WorldStage Newsonline-- Analysts at the FSDH Securities Limited, a leading investment banking firm has rated the stocks of Nigerian Bag Manufacturing Company Plc (BAGCO) as 'buy' on the conviction that it currently worth N6.13 per share, whereas it is being exchanged at N1.56 on the floor of the Nigerian Stock Exchange.
According to FSDH, “Buying the stock at the current market price of N1.56, holding it to our fair value of N6.13 and adding the present value of the 5-year forecast dividend, investors will earn a total return of 348.97 per cent.
“Relating this return to the Cost of Equity estimated by CAPM at 20.18 per cent, investment in BAGCO shares will earn an excess return (alpha return) of 328.79 per cent. The 2011 forward earnings yield based on our fair value generate 4.21 per cent, while the 2011 forward Dividend Yield based on N0.19 Dividend per Share at our fair value generates 3.11 per cent.
“We therefore place a BUY on the shares of BAGCO Plc at the current market price for both dividend payment and capital appreciation.”
The analysts said the factors which they considered in the determination of BAGCO’s future earnings include: quality assurance - giving room to capture both local and foreign markets; investment in state-of-the-art production technologies; aggressive marketing through product innovation; and investment in high capacity generators to reduce cost of production.
BAGCO was incorporated as a private company on February 4, 1964 as a wholly owned subsidiary of Flour Mills of Nigeria Plc. There was a public issue in 2008 which resulted in the reduction of the Flour Mills of Nigeria holding in the company to 70%, while other Nigerians held 30%. BAGCO was listed on the floors of the Nigerian Stock Exchange on April 9, 2008. BAGCO manufactures high quality sacks to support the industrial and agricultural market sectors of the Nigerian economy. In later years, BAGCO began expanding its operations and opened two subsidiaries - Northern Bag Manufacturing Company Limited (BAGCO North) and BAGCO Morpack Limited. The BAGCO North opened in Kano in 1990 to satisfy the growing demand for BAGCO products in the Northern region of the country, while BAGCO Morpack Limited was established in Lagos in 2007 to help BAGCO’s further product development.
BAGCO’s advanced knowledge of the needs of the agricultural, industrial, and retail markets have enabled it to consistently produce high quality products desired by its customers. Its product lines are classified into four segments: Industrial segment– produces sacks to support cement, flour, salt, detergent, chemicals, animal feeds and fertilizer; Open Market segment– produces sacks for agro-allied products – produces materials for bagging rice, corn, beans, groundnut, onions, and other agricultural produce; Carrier/Shopping segment - produces varieties of attractive carrier bags for the shopping populace such as L'original, Heritage Africana, Super sack, Carry go and Trabag series; and Special Range segment – produces polypropylene products such as Ground sheet or rice mat, Leno Sack, light weight tarpaulin, polypropylene thread and Webbing.