Carbacid Investments is an investment and holding company with three subsidiaries. The major activity undertaken by Carbacid is the mining and sale of carbon dioxide gas. Its major subsidiaries are:
- Carbacid Limited
- Goodison Twenty Limited
- Goodison Forty Seven Limited.
The above subsidiaries are owned 100% by Carbacid Investment PLC. At the current price of KES 11.25 (27/08/2018), below is a brief on an investments case for the company;
- Great management with the company CEO (Mr. Baloobhai Chlotabhai Patel) owning 30.41% of the shareholding of the company. This helps ensure managerial interests align with shareholder interests.
- The company is currently trading below its book value per share of KES 11.47; translating to a discount for investors since they are paying less for assets of the company.
- The company is a good dividend payer and has consistently paid dividends for last 12 years.
- Gross profit margins for the company have averaged 65.51% in the last 3 years. This means for every KES 100 of sales, KES 65.51 is made as gross profit (after incurring manufacturing expenses of KES 34.49). The high gross profit margins of Carbacid is indicative of a company with pricing power and thus it can charge high prices to recover its costs and still afford a decent return to the shareholders.
- Operating expenses as a percentage of gross profit has averaged 34.57% in the last 3 years. This means for every KES 100 of gross profit made by company, only KES 34.57 is used to meet operational expenses. The remaining share of KES 65.43 is used to pay interest, taxes, dividends and also some is retained to fund further expansion of the business.
- Carbacid investments is a cash-rich firm with investments in equities, Treasury and corporate bonds (amounting to KES 1.032B) for financial year 2017. In the same year cash and cash balances of the company amounted to KES 0.762B. From these investments the company made roughly around KES 0.143B which is great considering it made a gross profit of KES 0.393B from carbon dioxide sales.
- Depreciation as a percentage of gross profit has averaged 14.71% in the last 3 years. This is indicative that the company does not need to spend huge sums of money to replace its property, plant and equipment regularly.
- Carbacid has had a positive working capital for last 12 years under consideration. Current ratio in the 3-year period averaged 6.13 meaning for every KES 1.00 the company expected to pay in the next one year, it expects to receive KES 6.13 in return.
- Property, Plant and Equipment as a percentage of total assets has averaged 31.60% in last 3 years. This shows the company is not a capital-intensive business thus it will generate more cash which can be used to pay dividends and fund further business expansion.
- In the last 12 years, Carbacid has used zero debts which shows the self-financing ability of the company.
- For the last 10 years, the sum of operating cash flows exceeded sum of Profit After Tax. This shows profits made by the company are actual cash and are not tied up in stock and receivables in the business. The company has also had positive free cash flows for last twelve years.
- Money spent to buy machinery and other fixed assets (CAPEX) as a percentage of profit after tax has averaged 22.73% in last 3 years. This shows profits made by the company are enough to cover its capex and hence no need to use debts.
- Net Profit Margin has averaged 51.19% for last 3 years. This shows that for every KES 100 of sales made by the company, it retains KES 51.19 as Profit After Tax. The high net profit margins enjoyed by company is an indicator that Carbacid is a cost-efficient producer.
- The company’s Return On Equity has averaged 14.72% in last 3 years; i.e. for every KES 100 put to business by the shareholders of the company, it generates KES 14.72 as Profit After Tax.
All these factors considered, our target price for Carbacid is KES 14.65 and with the current price of KES 11.25 (As 27/08/2018), the company stock is a bargain with a potential upside of 30.22% (factoring in dividends and potential share price increases).