Japaul Oil and Maritime Services Plc

Transcription

1 Nigeria Equity Research September 24, 2009 Japaul Oil and Maritime Services Plc Meristem Research Saheed Bashir Kemi Adeneye Abiodun Keripe Ahmed Razaq Investment Thesis Well diversified business structure in a burgeoning industry: Japaul operates a well diversified business in an industry 90% dominated by foreign firms. Its operations span maritime, ship building & repairs, road transport & logistics, offshore vessels chartering and dredging and reclamation works. Japaul is aggressive in its search for greener pastures and more productive market segments such as in the offshore operations. The diversification within Nigeria through the acquisition of land and water front in Lagos offers some protection against such risks as the Niger Delta operational risks. Similarly, diversification across geographical regions both in operations and income generation (Nigeria, UAE and US) also offers some shield from country specific risks. The observed hype and subsequent down spiral in Japaul market price (52-week return: Japaul -78% vs. NSE ASI -52%) is in tandem with the general market trend especially for a 1.32 beta stock. However, there lie some underlined market expectations about future returns to investors already priced into the stock at its current market valuation. Exhibit 1: Japaul s share price: 52-week naira shed 78% Millions Volume (RHS) Price S-07 J-08 M-08 S-08 J-09 M-09 S-09 Extract of performance metrics (Items in N bn except stated) Key Metrics 2008A 2009Q2 2009E Growth(y/y) Turnover % EBIT % Earnings % EPS % RoAE 6.14% 4.31% 6.27% P/E-Trailing x 7.50 x 5.29 x P/BV 1.09 x 0.33 x 0.32 x Dividend yield 6.31% na 11.71% Source; NSE, Meristem Research and Company s Financials 1 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

2 Market valuation already priced in earnings dilution: The dilution in the company s earnings power at EPS level through the Hybrid Offer of 2.43bn shares and special placement of 2.66bn shares not proportionately compensated for by earnings growth based on our forecast has brought RoAE to levels far below historical average. Furthermore, we are yet to be convinced that this action will not lengthen the duration before reversal to historic return on investment beyond our forecast period. The market seems to have factored in this dilution to price Japaul at N (33% of its current BVPS and 19% discount to fair equity value from surplus ROE). Valuation: Accounting for the abounding opportunities in the oil and gas industry and the strategic positioning of Japaul to explore newer markets while also making provisions for the likely adverse impact of the additional share capital on the bottom line, we make case for a target price of N1.66 derived from a blend of Dividend Discount Model (DDM) and Justified P/E methodologies. Our estimated target price stands at N1.66 implying price multiples of 7.88x 2009e EPS and 0.49x 2009e BVPS. Our target price of N1.66, a 60:40 percent weightage of DDM and Justified P/E suggests a 49.84% upside potential. The low level of implied P/BV multiple of 0.49x 2009e BVPS is adduced to the low forecast RoAE of 10.04% compared to cost of equity of 18.87%. The implied P/E multiple of 7.88x 2009e EPS is underpinned by 94.05% 2009e EPS growth. See page 18 for analyst certification and disclosures including investment banking relationships. 1 Price as at September 23, P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

