₦airaland Forum

Tmoni:
at least we can get our money back from first bank and save up for ETB,

the ECO-STERLING thingy, what is it going to be like

are we
1. (STERLING) shareholders going to be given shares in the enlarged company or

2. going to be paid a premium to sell our shares to ECOBANK

really hope its option 2 though,

won't be surprised if it is option 1

easimoni:
I got this off the Nigerian Securities website but could not find it on bloomberg. Elumelu is really expanding his horizon.

The link is not working.

The news is on UBA's website.

http://www.ubagroup.com/news/pressnews_110607.asp

yodiyokun:
@Hispy,

This report has a lot of information, things not stated in the prospectus. Anyway, it was prepared by a company in UK, from the content of the report it goes to show that some of our analysts don't have all the nitty gritty information and they need to improve on the quallity of information they provide to the public.

Thanks Hispy.

Yes, it's by a firm based in the U.K and it offers a lot more than what you get from our traditional broker. I thought it was an interesting read too, makes me think about the PO all over gain

Came across this report on FCBM that offers some insights into how much they are paying for CSL compared to CSL's revenue and book value.  As expected,  the valuation for CSL is a little bit rich (CSL's book value is $2.2mm, PAT for 2006 was $0.9mm; PAT for 8 months 2007 is $4.9mm) meaning that FCMB is paying close to 50x book value for CSL (are they not paying N12 billion or so?) .  CSL has about $100 million under management and 33,000 clients.  The report is alot better than most report that just restate what is in the prospectus; at least it gives new information that is not available in the prospectus.

pangolo:
@ Pumping777, Rought cut.
I stumbled on this article about the Skye Reit, was it a bad move or what??


Everyone who has a brain who is involved in real estate as been thinking about REITs in the last couple of years, however only one firm has decided to actually start one. The firm is Skye Bank and the REIT is called the Shelter Fund. The total fund size is N5 billion but it is in two tranches (parts) and the first part (the part it is raising now) is N2 billion. While such initiative should be applauded, the way they are going about it leaves a lot to be desired.

REITs are supposed to exist as a pass through vehicle (there is no tax paid on the REIT income), which means that in most countries with REITs, at least 90% of the income is passed onto the shareholders in form of dividends. For reasons best known to them, Skye has decided that 80% is appropriate. Now you would think that the remaining 20% will be used for operating expenses of the company. Apparently the fund managers still think a management fee of 1.5% is sufficient (now I am not against the management fee in principle, but I think that the magnitude is a bit high).

However the part of the compensation structure that I take the most issue with is this : "In addition to the annual management fee mentioned in sub-clause (i) above the Fund Manager shall also be entitled to receieve an incentive fee of 30% of total returns in excess of 10% of the funds Net Asset Value per annum." As performance fees go, it's very high even for proven fund managers. For a start up fund, I am yet to see the justification for it. Oh and as an aside, in general only private equity and hedge funds charge fees of close to that size, not REITs.

Still more worrying is the treatment of this fee in the prospectus. For example in the first year of operation, the prospectus reports this figure as N7.65 million. This does not seem bad, until you do calculations based on the figures in the prospectus which show that the figure should be N76.5 million. Excess returns over 10% of NAV are N255 million, 30% of that is N76.5 million. There are two possible explanations: honest mistake or intent to deceive.

Now let's move onto the actual business of the REIT. The REIT plans to play in the upper and middle ends of both residential and commercial property. Which is a pretty sensible investment strategy. However the first tranche is N2 billion naira which is $15.7 million. They are also saying that there will be no borrowing, which means that this is all the money they have to play with. Bottom line, the amount they are playing with is too small. The cost of one office building worth putting in V/I minus land costs will take out all that money. For the type of margins that they are talking about, you will have to do build and sell if you are talking residential. However that would mean that they have to develop, which means that it will be about 2 years before you start seeing any money. Now I thought about them buying an existing commercial property, but in Nigeria people pay rents (at least)two years in advance and so, they will have to find properties that have their rent due. There are only two things I can think of. 1) they are going to buy a government property and flip like, like UACN did with 1004. 2)There are one or two soon to be completed real estate developments that they are trying to get in on. Either one could allow them to provide the returns that they are promising.

In conclusion, I do not see any advantage to investing in the Skye Bank REIT as it is currently structured. I do not think the fund is large enough to capitalize on the truly lucrative opportunities in the real estate sector. I also think that the fee structure is particularly onerous. This was a valiant first attempt, but I think we'll have to wait a little longer for REITs.

http://naijanaz..com/2007_08_01_archive.html

Incentive fee of 30% in excess of 10%?  That is ridiculous!

By the way, do they have a high water mark? What happens in this scenario:

Year      NAV
2007    N40mm
2008   N60mm
2009   N40mm
2010  N60 MM

The return in 2010 is 50%, so are they going to chage 30% of (50% -10%)?  If they do, then they are thieves, because all they have done in 2010 is bring NAV back to what it was in 2008. As an investor, you have gained nothing.

pangolo:
@ Pumping777, Rought cut.
I stumbled on this article about the Skye Reit, was it a bad move or what??


