Nampak falls on trading update
Share price falls 6.82% after group forecasts rise in headline earnings but a decline in earnings for the year
Nampak delivered a mixed trading outlook for the year ended September 2017, saying it expects trading profit to be marginally up, despite a significant jump seen in headline earnings per share.
The announcement pushed Nampak’s share down 6.82% to R16.53 per share in late afternoon trade on Wednesday, from a high of about R46 in late 2014.
The group’s trading profit is expected to increase 1%-4% to R1.935bn-R1.995bn compared with R1.905bn in 2016.
Headline earnings per share is expected to increase 11%-17% compared with 107.6c per share in the previous year.
But Africa’s biggest packaging group said impairments have doubled from 2016. While this has been balanced by a substantial fall in foreign exchange losses, earnings per share is likely to fall between 84% and 88% to between 30.5c per share and 40.7c a share compared with 254.5c per share in 2016.
“This is mainly due to a one-off capital profit of R1.3bn that arose in the prior year related to the disposal of certain properties that has not been repeated in the current year,” the group said on Wednesday. Earnings per share includes capital profits, foreign exchange losses, onerous contract provisions and asset impairments.
It also said that in line with normal year-end procedures, Nampak had performed extensive impairment testing on the carrying value of its assets and that the preliminary results of these assessments indicated that certain impairments and an onerous contract provision and related costs were required.
“Total impairments and an onerous contract provision and related costs, which are included in the above figures, are likely to be between R720m and R760m compared with the prior year of R360m,” Nampak said.
Foreign exchange losses are expected to plummet 74%-78% to R150m-R180m from R681m in the prior year.
Nampak is in the process of finalising its results for financial 2017 and expects to release its results around November 28.
“[It is a] worse than expected trading update reflecting trading profit going backward in the second half,” Mark Hodgson, an analyst at Avior Capital Markets, said on Wednesday. Forex losses were a bit higher than management guidance, although much lower than last year. But there was “insufficient detail” provided around the impairments and onerous contract provision “with the latter item seemingly limiting headline earnings growth”, he said.
In the six months to March 2017, Nampak CEO Andre de Ruyter said the company felt vindicated by its substantial investments in the rest of Africa, particularly Nigeria and Angola.
The group had enjoyed record sales of beverage cans in Angola, improved results from Bevcan in Gauteng, robust Nigerian general metal packaging markets, upbeat liquid packaging in SA and buoyant paper packaging in Zimbabwe.
THE GUIDANCE ON HEPS INCREASING BETWEEN 11% AND 17% IS SIGNIFICANTLY BEHIND OUR EXPECTATION.
Despite a difficult general trading environment — with R2.4bn of cash frozen in Nigeria and Angola — group operating profit had soared 30% to R1.1bn in the period, while trading profit rose 12%. An improvement in operational performance helped overall margins grow to 11.9%, from 10.5% in financial 2016.
Electus Fund Managers analyst Damon Buss said that Nampak’s guidance on trading profit was “slightly ahead of our expectations”.
“However, the guidance on heps (headline earnings per share) only increasing between 11% and 17% is significantly behind our expectation and consensus’s expectation,” he said.But he also said the impairments and onerous contract provision had been a surprise.
“The forex losses of between R150m and 180m are much higher than the R90m to R110m Nampak management had guided for before going into their closed period,” he said.
“No reasons have been given for the substantial difference between the guidance and the actual number,” Buss said. “Overall, this is a poor trading update.”