3 Overweight Price (Sept 23, 2009) NGN M Target Price NGN 1.66 Upside Potential 49.84% 52-Week High NGN week low NGN 1.00 Beta 1.32 Financial Year end Dec 31 Auditors Company website Ugboaja, Martins & Co. Investment Scenario Target Price: NGN 1.66 Our target price for Japaul stands at N1.66, representing 7.88x 2009e EPS of N0.21. This valuation derives from a 60:40 blend of DDM and Justified P/E. Our estimated fair price implies an upside potential of 49.84% and the current market price is at a discount of 33.26% to our valuation. Bull Case Scenario: NGN 1.99 Increased businesses generated by the company outside the shores of Nigeria especially in Q2:2009 coupled with the proposed deployment of its vessels on India Ocean for long-term contract among others things informed our expected growth rate of 68.67% in top line over 2008FYE. Similarly, we anticipate a move by the management by 2009FYE to make up for the low dividend payout of N0.07 in 2008 (against management forecast of N0.14). In the light of these, we modeled 2009e DPS of N0.13 with a terminal growth rate of 3.86% in This with other DDM inputs (as specified in the valuation section below) formed our most bullish expectations about the company and our model arrived at a target price of N1.99 (79.47% upside potential). Bear Case Scenario: NGN 1.17 Notwithstanding the attractiveness of Japaul s strategic intent and laudable H1:2009 performance, we express our reservations about the prospect of the company outperforming its historic average RoAE or at least maintaining it in the medium-term given the current shareholders fund which stands at c14x 2007 level. Juxtaposing this lower 5-year average forecast RoAE of 10.05% (vs. 7-year historical average of 29.40%) with 18.78% cost of equity (modeled to capture the risks inherent in the oil and maritime business) explains our less-bullish stance on the Company s valuation level. This cautious opinion is informed by the current operation of Japaul which is in line with the 2.47bn shares originally expected to be in issue in 2009 and onward as against the current 6.26bn shares outstanding. In the light of this, from justified P/E methodology we obtained our bear case value of N1.17 with 5.37% upside potential. 3 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

4 Exhibit 2 Japaul s Investment Scenarios: Estimated fair price presents 50% upside potential Dividend Discount Model Justified P/E Valuation Source: Meristem Research Expansion, diversification and enhanced financial muscle to drive top line growth in our 5-year forecast horizon. Key business expansion into offshore operations, diversification benefits across markets and geography, partnership with foreign multinationals and increased financial muscle from the offer proceeds to undertake strategic growth will be the major drivers of top line. We expect Japaul to gross 2009 turnover of N6.69bn corresponding to a y/y growth rate of 68.67% over 2008 (N3.97bn). For our forecast 5-year horizon, we estimated that Japaul grows its top-line at 22% compounded annually. Cost structure to marginally deviate from historical trend presenting more favorable ratios to boost profit margins. Going forward, cost to sales is forecast to trim down from 56.56% to an average 53.18% to shore up gross margin by 3.38% over the next 5-years. Similarly, we have modeled lower interest expense-to-sales ratio due to loan restructuring from short-term to long-term financing options. While Net Margin stokes up, forecast RoAE averages 10.05% (vs historical average of 29.40%) on the heels of non-proportionate earnings growth relative to the huge equity base: Improvements in the top line is expected to trickle down to the bottom line given the cost reduction implied in our forecast. However, despite a strong forecast net margin relative to current level, RoAE is likely to record modest growth as a result of the disproportional growth in the base in 2008(14x 2007 level) relative to earnings growth. 4 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

5 Exhibit 3 Net profit margin stokes up while RoAE moderates at 2008 levels in the medium-term 25% 20% 20.23% 17.80% 19.50% 16.24% 17.16% 19.74% 20.85% 21.62% 22.34% 23.10% 70% 60% 50% 15% 12.39% 40% 10% 30% 5% 20% 10% 0% e 2010e 2011e 2012e 2013e 0% Net Profit Margin [LHS] Average ROaE [Historical] ROaE [RHS] AverageROaE [Forecast] Source: Meristem Research & Company s Financials 5 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

