November 22, 2018/Cordros Report

May & Baker Nigeria Plc’s (MAYBAKER) Rights Issue will close in six (6) days. Please note the following:

• The stock price is currently NGN2.50/s, representing 6% increase since our research team published an investment note on the company. The Rights price is NGN2.50/s.

• Note that the prior spread of NGN0.15/s between the market price and the Rights price has now closed, thus, addressing the concerns that some shareholders had earlier expressed. 

• More compelling is that the company’s medium to long-term outlook is positive. MAYBAKER is a major player in the local drug manufacturing market with 4% market share. 

• The value of the Nigerian pharma market could rise by as much as 9% a year over the next eight years to reach USD3.6 billion by 2026. MAYBAKER is well-positioned to tap into this growth outlook. 

• MAYBAKER’s core business of drug manufacturing has delivered impressive performance over the years, with estimated 12% and 14% 5-year revenue and EBITDA CAGRs respectively. 

• Our research analysts expect the company will sustain double digit EBITDA growth at 16% CAGR over the next five years, supported by its good market positioning, strong demand outlook for drugs in Nigeria, positive products price outlook, and more efficient processes following divestment from non-core operation. 

• In addition to investing in growth projects, proceeds of the Rights will be used to part-repay expensive short-term debts and consequently reduce finance charges, with positive pass-through to cash flow and earnings. 

• At our analyst’s TP of NGN4.43/s and 2018E dividend yield of 11%, the expected total return on MAYBAKER’s stock is 88%, with BUY rating.