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Padenga revenue collection improves

Padenga Holdings’ cash generation is seen improving in FY18 with its operating cash flow (OCF)/earnings before interest, tax, depreciation and amortisation (EBITDA) seen rising to 84,5% from 48% buoyed by export earnings.

By Melody Chikono

IH Securities sees EBITDA closing the year at US$14,06 million while a 3,1% decrease in net income at US$12,45 million in FY18 is expected.

Sustained efficiencies within the business are expected to result in a moderation in the EBITDA margin to 40% in FY18 from 46,1% in FY17, with recovery coming through in FY19.

The company is also projected to trade on price-to-earnings ratio (P/E) of 23,8 and an enterprise value (EV)/EBITDA of 21,3 comparable to its peers in the aquaculture industry.

IH securities said the average estimates for P/E are seen at 15,5 times and 8,8 times for EV/EBITDA at FY18.

“We have kept our long-term earnings growth forecasts conservative given that sales are fixed to bespoke supply contracts .We do however anticipate some upside risk to our forecasts given medium term plans to increase capacity in both the alligator and crocodile operations.

“We have applied a 50% premium on the equity to factor that earnings are denominated in hard currency (USD) and used a weighted combined DCF and multiples-based valuation to arrive to a blended 12-month target price for Padenga of 53,3 US cents. We therefore initiate coverage of Padenga Holdings Limited with a ‘hold’ recommendation given the current forex constrained environment,” IH said.

Padenga accounts for more than 80% of the supply quality Nile crocodile skins to global brands including Hermès, Cartier, Louis Vuitton and Prada, and 18% of total global exports of Nile crocodile skins.

Padenga is also seen continuously defending its margins in the long-run given that the business has managed to mitigate factors,which have impacted the business over the past few years, thus improving operational efficiency while material cost savings are expected as Padenga commissioned a 330kWp solar energy project for its northern farms.

IH said revenues at Padenga have grown at compound annual growth rate (CAGR) of 13% since 2010, expanding from US$11,78 million to US$30,28 million in FY17.

However there was a relatively subdued performance in as growth slightly receded -8,7% FY12 and 1,7% FY15 year on year before picking up +13,8% in FY16.

This was mainly due to a decrease in volumes to 43 000 from 63000 in FY13 as a harvest of 8 000 alligators was deferred to maximise on size in FY16.

“We anticipate a significant rise in revenue of +12,5% y/y for FY18 to $34,07million, on favourable conditions in the global economy as commodity prices and emerging markets including China are exhibiting signs of recovery. Furthermore, we expect Padenga’s revenue to receive a boost from improved skin quality as 80 new grower pens were constructed during FY17 at Nyanyana Farm to reduce stocking densities as part of an ongoing strategy to enhance animal welfare,” IH noted.

Nonetheless, the contribution of Padenga’s alligator operation at Tallow Creek Ranch to group revenue to remain subdued in the near-term as the operation transforms into a business model focused towards producing medium-sized skins is anticipated.

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