Livestock Feeds Plc (H1/Q2 2025)

Livestock Feeds Plc reported a 62% decline in profit after tax in H1 2025 compared to H1 2024, driven by a steep rise in finance costs and a weaker net margin, despite solid revenue growth. The company's cost of borrowing and high leverage have significantly eroded operating profits. While revenue grew 34% YoY, the bottom line lagged substantially due to mounting interest expense. The balance sheet also reflects heightened current liabilities and weakened cash reserves.

Strengths

1. Strong Revenue Growth
   • Revenue increased by 34% YoY from ₦15.49 billion (H1 2024) to ₦20.80 billion (H1 2025), reflecting strong demand and market expansion.
2. Improved Gross Profit
   • Gross profit rose by 26% YoY, from ₦2.34 billion to ₦2.96 billion, demonstrating improved production or pricing efficiency despite inflationary pressures.
3. Disciplined Operating Expense Control
   • Administrative expenses grew by only 21%, slower than revenue growth. Selling and distribution expenses remained relatively stable, reflecting cost discipline.
4. Stable Equity Base
   • Total equity increased modestly from ₦3.38 billion to ₦3.49 billion, supported by retained earnings growth.
5. Stable Non-current Assets
   • Investment in PPE increased modestly, indicating consistent operational capacity maintenance.

Weaknesses

1. Significant Profit Decline
   • Net profit declined by 76.6% in Q2 2025 and 62.6% YoY for H1 2025 (₦102 million vs. ₦437 million), driven mainly by finance costs.
2. Surging Finance Costs
   • Finance costs more than doubled from ₦911 million to ₦1.90 billion, wiping out most of the operating profit (finance costs represent 92% of operating profit).
3. High Leverage
   • Current interest-bearing borrowings stood at ₦5.62 billion (H1 2025), though reduced from ₦13.71 billion (H1 2024). Nonetheless, the company is still highly leveraged, posing liquidity and solvency risks.
4. Weakened Liquidity
   • Cash and cash equivalents dropped from ₦1.19 billion to ₦622 million (-48%), limiting flexibility in managing debt obligations and working capital.
5. Ballooning Current Liabilities
   • Current liabilities stood at ₦17.3 billion, representing 81% of total liabilities, indicating potential pressure on short-term liquidity and a working capital mismatch.
6. Flat Earnings Per Share
   • EPS dropped from 14.56 kobo to 3.41 kobo, reflecting reduced returns for shareholders.

Valuation Perspective

• With annualized EPS of ~₦0.07, the stock trades at a relatively high price-to-earnings (P/E) multiple if priced above ₦1.00, unless there's a clear roadmap to debt restructuring or interest cost reduction.
• The book value per share is ₦2.33 (₦3.48 billion / ₦1.5 billion share capital), offering some downside protection, though not compelling enough given profitability concerns.

Justification:

🚫 In the short term, high debt levels and collapsing margins reduce investor confidence. 🚫 Substantial erosion in EPS makes the stock unattractive for income-focused investors. ✅ However, if the company successfully restructures debt or reduces finance costs, there is long-term potential supported by strong top-line growth.

Investor Strategy

• Short-Term Investors: Exit or reduce exposure due to weak profit outlook and high financial risk.
• Long-Term Investors: Hold with caution, monitor debt refinancing efforts or improvements in finance cost management.
• Speculative Buyers: May consider entry on deep pullbacks if there's confirmation of debt restructuring or an equity injection.