Everyone who has a brain who is involved in real estate as been thinking about REITs in the last couple of years, however only one firm has decided to actually start one. The firm is Skye Bank and the REIT is called the Shelter Fund. The total fund size is N5 billion but it is in two tranches (parts) and the first part (the part it is raising now) is N2 billion. While such initiative should be applauded, the way they are going about it leaves a lot to be desired.

REITs are supposed to exist as a pass through vehicle (there is no tax paid on the REIT income), which means that in most countries with REITs, at least 90% of the income is passed onto the shareholders in form of dividends. For reasons best known to them, Skye has decided that 80% is appropriate. Now you would think that the remaining 20% will be used for operating expenses of the company. Apparently the fund managers still think a management fee of 1.5% is sufficient (now I am not against the management fee in principle, but I think that the magnitude is a bit high).

However the part of the compensation structure that I take the most issue with is this : "In addition to the annual management fee mentioned in sub-clause (i) above the Fund Manager shall also be entitled to receieve an incentive fee of 30% of total returns in excess of 10% of the funds Net Asset Value per annum." As performance fees go, it's very high even for proven fund managers. For a start up fund, I am yet to see the justification for it. Oh and as an aside, in general only private equity and hedge funds charge fees of close to that size, not REITs.

Still more worrying is the treatment of this fee in the prospectus. For example in the first year of operation, the prospectus reports this figure as N7.65 million. This does not seem bad, until you do calculations based on the figures in the prospectus which show that the figure should be N76.5 million. Excess returns over 10% of NAV are N255 million, 30% of that is N76.5 million. There are two possible explanations: honest mistake or intent to deceive.

Now let's move onto the actual business of the REIT. The REIT plans to play in the upper and middle ends of both residential and commercial property. Which is a pretty sensible investment strategy. However the first tranche is N2 billion naira which is $15.7 million. They are also saying that there will be no borrowing, which means that this is all the money they have to play with. Bottom line, the amount they are playing with is too small. The cost of one office building worth putting in V/I minus land costs will take out all that money. For the type of margins that they are talking about, you will have to do build and sell if you are talking residential. However that would mean that they have to develop, which means that it will be about 2 years before you start seeing any money. Now I thought about them buying an existing commercial property, but in Nigeria people pay rents (at least)two years in advance and so, they will have to find properties that have their rent due. There are only two things I can think of. 1) they are going to buy a government property and flip like, like UACN did with 1004. 2)There are one or two soon to be completed real estate developments that they are trying to get in on. Either one could allow them to provide the returns that they are promising.

In conclusion, I do not see any advantage to investing in the Skye Bank REIT as it is currently structured. I do not think the fund is large enough to capitalize on the truly lucrative opportunities in the real estate sector. I also think that the fee structure is particularly onerous. This was a valiant first attempt, but I think we'll have to wait a little longer for REITs.

http://naijanaz..com/2007_08_01_archive.html

Incentive fee of 30% in excess of 10%?  That is ridiculous!

By the way, do they have a high water mark? What happens in this scenario:

Year      NAV
2007    N40mm
2008   N60mm
2009   N40mm
2010  N60 MM

The return in 2010 is 50%, so are they going to chage 30% of (50% -10%)?  If they do, then they are thieves, because all they have done in 2010 is bring NAV back to what it was in 2008. As an investor, you have gained nothing.

pumping777:
I am thinking that Flour Mills will maintain minority interest in the company. The plan in my mind will be an expansion of Bagco operations so Bagco may still contribute as much or even more to Flour Mills than it does now. The prospectus will clear the air.

This is the info I have on BAGCO

Issued and fully paid: 4.35 billion shares
Offer for Subscription: 1.865 billion shares additional shares

Flour Mills will still own about 70% of the firm after the IPO. Also 50% of the 1.865 billion will be preferentially alloted to identified investors.

Price is N3.90.
The info above may change, but it should not devaite from these numbers dramatically

@Pumping

Tranex result is for 9-month ending Sept 2007 and not Q1. PAT will be around N54million for FYE 2007 if you annualize and if you use your 132 million shares outstanding and N0.81 price, then you are looking @ a PE less than 2 . Is this possible? . Not quite as juicy using your PAT N180 million, but still looks too good to be true. Is this 132 million shares outstanding correct? Guys please help

pumping777:
@hispy99 Thanks. Please what is the projected PAT for 2007 from the prospectus? I can see that the results for the last 2 years are consistent. Is this the same for years before 2005?

I don't feel the stock is such great value right now. The PE is around 14 and the growth rate is modest Year On Year 2005/2006 at 18% for PAT. The price is dipping consistently though so it may come into the radar soon.

Projected PAT for 2007 and 2008 is N649.46MM and N806.78MM respectively (their half year PAT for 2007 was N398MM), so they will most likely exceed their estimate for this year. I chased the stock everyday from the day it was listed @N3 till it crossed N4.00 (which was my threshold), but my broker did not get any units for me. I was surprised it hit N8.20 before the free fall.

pumping777:
I can only comment on 2 I believe I analyzed recently.

