Red Star to develop warehouse with N1.3bn rights issue proceeds

Tola Ayoola

Red Star Express Plc, a top courier and logistic service provider, has revealed that it intends to use proceeds from the sale of 336,855,291 units of the company’s shares through rights issue for expansion of its operations.

Speaking at the Nigerian Stock Exchange (NSE), the Group Managing Director of Red Star Express Plc, Mr Sola Obabori announced that with the expected net issue proceeds of N1.3 billion from the rights issue, the company would within 18 months develop its warehouse facilities to create better storage of its customers’ cargos and goods, purchase more trucks to improve logistics, and put in place ICT resources among others.

At the company’s Fact behind Figure at the Exchange, Obabori said the four major things funds from the exercise would be used for include provision of trucks; development of warehouse facilities at Lagos-Ibadan Expressway and the Murtala Muhammed International Airport in Lagos; deployment of more improved technology; working capital of the company.

While noting that the company has seen a lot of growth in the past five years, the company’s GMD said measures have been put in place to ensure further development so as to create more value for shareholders.

“We are going to develop warehouse facilities at Lagos-Ibadan Expressway and Murtala Muhammed International Airport Cargo terminal. Spaces are already jampacked and we need to expand.

“Approval has been given by the Federal Airport Authority of Nigeria (FAAN) and this will cover 54 per cent of the total money and this is about N704 million and is expected to be completed in 18 months,” the GMD said.

Obabori further said, “We are also developing a 9000 square kilometer space for warehouse development along Lagos-Ibadan Expressway.”

“We will be buying additional trucks to drive the logistics part of our business,” the GMD stated, noting that capital to be raised for this purpose would be N201.6 million (15 per cent of the rights issue) and should be purchased under three months.

He stressed that 12 per cent of the proceeds, amounting to N154.3 million, would be used for Information and Communication Technology solutions and Enterprise Resource Planning (ERP), which he said would support the firm for better decision-making methods. He said this should be within 18 months.

According to him, the remaining 19 per cent (250 million of the proceeds) would then be deployed for the working capital of across board with immediate effect.

Speaking on the company’s financial performance, Obabori noted that the company’s revenue has grown by 20 per cent from N8.4 billion recorded in 2018 to over N10 billion in 2019.

“This occurred as a result of our consistent increase in revenue drive, through an increase in customer base, innovation, and investments in assets,” he explained.

He added that the 5-year revenue overview would do well to attract investor confidence, noting that the group, “has constantly increased revenue for the 5-year period by 51 per cent from N6.6 billion in 2015 to N10.0 billion in 2019.”

He further said that subsidiary of the company, which include Red Star Logistics and Red Star Support Services Limited, have contributed between 42 per cent and 48 per cent in the last five years and expressed optimism that with the rights issues, the numbers will only increase.

Seeking to further boost investors’ confidence, Obabori said, “The group has always maintained an upward trend in our dividend payment over the last five years, with the highest record of 43 Kobo in full-year 2019.”

Obabori added that, “When we are done with these rights issues, it will be N3.7 billion, assuming all provisionally allotted ordinary shares are fully taken upon completion of the right issues.”

The company’s market capitalization pre-issue stood at N2.36 billion. It was stated that shareholders who do not accept their allotment in full may have their shareholding in the company diluted.

Looking ahead, Red Star Express Plc has projected a revenue increase of N12.6 billion and N1.4 billion increase in Profit Before Tax and constant increases in the company that will see its revenue reach N18.9 billion in 2025.