Analysts at Meristem Securities in a recent report have rated the stock of CAVERTON Support Group (CSG) Plc “Buy” based on their positive view of the business going in the medium to long term.’
The management of the company that primarily renders support and logistics services to companies in the aviation and marine sectors has embarked on a deleveraging exercise to reduce finance cost, while the settlement of some foreign denominated debt minimizes foreign exchange losses.
“We are of the view that the group Management’s intention to deleverage the balance sheet will ease the pressure from finance cost, and translate to a positive earnings in the near term. Thus, we expect the company to resume dividend payment to shareholders in the near term,” said the analysts.
The aviation industry felt the pang of the coronavirus pandemic as airlines were grounded and operators across the globe recorded unprecedented net losses that hindered them from paying dividend to their shareholders.
Consequently, the Nigerian Aviation sector recorded a contraction for the first time since its recovery from recession in the first quarter of (Q1) 2017 in the third fourth quarter of 2020.
That explains why CAVERTON recorded a net loss in the fourth quarter of 2021 and was unable to pay dividend for the first time since 2017.
With the reopening of the economy and the relaxation of Covd-19 lockdown measures in 2021, activities gradually returned to the Aviation industry and planes and helicopters started flying in the air.
However, CAVERTON is reeling from rising input costs emanating from higher oil prices given impact of jet oil prices as deteriorating consumer spending on the back of red-hot inflation and foreign exchange scarcity remains a stumbling block to growth.
According to the National Bureau of statistics (NBS), average air fare charge increased by 93.12 percent year on year (YoY) in 2022.
“Being a highly regulated market, volatile and stringent regulatory requirements (such as high taxes, Regulatory maintenance etc.) tend to constitute a major deterrent to its growth,” said analysts at Meristem Securities.
For the year ended December 2022, the company’s revenue were down 19.28 percent to N28.08 billion from N34.75 billion.
It returned to a profit of N72.49 million from a loss of N4.34 billion in 2021, thanks to N220.78 million profit it realised as share of profit from an associate firm, Caverton Aviation Cameroon.
Indeed- the company’s balance sheet is in dare need of deleveraging strategy as times coverage ratio of 0.96 is below the 1.50 industry benchmark that indicates the aviation giant does not have enough earnings to absorb outstanding interest payment on debt.
Total debt has hit N26.45 billion as at December 2022, which is 1.55 times total equity, according to MoneyCentral calculations.
CAVERTON’s liquidity position is a cause for concern, with a weak and worsening liquidity ratio. The current and quick ratios were 0.58x and 0.41x respectively in the 2022 FY (vs. five-year average of 0.89x and 0.68x respectively