliver solid results.
From a technical perspective, the company is receiving strong buy signals, with a 100% bullish sentiment. The stock’s price-to-earnings ratio (P/E) of 8.19x, which is significantly higher than the industry average of 3.5x, indicates that investors are placing a higher value on the company’s earnings compared to its peers, reflecting confidence in its growth prospects.
The company’s cash flow ratios support this bullish sentiment. The company’s price-to-cash flow ratio of 0.27 in the most recent quarter is better than the industry average of -0.34, indicating that the stock is generating cash flow more efficiently than its peers.
Additionally, its price-to-free cash flow (TTM) of 0.6 is superior to the industry average of 1.51, which suggests that investors are paying less for the company’s free cash flow compared to others in the industry.
These ratios indicate that the company is more effective at converting its earnings into cash compared to most other companies in its sector, meaning it generates cash more efficiently.
Additionally, investors are paying less for each unit of free cash flow the company generates compared to its peers.
In other words, the stock might be undervalued relative to the amount of free cash flow the company is producing, which is a positive sign for investors.
However, the company must pay attention to its rising debt profile, which may impact on its cash flow. C&I Leasing recorded a decrease in net cash flow from operating activities, dropping from N5.96 billion in the first half of 2023 to N5.25 billion in the first half of 2024.
This decline is largely attributed to the N10.37 billion commercial paper obligation, which contributed to the negative operating cash flow of N5.04 billion in Q1 2024.
Additionally, the company’s total borrowing surged to N31.510 billion, increasing its leverage. Despite the high leverage as reflected in its equity multiple of 2.26, it could only return 2.2% to equity holders though higher than the 0.9% recorded in 2023.
This may suggest that the company is taking on leverage but not translating it into sufficient returns for shareholders.
Overall, C&I Leasing has demonstrated impressive growth and operational efficiency. The stock is receiving strong buy signals and exhibits bullish sentiment.
Despite the year-to-date decline in share price, the company’s recent strong performance, which exceeded estimates, combined with the upcoming dividend payment on September 23, 2024, could bolster investor sentiment and potentially drive the share price back to its 2023 levels.
However, both the company and investors should remain cautious about the rising debt and its impact on cash flow, as well as the associated financial risks.
The high leverage currently appears not to be generating the expected returns for shareholders as reflected in the return on equity.
