Why do companies go private? When it is obvious to its shareholders that there is no longer benefit in staying public. For Cadbury minority shareholders, there really is no benefit in holding on to its shares.
Cadbury is one of the oldest listed companies on the Nigerian stock exchange and a brand easily recognizable by nearly every Nigerian. The chocolate maker sells beverages, sweets, chocolates etc. For such a well-known brand selling popular products like Bournvita, Buttermint, Tom Tom, one would expect its shareholders have been rewarded immensely from holding on to its shares. However, that does not appear to be the case.
Back in 2020 when the Blurb Team wrote about Cadbury, we did suggest the stock is probably not for you. The share price was N6.9 per share and has risen to N9.5 since then, largely on the back of the Covid-19 rally in the last quarter of 2020. Since then, the share price has remained flat. Flashback, 10 years ago Cadbury share price was trading at N11 and 5 years ago just over N8. The stock appears to be a value destroyer.
Read: Oyeyimika Adeboye: Cadbury Nigeria’s first female MD in over 50 years
In terms of dividends, Cadbury is also underwhelming. Over the last 5 years, it has paid dividends every year except for 2017. However, out of a profit of N2 billion only N1.7 billion of dividends has been paid, a payout ratio that is far above stock market average. But in terms of dividend yields, it is disappointing. Holders of the stock receive single-digit dividend yield every year they get dividends from the company. Its current dividend yield is about 2% and if it decides to achieve a 100% (dividend of N800 million) dividend payout ratio this year, dividend yield will be 5%.
The major reason for this is their weak profitability growth. Despite tripling profits between 2017 and 2019 (Covid-19 forced it to record a massive decline in 2020) growth is far from its potential as a business. This year, it is on track to report N830 million in profits compared to N931 the year before. Perhaps a better way to view its performance is to look at its return on average equity. It has averaged 3% in returns on average equity in the last 5 years and also grew revenue at a compounded annual growth rate of 3%.
So, why bother remaining public with such dismal performances?
Read: Why Cadbury stock is probably not for you
About 74.97% of Cadbury is owned by Mondelez International, the parent company of Cadbury International, while 25% is owned by Nigerians. Thus, Modelez controls the company operations, sets profitability targets and decides when and how much dividends to pay. The company is not in any need to raise capital from the public as it has over N17 billion cash in its balance sheet. It is also not looking for a platform to have its shareholders exit their positions, considering how illiquid its trades are. Cadbury is already a household name, so the brand visibility associated with listing is not significant.
Mondelez is already quoted in other stronger capital markets thus it is already under the scrutiny of other capital market regulators. It has no incentive to remain public so it’s about time they spare minority shareholders the hassle of holding on to an underperforming stock. All cogent reasons to stay out of the public view.
It serves no purpose in being listed when it has consistently failed to create value for its minority shareholders for years. If there is anyone benefiting from its current performance it is Mondelez, the local management of the company, and the Nigerians sitting on its board.
Mondelez should make a mandatory offer to buyout its Nigerian shareholders and delist from the Nigerian Exchange. If it does, perhaps a higher share price than the current one will likely be offered, allowing minority shareholders to finally get a chance to be rewarded for their patience over the years. That way, it is a win-win for everyone.
I think most of your analyses on Cadbury are laden with your own bias. Your choice of words is strong and not objective. In this particular one, you write as though you intend to bully Cadbury into getting out of the market. Cadbury today is N17.55! How about that for all your prophecies and castigation.