6 Valuation Valuation of Japaul Plc posed some challenges among which is the nonavailability of data for peer comparison and impliedly relative valuation since it is the only quoted firm in the industry in Nigeria. Furthermore, inadequate forecast data on capital expenditure plan of the company handicapped the use of Free Cash flow valuation methodology. In addition, surplus ROE valuation which appears very robust was also not too appropriate to the circumstance of the firm considering that a modest forecast for the company RoAE implied perpetual negative excess return over required rate. Sequel to these, we adopted the following methodologies. Dividend Discount Model (DDM) using expected dividend streams as cash flow measure. Justified Price-Earnings multiple - Justified P/E valuation. Exhibit 4 Dividend Discount Model (DDM) In the estimation of the Cost of Equity (market capitalization rate) used to discount our stream of forecast dividend incomes for Japaul, we assumed the position of a global investor and corrected for likely structural imbalance in the domestic (Nigeria) debt market stemming from illiquidity and the inability to adequately capture inflation expectations. To this end, the risk free rate, in fact, appears not to be free. Hence, we have adjusted the risk free rate to adequately reflect current and expected inflation rates as shown in exhibit 4. Cost of Equity Estimation 2009e 2010f 2011f 2012f 2013f Risk Free rate (US Bond) 3.47% 3.47% 3.47% 3.47% 3.47% US inflation 0.20% 0.80% 1.00% 1.20% 1.20% Domestic Inflation 11.10% 10.00% 10.00% 10.00% 10.00% Inflation differential 10.90% 9.20% 9.00% 8.80% 8.80% Estimated risk free rate 14.37% 12.67% 12.47% 12.27% 12.27% Beta Risk premium 5.00% 5.00% 5.00% 5.00% 5.00% Cost of Equity 20.97% 19.27% 19.07% 18.87% 18.87% Meristem Research Using these cost of equity estimates, we discounted the dividend income stream to investors to the present value under the assumption of a sustainable terminal growth rate of 3.86% consistent with RoAE of 10.05% and payout of 64%. 6 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

7 Exhibit 5 Based on the above input parameters, we arrived at a per share intrinsic worth of N1.99 for Japaul Plc which corresponds to 79.47% upside potential over current price of N1.11. This forms the basis of our bull case scenario. Dividend Discount Model Terminal value DPS (NGN) % Growth rate 81% 43% 28% 24% 24% Cost of Equity 21% 19% 19% 19% 19% Discount factor Present Value (PV) Intrinsic Price (NGN) 1.99 Justified P/E Valuation Under this methodology, we estimated the price of Japaul based on our forecast EPS for FY and the price-earnings multiple implied by the sustainable payout and RoAE. From our model and in line with the recent quarterly performance we expect Japaul to gross N6.6bn in top line with a corresponding EPS of N0.21 for 2009FY and N0.28 for 2010FY. Exhibit 6 Justified P/E Valuation Sustainable Payout ratio 64.00% Sustainable ROaE 10.05% Sustainable growth rate 3.62% Cost of Equity 18.87% Justified P/E (x) e EPS (NGN) 0.28 Justified Equity value 1.17 With a Justified P/E of 4.20x and 2010 EPS forecast of N0.28 we arrived at an intrinsic price of N1.17 for Japaul Plc implying an upside potential of 5.39% over current price. This forms our bear case valuation scenario. 7 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

8 Unified Valuation: Blended target price To compute the target price for Japaul, we applied a 60:40 weightage scheme to DDM and Justified P/E valuation respectively. On this basis, we derived a fair equity value estimate of N10.42bn for Japaul Oil and Maritime Services Plc. Applying the 6.26bn ordinary shares currently outstanding to the above fair equity value estimate, we arrived at per share target price of N1.66 representing an upside potential of 49.84% over current market price of N1.11. Exhibit 7 Unified Equity Valuation Weight Price (NGN) Dividend Discount Model 60.00% 1.99 Justified P/E 40.00% 1.17 Our Target Price % 1.66 Risks to our valuation Upside Risks The volume of business in the oil and gas sector has gained momentum in recent years. The huge equity injection into Japaul places it on a platform to be able to harness the opportunities offered by the industry beyond our estimate. Furthermore, the strategic intent of expanding its offshore operations through the acquisition of offshore support vessels which is intended to grow to 30 in number by 2012 might position Japaul to benefit from this cash spinning segment of the oil and maritime industry. Their partnership with Asian multinational companies should also strengthen this line of business. Though threats posed by the Niger-Delta crisis are not fully eliminated, the recent amnesty move of the FGN is expected to ease the tension in the region and impliedly allay the fears of foreign partners. But a much more strategic move in this regard is the acquisition of land and waterfront in Lagos to facilitate its offshore operations and significantly hedge such risks. 8 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

