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Caverton Offshore Support Group Plc negative shareholders’ fund brought on by accumulated losses and excessive debt is a warning sign for investors as it suggests the company might be in financial stress.
It is interesting to note that the leading provider of marine, aviation and logistics services to local and international oil and gas companies in Nigeria, recorded negative total equity of N4.45 billion as at June 2024, and accumulated losses of N12.59 billion.
A negative balance in shareholders’ equity which occurs when a company’s total liabilities exceeds its total assets is generally a red flag for investors to dig deeper into the company’s financials to assess the risk of holding or purchasing the stock.
Of course, the firm posted a loss after tax (PAT) of N3.70 billion as at June 2024, from a profit position of N258.63 million.
Drilling down into the financial statement shows the losses were significantly caused by a surge in interest on borrowings as finance cost upsurge by 530.27 percent to N4.81 billion.
Caverton Offshore balance sheet is not looking better at all because its interest coverage ratio stood at 0.59 stood in the first six months, substantially lower than 2023 figure of 1.34, according to MoneyCentral calculations.
The figure is a measure of a company’s ability to repay its debts, with a ratio of at least 2 generally considered the minimum acceptable amount for a company with solid revenues. Analysts typically prefer a coverage ratio of 3 or higher.
The high leverage position or poor financial conditions shows Caverton Offshore cannot handle rising interest rates that has ballooned borrowing cost leading to a high cost of capital.
There is no light at the end of the tunnel as the central bank still clings to its aggressive monetary policy.
The Apex bank raised its Monetary Policy Rate (MPR) by 50 basis points to 27.25 percent from 26.75 per cent.
It is worth noting that the company operates in a challenging environment beset by rising inflation, foreign exchange volatility, and high interest rates.
For instance, the removal of subsidy on Premium Motor Spirits (PMS) and the unification of the foreign exchange market that sent the currency crashing against the U.S dollars have compounded the woes of firms who have been pushed over the edge.
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