An analysis by a brokerage firm urges potential investors to buy TOL stock at price ranging between 220/- and 355/-, banking on the company’s aggressiveness in implementing its 2011 turnaround strategy.
Tanzania Securities said in a TOL Gases Research it issued in Dar es Salaam over the weekend that, “We assume that TOL will ultimately implement its turnaround strategy on which estimated chance of success is 80 per cent.”
The brokerage firm estimated the company’s share price at 275/-.Tanzania Securities Chief Executive Officer Moremi Marwa argues that although it was earlier projected to take time for the market to digest the significance of TOL restructuring, initial successes were seen in last year and in the first half of this year.
“Our stance on the company is a moderate medium term view supported by the company’s aggressiveness in the implementation of its turnaround strategy ‘Mission 6:3’ since 2011,” Mr Marwa said.TOL which has yet to offer a dividend since it listed on the Dar es Salaam Stock Exchange in 1998, last year came with an ambition strategy aiming at making 6bn/- cumulative profit within the first three years of its implementation.
And the wheel has started rolling after TOL reversed its profitability from a loss making company for over five consecutive years to record a decent profit of 120m/- in 2011.“…It has already made 517m/- of profit in this year’s first half, with the projected profit of 1.2bn/- by year end (2012),” Mr Marwa said in a research note.
The company is currently trading at trailing Price Earning Ratio (PER) of 15.71 (on annualized earnings) and a trailing Price/Book (P/Bs) valuation of 3.19 relatively on the higher side when compared to its key regional competitors.TOL’s regional competitors are Kenyan based BOC Gases and Carbacid Investment that are trading at trailing PERs of 14.40 and 13.60, respectively and P/B valuation of 1.4 and 3.5, respectively.
The company, according to stockbrokers’ analysis, trades at Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDAs) of 5.02. “We forecast a three years CAGR (Compounded Annual Growth Rate) in Revenue and (Earning per Share) EPS, of 24 per cent and 78 per cent, respectively on the back drop of product diversification, sales increase, production efficiencies and a capable human resources base,” the report indicates.
Despite intensifying local competition and tougher economic environment, TOL is viewed as a company well positioned to benefit from the growing gas demand and, along with an improvement in its debt position, expect to post moderate operational growth.
However, there are downside risks emanating from TOL’s failure to implement the turnaround strategic plan which, if it happens, will create uncertainty for the firm’s shares in the medium term. “Increased competition and the reduced TOL’s market share in the hospital and industrial gases in Tanzania is another downward side of this seemingly positive outlook,” Mr Marwa said.
Nevertheless, the journey to TOL’s dream realisation, of the only industrial and hospital gases producer in the country, started to bear fruit last year after posting a pre-tax profit of 410m/- against a loss of 1.5bn/- in 2010.According to the DSE data, this is the first time within five consecutive years that the first listing firm on the bourse has posted the profit.
The TOL Chairman, Mr Harold Temu, told the last annual general meeting (AGM) that the main idea behind was that the firm has to operate profitably to warrant its self sustainability. “TOL is in an ambitious short mission that will serve to usher us back into profitability through our ‘Mission 6:3” that means generating a cumulative profit of 6bn/- within the first three years,” Mr Temu told the AGM.
The chairman said the board has approved an ambitious short term strategy targeting to increase carbon dioxide production by 17,000 tonnes to meet domestic demand as well as exports to Malawi and Zambia.“Successful execution of the turnaround strategy will also depend on successful integration of the three core attributes of the overall turnaround strategy—people, operations and strategies—into the service delivery platform through use of the latest technology,” Mr Temu said.
The Zan Securities Chief Executive Officer, Mr Raphael Masumbuko, says he has long been telling investors that management change could turn the loss making firm into profitability as long as its products are marketable.“This (profitability) is good news to the market,” Mr Masumbuko says, adding: “It shows that with good management profit is always achievable.”
The results, although showing that no dividend is likely to be paid, are encouraging to push further the firm’s share demand.“The profit attained, I am sure, will not lead to pay dividends because the company has many obligations to address,” adds Mr Masumbuko.
The TOL’s Manging Director, Mr Daniel Warungu, said last year that they saw many challenges this year but prospects are good for the oldest firm at the bourse.“The company has a bright future with a secure market for industrial and medical gas, plus its leading product, carbon dioxide,” Mr Warungu said during the last year’s AGM.
TOL has the capacity to produce 6,000 tonnes of carbon dioxide, which is its core business per year, while the demand for the product is over 19,000 tonnes per annum in the three countries.Since it was listed, TOL posted profits of 102m/- and 293m/- in 2006 and 2007, respectively after the right issue that boosted its capital level.
In the same years, the government absorbed complicated debts of the company. “The new era of profitability brings back shareholders’ hope that the company remains sound after many years of poor performance,” argues Mr Masumbuko.