9 Downside Risks The fundamental limitation encountered in the valuation of Japaul Plc is basically hinged on non-availability of industry data for peer comparison given that it is the only quoted firm in the maritime industry. Consequently, performance analysis bordered much on absolute values and comparison to historical standard. This might cast some shadow on Japaul s performance relative to its peers and impliedly being unsuspectingly overweight on the stock based on improvements in trend. Given that Japaul s spare parts and tools are largely importdependent, there lies an exposure to exchange rate risk which might engender a slim margin compared to our estimates. In addition, the recent surge in maritime piracy threats driven by hijackings in the waters off Somalia and in the Gulf of Aden 2 with attacks around the world more than doubled to 240 from 114 in H compared with the same period in 2008 poses significant risk to vessel importation as 3 vessels bought in India and Dubai are being delayed. 2 ICC International Maritime Bureau s Piracy Reporting Centre (IMB) 9 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

10 Business Background Corporate History Japaul Oil & Maritime Services Plc is an indigenous company incorporated in 1994 as a private limited liability company with an authorised and paid-up share capital of N1, 000,000 of N1 each. The Company commenced active business in the oil and maritime services in the upstream segment of the oil & gas sector 3-years after in Japaul was listed on floor of The Nigerian Stock Exchange on 30th August, 2005 making history as the first quoted maritime company in Nigeria. Current business profile and geographical footprints Japaul Plc s scope of operation basically covers rendering support services to oil producing companies through maritime operations, ship building & repairs, road transport & logistics, offshore vessels chartering and dredging and reclamation works. With 12 years of operations Japaul Plc has grown its business network from just one state in Nigeria to three and much more beyond the shores of the country to United Arab Emirates (UAE) and the United States. Exhibit 8 Japaul Group: Geographical landmarks Japaul LLC Maryland, USA Rivers, Lagos and Ondo Nigeria Japaul Gulf Electro-Mechanical LLC, Japaul Oil & Maritime Services, Dubai, UAE 10 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

11 Key affiliates, subsidiaries and associated companies The subsidiaries and the associated companies of Japaul are as shown in the Exhibit below. Exhibit 9 Subsidiaries and associated companies by business areas Japaul LLC, Maryland U.S.A. Japaul Mines & Products Ltd. Japaul Gulf Electro- Mechanical LLC, U.A.E. JAPAUL PLC Japaul Oil & Maritime Services FZE, U.A.E. Japaul Trading Company Limited Emirates Gabbro Quarry-UAE Japaul Ellicot Limited Source: 2008 Company s Annual Report and Accounts Business Product Decomposition The strategic business acuity of Japaul is evident in its quest for operational diversification in the oil and maritime industry over the years. Though it faces high risks peculiar to the industry, Japaul is on the verge of breaking out fully into more lucrative business segments of offshore operations across the West Africa coast. A decomposition of the strategic business segments of Japaul Plc is shown in the exhibit below. 11 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

12 Exhibit 10 Business Product and Services Profile Marine Constructions/ Operations Dredging Services Upstream Oil and Gas Operations OffShore Vessels Chartering Road Transportation and Logistics Ship building and repairs Sweeping Engineering Chartering of OSV s Haulage Services Marine Equipment Leasing Construction Support Management and Solutions Capital dredging stockpiling River crossing Procurement Installation and Construction Specialized mooring and towing Vessel support activities Sales & delivery of chippings Towing van services Reclamation Pipeline/Flowline Construction Navigational assistance Shore protection & canalization Shareholding structure The shareholding pattern in Japaul has undergone significant restructuring sequel to the public offer and special placement. From 24.17% holdings, Paul Jegede now commands only 5.62% of the total shares outstanding (as at 2008FYE). Similarly, other directors have lowered their cumulative interest from pre-offer holdings of 2.4% to 0.54%. These have cushioned the holdings in public coffers from 70.47% to 93.83%. Exhibit Shareholding structure Mr Jegede Paul 5.62% Other Directors 0.54% Public 93.83% 12 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

