By Tanzania Securities
JATU Plc has only one class of ordinary shares authorised and issued. There are no preferential shares. Currently, it has a total authorised share capital of 125bn/-, consisting of 250 million ordinary shares at
a nominal value of 500/- per share.The total issued and paid share capital amounts to 1.082bn/-.
Jatu products and services Jatu agriculture
Jatu Company runs and manages various agricultural projects in collaboration with its members. Agriculture is the main foundation and pillar of the company, where Jatu seeks areas/farms and researches them technically and legally. So far, Jatu in collaboration with their members, have successfully owned three large-scale farms located in Manyara, Morogoro and Tanga.
Jatu factory
Jatu establishes small-scale factories around agricultural projects to facilitate access to raw materials. Through these industries, the company buys the products of farmers who are their members and prepares the products that are sold through the Jatu App for the purpose of online marketing - Network Marketing.
Jatu Saccos
This is the Saccos of the Jatu people who lend to its members at interest and soft terms. Jatu Saccos assists its members by lending them those tools and agricultural inputs.
Recommendation: sale
Since Jatu has been listed, in November 23, 2020, the share price increased by 7 times of the listed price on exchange. The price continues to rally from 420/- to current market price of 3,620/- on January 8, 2020. There has been no fundamental ground on the Jatu share price increase or the technical factor that justifies the same, but the lack of supply has been the main reason for the share price appreciation.
Since Jatu has been in the market for about three years with both years the company has posted a net profit of around 6.0m/- to 40m/-. What are the competitive advantages that will bring Jatu on top of other companies? However, for the manufacturing part the only way the business could excel is through "economies of scale", that the performance will be driven by the lowering cost as the results of the increased production.
The question that investors keep asking to remain the same, what is so special with Jatu share price rally? The company revenue has been growing at CAGR of 92.70 per cent to 564m/- in 2019 from 151.96m/- in 2017. While cost of sales grew by CAGR of 39.95 per cent to 181.69m/- in 2019 from 92.75m/-. All this led to an increase in gross profit to 382.61m/- in 2019 from 59.20m/- in 2017 equivalent to CAGR of 154.22 per cent.
During the similar period, the company profit after tax (PAT) increased to 40.08m/- from 6.32m/- in 2017. But the company's forecast loss for the year ended 2020. According to our analysis, we forecast sales to grow at CAGR of 13.10 per cent (2020-2025) mainly revenue to come from agricultural and factory segments.
This growth will lead to an increase in gross profit by a CAGR of 11.25 per cent and cost of sales to grow at CAGR of 16.57 per cent. The increase in cost in sales is due to an increase in volume to be sold over the period and a decrease in closing stock, since the large volume will be sold and remain with the standard inventory to maintain inventory turnover of around 3.74x to 13.68x over the period of 2020-2025.
According to our analysis, we forecast the company PAT for the year 2020, to decline to a loss of 110.78m/- from the profit of 40.08m/- in 2019. While sales are expected to increase by 36.04 per cent to 767.69m/- from 564.3m/- in 2019, while gross profit is expected to grow by 14.78 per cent to 439.5m/- from 382.61m/- in 2019.
This indicates that the company may look too aggressive in their forecasts and ignore the fact that startup companies face a lot of challenges and risks despite Jatu being in the cash cow industry. The company forecast revenue to be 1.24bn/- in 2020 while our forecast see revenue to be down by 37.56 per cent from the company forecast incorporating scenario analysis in our model.
Quick conclusion - sell
We value the company at a fair value price of 407/56 per share or a Price/Earnings (P/E) of 5.14x, price-to-book (P/B) of 0.78x and EV/EBITDA of 136.44x from the current prevailing market price Jatu has the P/E of 158.73xand P/B of 5.66x which shows that Jatu is overvalued.
- Tanzania Securities is a stock broker, investment adviser and fund managers operating from Dar es Salaam.
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