1. C & I LEASING - I think this is good Buy based on fundamentals and the potential growth. I'm looking for the stock at N4.90

2. CHELLARAMS - Hot. The fundamentals are good and the company has been consistent. I will buy at market price tomorrow if I will find but the stock is just too illiquid.

Can anyone confirm the outstanding shares for Ikeja Hotel? I have 1.7 Billion.

I have 2.08 billion for Ikeja Hotel from their prospectus.

hbrednic:
i feel like punching my compu.
sold my wema yesterday for N9.I0, now wema has started climbing the hills.
what a nightmare

You win some, you lose some, take heart

wanaj0:
The game plan was pretty obvious. Just shine your eye. Like I always say, WEMA will do well!!!!!

Anybody watching Chellarams? You better join the party!!!! One of the lowest PE's on the NSE. Just released an impressive result yesterday. Being planning PO for two years now so I expect that they will go for it next year. Quite attractive company but very illiquid.

Saw Chellarams results yesterday, but like you said, it is illiquid.  Do you have an idea of shares outstanding?  I have about 120MM.

Someone needs to be flogged at WEMA, preferably the MD.  It is either they are just plain stupid or someone intended to drive down the price (by releasing the bad FYE 2005 & 2006 results) in order to buy the stock cheap and then reap profits once the interim results are released.  Why on earth did they not release this interim result with the audited accounts?

Anyway, for those of you folks that did not sell (Tmoni and co), get ready for the ride to the top 

Iwerebor:
Dangote Sugar has good credentials. Their earning power is strong so the price should jump. Looks to me like a stock gunning for the N60 mark with it's robust earnings.

dollarmani
PE is good but for me earnings come first. PE is moody, unpredictable and can be influenced by alot of things like RUMOR. Just a newspaper story on the proposed plan of a company can increase demand for the shares of that company because of those taking positions for a windfall. I think that leaves people open for manipulations.

For instance, the MD of WEMA, saying the awaited result will be "haywire". That single word influenced alot of people. Now those same people are rushing out falling head over heels.

Read up on what's called the DOT COM bust in the history of WALL STREET and you will see why one needs to be very objective in investments. People were scrapping up on ANYTHING that had a DOTCOM to it's name.

I just read the PUNCH article linked by Mr. EASIMONI on WEMA. I think the company has a future. You just need to think of what would have happened if those loans weren't there to be dealt with. Their PAT would have actually pushed them up close to the N20 mark. It looks to me like they will make it soon.

Two things though nibbled at my mind while digesting the content of the article:
1. They seem to have a history of bad loans. How did they get into that situation? Do they do a proper risk assessment before they give these loans?
2. They are looking to raise funds locally and abroad. That inevitably increases the number of shareholders which in turn means they have to drive up their profit aggressively. Question is can they do this?

Iwerebor,

Earnings don't tell you anything except it is scaled by something (price, total assets).  If coy A and coy B post EPS of N1 and 10k respectively, does it necessarily mean that coy A is better than B?  If Coy A is selling for N20/share and coy B 10k/share, then on a comparative basis, coy B has got to be better than Coy A if they have similar growth potentials.

I like Dangote, but not so sure it'll hit N60/share anytime soon; I think a lot will depend on how their expansion plans work out

Yep, I am riding this WEMA horse till I see either their interim result or FYE 2007.

Tmoni:
nope, it makes up about 9% of my portfolio
but just thinking, making a loss on this now and probably go into sth like FCMB for long term

the threshold is the minimum, i would allow the stock to be sold at
any thing above is acceptable, still working out the details

was told it might come down to N5 to N6

A fire or panic sale has never and will never in my opinion be the way to go.  I also have an exposure to WEMA Bank and I knew the risk I was taking when I bought the stock (my exposure is not as large as your 9% though).  For sure, a lot of people will want to get out tomorow and the day after and the day after

Yes, the results were bad, but let's put everything in perpective; the resluts were bad because of the N8.1 billion provisioning.  If the provision for bad debt was only half of that (N4 billion, which is still  a lot), would the results be bad or good?  Obviosuly, if we know that the N8billion is a one time occurence and will not repeat itself (unfortunately, we do not), then to me WEMA still look like a good stock. My experience (I live in the US now but worked in the banking industry in Niaja for like 5 years not too long ago), is that banks take these huge provisions to have a clean slate (my last bank and the one before that did the same thing) and provisions are usually lower going forward, except the loan quality of WEMA is just terrible  

To cut a long story short, I am not doing a fire sale (for now anyway).  I can survive if the price touches N4 and I will continously monitor the stock.  WEMA's first quater / second quarter results have got to be a lot better

Tmoni:
just placed a threshold point of N8,
na wah ooo,
i would definately attempt to buy it at N6,
it would definately take a beating,

By the way why place a threshold of N8 when the stock is trading at N10? Why don't you change your threshold daily i.e for tomorrow, place an order for N9.50; if your broker does not sell tomorrow, then change the threshold to N9.00 for Wednesday e.t.c

Tmoni:
so do u advise me to just hold on?
getting worried herei am?

Tmoni,


Is Wema Bank a large percentage of your portfolio?