Neimeth’s stock rally: Can capital raise sustain momentum? 

After closing 2024 with a 2.69% year-to-date (YtD) gain, the stock has surged by 37.12% YtD as of February 7, making it the best-performing stock in its sector and the 15th best overall on the NGX.

This rally, which translates to a 50.2% gain over the past year, signals renewed investor confidence in the company’s prospects despite persistent financial challenges.

However, sustaining this momentum will depend on Neimeth’s ability to address its financial weaknesses.

Will its planned capital raise improve the financials, boost investor confidence, and sustain the rally?

Neimeth recorded a 102% increase in revenue to N4.469 billion in 2024, the highest in five years, driven largely by its pharmaceutical segment, which contributed over 95% of total earnings.

President Tinubu’s 2024 executive order eliminating tariffs and taxes on pharmaceutical machinery and raw materials provided a buffer, supporting revenue growth.

However, the company remains unprofitable, posting a pre-tax loss of N1.699 billion in 2024, an improvement from the N2.757 billion loss in 2023. Neimeth last recorded a profit in 2021, highlighting ongoing financial challenges.

This persistent unprofitability has eroded shareholders’ equity, with retained losses widening to N4.744 billion. As a result, shareholders’ funds have turned negative at -N230 million, a stark contrast to the N1.469 billion positive equity in 2023.

A major setback in 2024 was a N2.03 billion foreign exchange loss, which significantly impacted Neimeth’s financial position.

In response, the company is implementing a series of financial restructuring measures to mitigate forex-related risks and stabilize operations.

Commenting on the company’s strategy, Neimeth’s Managing Director/CEO, Matthew Azoji, stated that the company is focused on repositioning itself for long-term sustainability through strategic initiatives. According to him, these include:

Additionally, Neimeth is considering a capital raise of N5 billion through a rights issue and private placement. Azoji emphasized that the proceeds would be allocated to:

He reiterated that these efforts align with the company’s long-term growth strategy and commitment to enhancing operational efficiency despite prevailing economic challenges.

Neimeth is at a financial crossroads. The company remains in deep losses.

As of December 2024, total debt has ballooned to N5.049 billion, with a net debt of N3.14 billion.

As of December 2024, total debt has ballooned to N5.049 billion, with a net debt of N3.14 billion.

The debt-to-asset ratio has jumped to 51%, while the debt-to-capital ratio now stands at a staggering 1.02, meaning the company is now more funded by debt than equity.

To stabilize its finances, the planned N5 billion capital raise is not just an option, it is a necessity.

Without it, the company risks further financial deterioration, making it harder to access credit or sustain operations.

But how should Neimeth raise this capital? Given the fragile state of its balance sheet, another rights issue, like the one in 2022 may struggle to attract investor interest.

The company’s loss-making history and negative equity mean that even existing shareholders might be hesitant to inject more funds.

A private placement might be a better strategy, bringing in institutional investors or a strategic partner who can inject fresh capital and restore confidence.

However, this will likely lead to dilution of existing shareholders, which could be a tough pill to swallow.

The real question is whether the capital raise alone can turn things around. While it may provide short-term relief, Neimeth must improve its operational efficiencies, reduce forex exposure, and improve profitability. Otherwise, this capital raise will only delay the inevitable financial reckoning.

While the capital raise is a necessary step, its impact on Neimeth’s stock performance and long-term financial health will depend on the company’s ability to execute a broader turnaround strategy.

Whether through equity, debt, or a hybrid approach, the company’s capital-raising strategy will play a crucial role in shaping its financial future.