TPS Eastern Africa Ltd (NSE: TPSE) announced their audited financial results for the period ended 31st December 2014 on 28th April 2015
Recommendation: HOLD, Fair value KES 32.98 (Downside 5.77%)
TPS Eastern Africa reported a 7% decline in Revenues to KES 6.34Bn from KES 6.81Bn (FY13)
2014 was yet another perplexing year for the tourism industry in Kenya as they continued battling it out with numerous travel advisories, terrorist attacks and the recent introduction of Value Added Tax on tourism services and park fees in September 2013 which have made Kenya an uncompetitive tourist destination hence suppressing margins for hospitality companies. TPS Serena has been hard hit from 4Q 2014 to 1Q 2015 following extensive cancellations that impacted negatively on their top line. The performance was however catalysed by commendable revenues ensuing from their subsidiaries in East Africa which posted growth in contribution to revenues compared to last year.
EBITDA Margins compressed to 12.3% (FY14) from 18.3% (FY13); 37.4% Decline in Operating profits to KES 782.39Mn.
This could be attributed to the plummeting revenues whilst still incurring high operating expenses to run the business. Pre-tax profits retreated by 70.9% to KES 220Mn further squeezing the PBT margins to 3.5% from 11.1%. The PAT was however marginally impacted by the huge decline of PBT, down; 39.2% translating to a margin of 4.3%. This was spurred by the decline in current income tax in addition to the reversal of the KES 76.91Mn deferred tax liability to a deferred tax asset of KES 109 Mn.
40.3% Drop in EPS; 100% Dividend Payout Ratio
Return on shareholders’ equity (ROE) edged down from 4.27% (FY13) to 2.64% (FY14) following a decrease in the total equity. Earnings per Share was also trimmed to KES 1.35, a 40.3% decline resulting from the challenging business conditions. Worth mentioning, is that the company proposed to maintain the same level of dividend payment (KES 1.35) in line with the previous financial year. This translated to a higher payout ratio of 100% with the DPS yielding 3.88% return for the shareholders. Book closure date is slated for 29th June 2015 with the payment expected to be done on or about 29th July 2015.
Outlook: Tapping on New Business Opportunities to Catalyse the Underperforming Business
Kenya’s hotel industry has been the worst hit since the insecurity woes commenced. TPS Eastern Africa has been at the centre of the blow with poor financial results emanating from the firm. A series of travel advisories issued by various countries, terrorist attacks and the introduction of VAT on tourism services and park fees has really impacted Serena’s business negatively. High cost of living has also contributed to the meagre number of both foreign and local tourists from the second half of last year.
TPS E.A is however geared to begin extension and refurbishment projects in all their E. African hotels and lodges which is expected to steer growth of their market share. They are also pursuing new business opportunities in non-traditional markets which will enable them diversify their operations. Going by the present situation in Kenya of the insecurity menace and increased cost of living, the company’s business is bound to continue hurting in the short to medium term. This will however be mitigated by the subsidiaries in Uganda and Tanzania which are expected to continue posting improved performance.