Financial
Performance review
Crown
Berger, Kenya’s leading paint-maker having a 65 per cent stake in the market,
reported a 21% increase in Revenue from 2.5 billion in 2009.
The
pre-tax profit rose by 21%. Operating profit rose by 5.59% from KES 86.308
Million to KES 91.417 Million. Most of the rise was due to rigorous campaigns
in selling and distribution that had promoted sales and cut back on cost of
sales.
Operating
environment and outlook
Crown
Berger’s performance was favourable despite the building and construction
industry drop to 4.5% from 12.9% in 2009. This was countered by the significant
increase in the transport industry and increased advertisements and sales.
The
Kenyan construction industry is expected to see tremendous growth as a result
of increased population and government spending on major infrastructure
projects. This will support paint consumption in the year 2012. Due to high
inflation rates, the 1st quarter of 2011 endured increases of up to 30% on raw
materials. Lower inflation and stable raw material prices will keep the raw
material price increase under control, hence offering competitive prices to the
consumers. Opening of a regional market through COMESA will be an added advantage
to do business across the borders more freely hence increases in sales.
Investment
analysis/Recommendation
The
company’s share price closed (on May 9, 2012) at KES 26.50; 33% below its 52
week high of KES 35.25.
The
share is priced fairly, trading at a PE of 7.00. The price to book value is 0.7.
This is the lowest in its industry which means that Crown Berger is undervalued. Thus this is a favourable investment for value investors.
The
dividend per share for the year is KES 1.25 which gives a yield of 4.72%. In
the construction and allied segment, Crown Berger offers the best return to its
shareholders.
Given
its performance, Crown Berger is therefore a viable investment for growth
investors, value investors as well as hybrid investors.
Recommendation:
The
share is both a good long term and short term buy. The fall in the share price was by a small
margin should not cause alarm as the share price is generally stable. Due to
the expected boom in the building and construction industry in Kenya as well as
the East African region, avenues for development of new markets are set to
increase profits for the company.
However
there are major risk in the inflation rates that may alter the prices of raw
materials and the prices of their products. An increase in inflation rates will
adversely affect the profits of the Crown Berger.
Quote:
An
investment in knowledge pays the best interest.
Benjamin
Franklin