13 Financial Performance Revenue JAPAUL s revenue growth performance has been volatile but the overall trend portrays a significant exponential growth history in the last 7-years. Japaul compounded its top line at 64.75% annual growth in an industry 90% dominated by foreign counterparts. The growth has been achievable on the heels of strategic business expansion and diversification. Exhibit 11 Robust top-line growth with 64.75% 7-year CAGR 5,000,000,000 4,000,000,000 3,000,000, % % ,000,000, % 70.54% 0.8 1,000,000, % 8.35% Turnover [LHS] Expon. (Turnover[LHS]) Turnover growth [RHS] Earnings In the same vein, Japaul s earnings have shown consistent growth momentum for 7 year at an amazing 82.44% CAGR. The dip in RoAE in 2008 is as a result of a disproportional growth in PAT due to time lag between vessel order, procurement and utilization relative to 14x growth in shareholders fund brought about by the Hybrid Offer proceeds. We expect earnings to trend the historical path but with huge share capital and shareholders fund, EPS and RoAE might not revert to previous levels. Exhibit 12 Steady PAT growth (82.44% CAGR) with attractive margins 800,000, % ,000, ,000, ,000, % 24.40% 23.10% 32.30% 6.14% PAT [LHS] ROaE [RHS] P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

14 Margin Despite international crude oil price volatility and its strong correlation with Japaul s operating costs, the gross margin has shown relatively minimal volatility. Similarly, operating and net margins have demonstrated some level of stability averaging 24% and 16% respectively with standard deviation of 3.63% and 3.93%. Exhibit % 50.0% 40.0% 30.0% 20.0% 10.0% Consistent margins history in a volatile business environment 53.61% 50.78% 45.47% 44.68% 44.55% 41.15% 29.66% 24.87% 24.04% 23.97% 20.23% 17.80% 19.50% 9.31% 31.19% 26.11% 21.50% 18.03% 16.24% 17.16% 12.39% 0.0% Net Margin Operating Margin Gross Margin Fixed assets and CAPEX JAPAUL s investment in fixed assets has been on the uptick and has been very instrumental to the growth in its top line. The astronomic growth in the 2008 level was facilitated by the 2007 Hybrid Offer proceeds. However the vessel procurement-utilization lag offers plausible explanation for the drop in fixed asset turnover. Exhibit 14 Fixed assets show steady growth story 16,000,000, ,000,000,000 8,000,000, ,000,000, Fixed Assets Fixed asset turnover [RHS] P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

15 Working capital management Though till 2005 Japaul grappled under a negative working capital with falling working capital turnover, the trend has since improved in the last 3-years. This is due to a shift from heavy short-term bank financing and bank overdraft to long term-loans. In another light, current ratio which shows working capital efficiency has shown signs of improvement especially in However, the net working capital ratio which indicates the potential reservoir of funds barely averaged 0.15x (excluding 2002 outlier). Exhibit 15 Working Capital and Working Capital Turnover position 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000, ,000, (5.00) 0 (500,000,000) Working capital Working capital turnover (10.00) (15.00) Exhibit Working capital efficiency measures (1.00) (0.10) Networking capital ratio Current ratio 15 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

16 Leverage Japaul s capital structure, taking only interest bearing debt and equity into consideration, has shown a sinusoidal pattern with debt/equity ratio [D/E] declining from in 2002 to 0.13 in 2005 after which it rose over the next 2 years to However, with the recent injection of equity capital into the firm, the leverage ratio declined substantially from 1.82 (2007) to 0.06 (2008) and this equity laden capital structure is expected to be maintained for some years. Similarly, a profile of debt financing shows a gradual change of structure in favor of long-term liabilities as against current liabilities. This we expect to be sustained for some years going forward. Exhibit 17 Interest bearing debt to equity ratio has been on the rise equity debt Interest coverage 0.0 Exhibit 18 Long-term Vs Current liability financing mix Long-term liabilities Current Liabilities DFL P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

