PUMA – Half Year Results

Puma’s current half year offering is mirror of where they left off from the 2015 Annual Report. They are still faced with the same macro environmental forces that threaten value. This has put a lot of pressure on their management team to remain efficient albeit in a time when they have chosen the path of expansion of their retail offering in order to tap into the promise of stability in Zambia that could generate value. And rightly so. With the announcement of Felix Mutati as Finance Minister, the exchange rate appears to not have been rattled as much in comparison to previous election seasons.

The fuel company reported an increase in revenue of 19.6% as at June 2016 in comparison to the same period last year. EBIT was up by 63.6% whilst earnings were up by 10%. Curiously, EPS was only up by 9.3% according to the unaudited results published by LUSE. Marginal number of shares movement? Perhaps (we will find out when the next annual report comes out). Cost of sales was up by 18% whilst operating cash flows dropped by 8.7%.

Value generating capabilities (assets) grew by 41.8% indicating its seriousness with its expansion projects that are seeing its property plant and equipment (PPE) portfolio grow. This has impacted its immediate liquidity position which has dropped by 22% (expansion projects chew cash). At the same time, the fuel company has managed to reduce its long term and short term borrowings by 7 % and 26% respectively which represented the 20% reduction in total liabilities for the firm.

Overall performance thus far shows a 1% fall in return on sales in this low margin sector. Return on capital employed now stands at 6% (from 7%) and return on equity at 4% (from 5%). The half year has seen the company marginally sweat its assets and it hopes its prospects will improve in the remaining 6 months. So far, return from its investments in PPE have fallen from 12% to 8% (largely influences by the macro forces). Furthermore, the cost of capital has dealt a huge blow on its financing costs. What will be interesting is if an when the IMF recommendations for removal of subsidies on fuel come into effect. Will that be another macro factor that will cameo in the next year’s annual report?  TFHZPC is watching.