₦airaland Forum

emmanuelewumi:
How many banks can deliver a return on Invested capital of 30%, None. We have some non banking stocks delivering return on Invested capital of 50% to 60%.

Some businesses are making accounting profits while some are creating wealth the produce EVA Economic Value Added, such business generate economic profits.

Return on Invested Capital is a function of capital base, and then the return.

Some businesses (like software businesses) have very low capital requirement but can generate incremental returns on that small capital. That's gold.

But there are also things we need to consider when looking at such businesses, which is durable moat and a very long favorable runway ahead.

Most businesses like the software business, that have high ROIC have very weak moats and hence a short runway or one that's not favorable.

What would you say about such businesses?

emmanuelewumi:
They do through their sister company called Orange One Finance Limited

Loan is for a year and bullet payment of principal and interest at maturity. Just that their interest rate is high at 33%. Another problem is that they only give a maximum loan of N20 million

So if you get a loan of N10 million at 33% per annum for a year

You will pay a lump sum of N13.3 million at maturity.


Not bad sha if you use the loan for business.

Pa Emma, I'm Just curious if you would rather take the loan term you explained above, where you pay a lump sum at maturity. Compared to an interest free loan that is ammortized monthly over a year.
If you factor in the TVM and opportunity cost involved in a bull run we currently have.

NettyNelly:
I think the market is yet to see the deepened moat MTN has following the NCC Directive that was fully implemented last year. The Business has Increased its Network Effects with Subscribers additions and spend shift when other competitors are bleeding subscribers. The Circular tailwinds that comes with this Net add has deepened the moat of the Business because Its superior network attracts more users, which boosts earnings and enables continuous improvements in service quality. This cycle has allowed MTN to gain market share while some other operators have lost subscribers due to recent regulatory changes.

But more importantly, these newly gained users already have a strong habit of data usage, which adds immediate value to the business. With the recent tariff increase, the impact on revenue has been even more significant. As demand for data continues to rise, MTN’s robust network and its ability to reinvest place it in a strong position to benefit from increased Operating Leverage which allows it to make higher Return on Capital with no significant increase in its cost of Capital. If a business is able to generate excess Return above its cost of capital this phenomenon becomes a license to print Free cash flows that the market will gladly pay for.

MTN has 50% upside from here

Since listing Market has usually paid 10 - 17x for MTN’s Earnings before, with this new effect from gained market share, Increased operating Leverage and subsequent increase in free cashflows from improved Return on Capital, I believe it is very likely that Market will Pay 17x or even more for MTN’s earnings going forward.
Opps i just confirmed, MTN’s current trailing PE is 18.9, case closed.

Annualized PAT Estimate for MTN in 2025 is N830B (I think this is a conservative estimate given that H2 is usually stronger for MTN), applying the trailing PE of 18.9 on the N830bn means MTN is worth over N15tr in Market value. This is another 50% upside from the current market Value of N10Trn.

NettyNelly:
MTN has become a different Business from Q2 last year. I will share my thoughts on this later

I think the market is yet to see the deepened moat MTN has following the NCC Directive that was fully implemented last year. The Business has Increased its Network Effects with Subscribers additions and spend shift when other competitors are bleeding subscribers. The Circular tailwinds that comes with this Net add has deepened the moat of the Business because Its superior network attracts more users, which boosts earnings and enables continuous improvements in service quality. This cycle has allowed MTN to gain market share while some other operators have lost subscribers due to recent regulatory changes.

But more importantly, these newly gained users already have a strong habit of data usage, which adds immediate value to the business. With the recent tariff increase, the impact on revenue has been even more significant. As demand for data continues to rise, MTN’s robust network and its ability to reinvest place it in a strong position to benefit from increased Operating Leverage which allows it to make higher Return on Capital with no significant increase in its cost of Capital. If a business is able to generate excess Return above its cost of capital this phenomenon becomes a license to print Free cash flows that the market will gladly pay for.

NettyNelly:
MTN has become a different Business from Q2 last year. I will share my thoughts on this later

The NCC directive last year initially caused MTN to lose millions of subscribers, but it fully recovered and gained even more, ending with a net subscriber (+3.2M) and internet user increase, unlike its competitors, who are still facing net losses.

MTN appears to have benefited from both subscriber additions and spend shift following the recent
disconnections. In markets like Nigeria, where most people own 2 or more SIMs, what usually happens during a
mass disconnection is that SIMs disappear, but the spend doesn’t; it either moves to another active SIM or users
register a new one.

