Five Nigerian companies with the highest debt ratio in the second quarter of 2022

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Debt ratio is a ratio of common equity to creditors’ equity in a business. In other words, it is a measure of a company’s financial leverage.

A high debt ratio usually means that a company has been aggressive in financing its growth with debt. This can lead to volatile profits due to additional interest charges.

If a company takes on a lot of debt to finance increased operations (high debt to equity ratio), it could generate more profits than it normally would without this external financing.

According to Investopedia, a high debt ratio generally means that a company has been aggressive in financing its growth with debt, while a low debt ratio (a ratio below 1 or 100%) means that the company finances its business using equity.

If it is such that profits increase by an amount greater than the cost of debt (interest), shareholders will benefit because more profits are distributed among the same number of shareholders. The flip side, however, is the situation where the cost of debt financing outweighs the return the company generates on the debt through investments and business activities.

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This can therefore become too much for the company to manage. This can lead to bankruptcy, which would leave shareholders with nothing.

Nairametrics tracked the listed Nigerian companies with the highest leverage ratio.

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This is according to information contained in the quarterly financial statements of these companies released in the second quarter of this year and compiled by Nairametrics research.

The data obtained focused on five listed companies with the highest leverage ratio, Ardova Plc, Nestle Nigeria Plc, MTN Nigeria Plc, Caverton Plc and Honeywell Plc made the list in this category during the second quarter of 2022 .

These companies were selected based on their performance and are represented by percentages.

Honeywell Plc -1.35%

  • Honeywell Flour Mills Plc during the second quarter of 2022 had a leverage ratio of 1.35%, an increase from 0.98% in 2021.
  • In the second quarter, the company’s total debt increased to N78.531 billion from N55.769 billion in 2021, an increase of N22.762 billion or 40.81% in 2022.
  • In its recently released H1 2022 scorecard, Honeywell flour mills Plc’s revenue increased 19.3% year-on-year in the first half of 2022 to N67.91 billion from N56.91 billion. naira for the corresponding period in 2021. The company recorded growth across all of its revenue units – Apapa (up 19.4% YoY to 53.0 billion naira), Sagamu (up 14 .7% to N11.74 billion YoY) and Ikeja (up 37.7% YoY to N3.17 billion). The Apapa segment continues to dominate, constituting 78.0% of total revenue, with revenue growth of 19.4% year-on-year during the period. On a quarterly basis, total revenue increased by 5.4% in the second quarter of 2022 to N34.85 billion from N33.06 billion in the first quarter of 2022.
  • Cost of sales outpaced revenue growth (+19.3%y/y), up 27.5%y/y to N59.71bn from N46.82bn in the first half of 2021.
  • According to analysts at CSL Research “We believe the higher cost of sales is largely due to exchange rate uncertainties and rising local input prices. Consequently, gross profit fell 18.8% year on year to N8.19 billion from N10.09 billion in the first half of 2021, resulting in a 5.7 ppt decline in gross margin to 12 .1% in the first half of 2022.”

Caverton Plc-1.45%

  • Caverton Plc’s leverage ratio for the second quarter was 1.45%, growth from 1.03% recorded in 2021.
  • The provider of maritime, aviation and logistics services to local and international oil and gas companies in Nigeria recorded total debt of N25.267 billion during the reporting period, up from N23.106 billion in 2021, an increase of 935% or 2 naira. .161 billion.
  • Caverton Offshore Support Group Plc) reported profit after tax (PAT) of N202.79 million for the first half of 2022. The company recently released its unaudited consolidated financial statements for the period ended June 30, 2022 to the Nigerian Exchange Limited.
  • A source of concern for the company’s shareholders will be its performance for the second quarter period from April to June, in which it recorded a loss of N409.05 million. The negative second quarter performance comes with reduced revenue of N6.00 billion from N9.90 billion in the second quarter of 2021.
  • Commenting on the results, Caverton Managing Director Mr Bode Makanjuola said the company faced huge financial and operational headwinds in the first half of the year which forced management and the Caverton’s Board of Directors to urgently review the management of the company. structure and portfolio of activities as a Group.