17 Appendix Japaul Financial Model Extract of Financial Model (in million naira except otherwise stated) Income Statement N'mn 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F Turnover 1,401 2,329 3,971 6,698 8,372 10,298 12,358 14,829 Cost of sales (964) (1,370) (2,202) (3,714) (4,521) (5,458) (6,550) (7,711) Gross Profit ,769 2,984 3,851 4,840 5,808 7,118 Net operating expenses (184) (458) (732) (1,206) (1,507) (1,854) (2,111) (2,534) EBIT ,037 1,778 2,344 2,986 3,697 4,584 Interest PBT ,012 1,725 2,277 2,904 3,600 4,469 Tax 23.33% ) (67) (99) (330) (402) (531) (678) (840) (1,043) PAT ,322 1,746 2,226 2,760 3,426 Shares in Issues (m units) 1,166 1,166 6,263 6,263 6,263 6,263 6,263 6,263 Net Asset 973 1,368 20,832 21,361 21,972 22,751 23,717 24,916 Payout 74% 43% 64% 60% 65% 65% 65% 65% Per share data EPS (N)- basic DPS (N) BVPS Underlining trends, assumptions and implied operating ratios Profitability Gross margin 31% 41% 45% 45% 46% 47% 47% 48% EBIT margin 18% 21% 26% 27% 28% 29% 30% 31% Net margin 12% 16% 17% 20% 21% 22% 22% 23% RoAE 23% 32% 6% 6% 8% 10% 12% 14% Growth Turnover 163% 66% 71% 69% 25% 23% 20% 20% Direct expenses 227% 42% 61% 69% 22% 21% 20% 18% Gross profit 83% 119% 85% 69% 29% 26% 20% 23% Net operating expenses 67% 148% 60% 65% 25% 23% 14% 20% EBIT 98% 98% 107% 72% 32% 27% 24% 24% Interest 186% 100% 8% 114% 25% 23% 17% 20% PBT 95% 98% 112% 70% 32% 28% 24% 24% PAT 67% 118% 80% 94% 32% 28% 24% 24% EPS -35% -13% 118% -66% 94% 32% 28% 24% DPS 10% 27% -50% 81% 43% 28% 24% 24% 17 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,

18 Appendix Analysts Certification and Disclosure This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the cover of this report. Each research analyst hereby certifies, with respect to each security or issuer covers in this research that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers (the Issuer); and (2) no part of any of the research analyst s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Research analysts compensation is determined based upon activities and services intended to benefit the investor clients of Meristem Securities Limited (the Firm). Like all of the Firm s employees, research analysts receive compensation that is impacted by overall Firm profitability, which includes revenues from other business units within the Firm. (3) each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting non-material non-public or material public market information. As at the date of this report, any ratings, forecasts, estimates, opinions or views herein constitute a judgment, and are not connected to research analysts compensations. In the case of non-currency of the date of this report, the views and contents may not reflect the research analysts current thinking. This document has been produced independently of the Issuer. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the ratings, forecasts, estimates, opinions and views contained herein are fair and reasonable, neither the research analysts, the Issuer, nor any of its directors, officers or employees, shall be in any way responsible for the contents hereof, and no reliance should be placed on the accuracy, fairness or completeness of the information contained in this document. No person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. Investment Ratings Fair Value Estimate We estimate stock s fair value by computing a weighted average of projected prices derived from intrinsic and relative valuation methodologies. The choice of relative valuation methodology (ies) usually depends on the firm s peculiar business model and what in the opinion of our analyst is considered as a key driver of the stock s value from a firm specific as well as an industry perspective. However, we attach the most weight to discounted cash flow valuation methodology. Ratings Specification BUY: HOLD: SELL: Fair value of the stock is above the current market price by at least 20 percent Fair value of the stock ranges between -20 percent and 20 percent from the current market price. Fair value of the stock is more than 20 percent below the current market price. Copyright 2008 Meristem Securities Limited. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Meristem Securities Limited. 124, Norman Williams Street, South West, Ikoyi, Lagos, Nigeria. research@meristemng.com, website: 18 P a g e N i g e r i a E q u i t y R e s e a r c h I S e p t e m b e r 2 4,