The key here is that not all SIMs are equal. Primary SIMs are usually on the most reliable Network (for eg, MTN) and carry higher switching costs, so users are more likely to reregister them when barred. Backup SIMs, on the other hand, are disposable; people simply move the spend to their main line or switch to a more reliable operator.

It looks like that’s exactly what happened. While the industry is still down by over 51 million subscribers post-NCC Directive, MTN added 3.2 million. This suggests MTN was the main beneficiary of both new registrations and spend reallocation from churned SIMs on other networks. We saw this reflected on MTN’s 2024 numbers (36% revenue Growth, compared to the Normal 20 - 23% MTN has recorded since IPO).

NettyNelly:
MTN has become a different Business from Q2 last year. I will share my thoughts on this later

Having the largest subscriber base within the Total Addressable Market gives MTN a major advantage. It strengthens the operator’s distribution reach, creating a strong network effect( “Everywhere you go”). This attracts even more subscribers, as people tend to move to and stay with the operator that has the widest network. This, in turn, drives more operating leverage, where incremental
revenue grows faster than incremental cost, because there’s no extra cost for each subscriber added to the
network once the heavy fixed Capex investments are in place.

This operating leverage gives MTN a Capex advantage over other operators. It allows MTN to reinvest supernormal profits back into the network, improving capacity and service quality. That, in turn, helps retain and attract even more subscribers.

It’s a kind of circular tailwind: Improved Service Quality → Larger Distribution Network → More Operating Leverage → Capex Advantage → Improved Service Quality.

As 5G adoption slowly grows, MTN's large subscriber base deepens its moat as incremental operating leverage
kicks in.

Sunrisepebble:
For NAHCO like I said mixed feelings. The day I was convinced to sell was when it touched 104 or so, at today’s closing price that is only a ten percent increase. I still believe the upside is as much as it once was.
MTN and Fidson are at my fair value also. Unless higher than expected Q2/H1 growth.

FIDSON should not be touched if you are looking for long-term Capital appreciation. You will agree with me if you understand the current Dynamics of the Pharma Industry in Nigeria.

MTN has become a different Business from Q2 last year. I will share my thoughts on this later

Sunrisepebble:
I decided against it. After I had sold Nascon, CWG, Fidosn and MTN I had too much cash to know what to do with it

Chai... That's like killing the Goose that lays the Golden egg.
Rethink on these names: Fidosn and MTN, especially MTN.

I said the same thing about Nahco when you wanted to sell.

emmanuelewumi:
Do you have a link to that.

Institutional investors are not stupid sha

Likely buying at the Market. But may not continue at this price

emmanuelewumi:
Nahco closed at N106.70k today, we are gradually approaching the forecast price of N120.


It appears some people have seen the Q2 result of Nahco.

There might be an upward review of the forecast price when the Q2 result is made public

It was Institutional Investors Buying

Sunrisepebble:
I agree with the bolded but CAPEX doesn’t affect profitability, only cash flow

Depreciation cost shouldn't be ignored

Olaide1295:
Interesting view. Thanks.
I had assumed an MTO was mandatory and minority holders won't have an option but to accept it.

The huge margins Cement bussinesses in Nigeria are running on will reduce when Chinese starts running it. they will first debottleneck the plants to run at full capacity, look for capacity expansion and hence more market share to sell these added capacity. These guys are very competitive.
Their coming is one of Alhaji's big worries.

First 3 years under the Chinese may not be very profitable for WAPCO. Huge upfront Capex will reduce Cashflow

Sunrisepebble:
Really? I’m loading more tomorrow. If the deal is completed and if they pay the rumored dividend and achieve whispered EPS then the organic valuation of the company is N140+, imagine they add final dividend again of another N4

The last Court case halted any further transaction on the deal till October.

How likely is it going to close by August like you mentioned earlier.

NettyNelly:
About 80% of CI Leasing’s total revenue comes from the marine segment, of which 60% is dollarized. When l dollarized 60% of the marine revenue historically, I observed that It earned about $22.5m from the marine segment in 2023. However, this dropped to $15.4m in 2024 (but fx devaluation made 2024 revenue look higher than the previous year). The drop in $ revenue in 2024 was largely due to its biggest vessel, MV BELLO, being non-operational for some part of 2024. (MV BELLO commands rental rates of $16k–$20k per day, compared to $4k–$5k per day for the company’s other vessels.)

