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Mechanical Lloyd Continues To Toast Investors   
 
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15-Oct-2013  
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Mechanical Lloyd Ltd.
 
 
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Mechanical Lloyd Company Limited (MLC), one of the premier listings on the GSE, gave investors reasons to keep faith with them with an impressive end of year 2012 financials and extended into the half year 2013.

With an expansion of corporate activities from the usual dealership to servicing, the company has seen its revenue grow consistently over the years.

At the end of the financial year 2012, MLC’s turnover grew by 37 per cent at GH˘46.95 million, being the highest ever recorded by the company.

The dealership saw its cost of sales also grew almost proportionate to its revenue, mostly due to the increase in volume of transactions and also direct cost of doing business.

Portability

In terms of profitability, MLC reported a gross profit of GH˘11.16 million, 53 per cent higher than the prior period’s value and went ahead to close the year with a net profit of GH˘7.51 million.

A gross profit margin of 24 per cent and a net profit margin of 13 per cent indicated that cost of sales, as well as selling and administrative expenses eroded a chunk of the company’s revenue, resulting in a relatively lower bottom line.

For the six month period ending June 2013, MLC replicated its end of year performance which was characterised by a growth in top and bottom line, as well as expenses and cost of sales.

In terms of company size, MLC recorded a growth of 131 per cent in terms of total assets (GH˘81.68 million) supported mostly by respective increments in the company’s plant and equipment, investment properties, as well as inventory.

An increase in the company’s inventory also reflected in its trade and payables which literally sumed up the main business of the company as a dealership. As at June 2013, MLC’s assets had grown by 71 per cent compared to the prior period at GH˘54.49 million.

Quick and current ratio

A quick ratio of 0.39 and a current ratio of 1.04 at the end of the full year of 2012 meant that the company had failed to improve on its liquidity position during the period, while a current ratio of 1.04 for the half year 2013 confirmed the company’s poor liquidity position.

Generally, the higher the value of these ratio, the larger the margin of safety that the company possesses to cover short-term debts. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment.

Asset utilisation for the period has not been very encouraging over the years, indicating that the company has been inefficient in generating substantive revenue from its assets.

Total asset turnover for instance fell from 0.97 in 2011 to 0.57 in 2012, while fixed asset turnover fell from 1.88 in 2011 to 1.03 in 2012. A fixed asset turnover of 1.03 suggests that for every cedi invested in fixed assets, Mechanical Lloyd generates GH˘1.03p as revenue.

Total asset turnover is a measure of the amount of assets needed to generate a cedi of sales. Since investment in assets requires significant resource commitments, it is obvious that other things being equal, it is better to generate a given level of sales with a lower asset investment. A low asset turnover may indicate an over investment in assets.

Debt-to-equity ratio

With a debt-to-equity ratio of one and equity multiplier of two for the year 2012 and half year 2013, MLC is decently balanced with respect to the leverage of the company.

Debt-to-equity ratio indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt.

This can result in volatile earnings as a result of the additional interest expense and can lead to bankruptcy, which would leave shareholders with nothing.

Equity multiplier, also known as leverage ratio, seeks to find how well the company is performing with respect to financing its assets with debt.

Stock market performance

MLC have had its ups and down on the stock market like most equities on the GSE from a high of 31 pesewas in 2004 to 9 pesewas in June 2012 and a resurgence to 26 pesewas as at June ending 2013. For the past five years, MLC has diversified its operations which have reflected in the pricing of the equity.

With a beta of 0.01, MLC is perceived to be almost uncorrelated to the market benchmark i.e. the GSE-Composite Index (formerly GSE-ALL share Index).

This means that the MLC has the tendency of going up or unchanged when the stock market is falling and vice versa, giving portfolio managers a means of diversification and mitigation of risk in terms of equity investments.

For the first nine months of trading on the GSE, MLC has seen its value more than doubling from 15 pesewas to 31 pesewas a share representing a return of 107 per cent aside dividends.

This performance on the GSE has been on the back of impressive financials amid general investor confidence in the stock market so far this year.

Earlier this year, SSNIT sold its stake in the company which gave rise to active trading in the equity which had the tendency for low liquidity over the years.

At a current P/E ratio of 6x, MLC is perceived to be undervalued, giving room for further appreciation in value. MLC is also said to be trading way below its book value (83 pesewas a share) which confirms the underpricing status.
 
 
Source: Graphic.com.gh
 
 

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