MTN Nigeria -2.40%

  • MTN Nigeria during the second quarter of 2022 had a leverage ratio of 2.40%, down from 2.89% in 2021.
  • In the second quarter, the company’s total debt increased to N646.110 billion from N342.339 billion in 2021, an increase of N303.771 billion or 88.73% in 2022.
  • MTN Nigeria Plc has recently notified the Nigerian Exchange Limited and the investing public of its proposed Series 3 Commercial Paper issuance of up to N23 billion under its N150 billion Commercial Paper Issuance Program .
  • The issuance according to a statement signed by Uto, Ukpanah, the company secretary, is part of the company’s strategy to diversify its funding options, with funds being deployed towards working capital and general corporate needs. ‘company.
  • MTN Nigeria Communications had issued a historical Series 1 and 2 Commercial Paper (CP) of N127 billion under its registered N150 billion program.
  • The issue consisted of two terms – a 184-day series issue priced at 7.50% and a 254-day series 2 issue priced at 8.50%.
  • According to the telecommunications giant, the issuance was in line with its strategy of diversifying funding options, with the proceeds going towards working capital and general corporate purposes.
  • MTN Nigeria recorded a total profit of 181 billion naira for the first half of the year 2022. The amount is 28% higher than what was recorded in the same period last year at 141.8 billion naira.
  • The company’s financial report shows that this could be attributed to a 20% increase in its revenue in the first half despite the double-digit inflation seen during the period. Total revenue for the first six months was N950 billion, up 20% from N791 billion in the first half of last year.
  • The company increased customer contract revenue across all twigs, with Voice generating the most revenue; Voice, Data and SMS saw their revenues increase from N412 billion, N229 billion and N22 billion to N417 billion, N348 billion and N29 billion.

Nestlé Nigeria -3.21%

  • Nestlé Nigeria Plc’s leverage ratio for the second quarter was 3.21%, up from 2.27% recorded in 2021.
  • The company recorded a total debt of N92.732 billion during the reporting period, compared to N51.908 billion in 2021, an increase of 78% or N40.824 billion.
  • Nestlé Nigeria Plc released its unaudited Q2-22 earnings, reporting standalone EPS of N12.33 (N11.77); bearing EPS H1-22 to N35.01 (H1-21: N27.42). The EPS result was supported by solid revenue expansion (+33.3% y/y) during the period.
  • Analysts at Cordros Capital pointed out that the EPS print for H1-22 followed faster than their estimate (N33.44) of 4.7%, with the deviation stemming from a better than expected earnings print.
  • Q2 22 revenue increased 33.3% YoY, driven by substantial growth in the Food business segments (+35.9% YoY | 59.1% of revenue business) and Beverages (+29.7% year-on-year | 40.9% of revenue).
  • “We believe the price increases implemented across the company’s product portfolio have resulted in strong growth in these segments. Sequentially, revenue increased slightly by 1.8% q/q, supported by slower growth in the Food (+0.3% q/q) and Beverages (+4.1% q/q) segments. t) compared to Q1-22. » analysts note.

Ardova Plc – 3.47%

  • The analysis shows that in the second quarter of 2022, Ardova Plc, an indigenous and integrated energy company involved in the distribution of petroleum products, had a debt ratio of 3.47%, an increase from 0.63% in 2021.
  • In the second quarter, the company’s total debt increased to N55.355 billion from N12.327 billion in 2021, an increase of N43.028 billion in 2022.
  • FMDQ Securities Exchange Limited (FMDQ), through its Listings and Markets Committee, had during the year admitted the listing of Ardova Plc Fixed Rate Notes N11.44 billion Tranche A and N13.86 billion Tranche B series 1 under its N60.00 billion bond issuance on its platform.
  • According to the company, the proceeds generated from these issuances will be used for retail expansion projects, upgrading of existing infrastructure, provision for financing the debt service reserve account and other needs. in working capital.
  • Ardova Plc has announced the publication of its 2021 audited financial statements and unaudited first quarter 2022 financial results, with the group posting revenue growth of 49.89% to N62.934 billion for the first quarter ended March 2022, against 41.986 billion naira in 2021.
  • The company also recorded a profit of N1.54 billion in the financial year ended December 31, 2021.
  • However, according to a company statement, losses from the Axles and Cartage subsidiaries and the new acquisition of Enyo Retail and Supply Limited created a group net loss position of N3.8 billion.

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