According to management, MV BELLO was scheduled to return to operation in April 2025, which should support a rebound in marine revenue to 2023 levels, or even higher.

With this context, two factors are important for CI Leasing’s 2025 results:
1. Current vessel rates in 2025 are higher than they were in 2023. With MV BELLO back in operation, we expect higher revenue in 2025 compared to 2023.

2. The naira has depreciated significantly since 2023. At current exchange rates, CI Leasing could record higher revenue in naira terms in 2025, even if dollar revenue remains flat relative to 2023.

My Analysis, but Still DYOR

Issue with this bussiness is that they have too much debt (which is normal for the kind of bussiness it operates). But there’s risk of debt of debt to equity conversion which has happened in the last 2 years. This will create more shares and reduce eps

NettyNelly:
Buying the Stock for his sake is quite risky.

About 80% of CI Leasing’s total revenue comes from the marine segment, of which 60% is dollarized. When l dollarized 60% of the marine revenue historically, I observed that It earned about $22.5m from the marine segment in 2023. However, this dropped to $15.4m in 2024 (but fx devaluation made 2024 revenue look higher than the previous year). The drop in $ revenue in 2024 was largely due to its biggest vessel, MV BELLO, being non-operational for some part of 2024. (MV BELLO commands rental rates of $16k–$20k per day, compared to $4k–$5k per day for the company’s other vessels.)

According to management, MV BELLO was scheduled to return to operation in April 2025, which should support a rebound in marine revenue to 2023 levels, or even higher.

With this context, two factors are important for CI Leasing’s 2025 results:
1. Current vessel rates in 2025 are higher than they were in 2023. With MV BELLO back in operation, we expect higher revenue in 2025 compared to 2023.

2. The naira has depreciated significantly since 2023. At current exchange rates, CI Leasing could record higher revenue in naira terms in 2025, even if dollar revenue remains flat relative to 2023.

There’s a one-off Tax payment the bussiness paid Last year, If you normalized the 2025 PAT based on this analysis, you will see significant increase in PAT

My Analysis, but Still DYOR

Omooloriredade:
For your sake, I really do hope it goes as expected. Audited FY 24 result is no catalyst for SP in my opinion. I suggest you temper your expectations.

Maybe fortunes will improve in 2025 quarterlies to light a rocket under the SP or a left field announcement could do the trick.

I could be wrong.

Buying the Stock for his sake is quite risky.

emmanuelewumi:
From my own calculation Nahco ROIC for 2024 was 53%, while Presco ROIC for 2024 was 48%

A bussiness with 25% Return on Capital will get back its Invested capital in 3 years.

With 50% Return on Capital, they will do it in 18 months.

Sunrisepebble:
I’m not arguing about the fundamentals of NAHCO, it’s a great business. My question now is where is it going to. It’s at N101, if we say it makes a N10 earnings for FY, and it trades at 10x PE and pays out N9 dividend then I think it’s fairly priced here, how much capital appreciation is left. If i’m sitting on 50m profit on the stock is it not justified to sell here?

It looked overpriced at 60, even at 80 and now.

Use a masking tape to cover your target price.
You may be existing a potential 5 to 6 bagger in the next 5 years at a good price.

Nahco has been more than a 2 bagger in the last 7 months

emmanuelewumi:
From my own calculation Nahco ROIC for 2024 was 53%, while Presco ROIC for 2024 was 48%

You're right 100%.

emmanuelewumi:
Nahco also uncreased their fees by 150% to 250% in the current quarter

On the domestic flights only. It's happened at the beginning of the year, it's around 100% blended increase

Sunrisepebble:
Only a 10-20% increase from here though.
I love the stock and I’m keeping it because no other opportunity and the solid dividend but I think it’s fairly priced now, unless we see higher than expected growth in the results in subsequent quarters.

We use 18% - 25% cost of capital to judge (discount) most Nigerian businesses, but not upto 20 of the listed companies earn above 25% Return on Invested Capital. A quick Bloomberg screener will show you some names which NAHCO is one of them. A bussiness can only generate excess Return if its Return on Capital is higher than its Costs of capital. Or it has a high growth rate to compensate for it, when the Return on Capital evens out its cost of capital.

If a bussiness is able to generate excess Return above its cost of capital and still manages to grow revenue at a rate higher than inflation, that's a license to print money.

The next question to ask is "Is high ROIC and Earnings growth rate for NAHCO going to be there for the next 5 years?".

A short answer is;
1. The high entry barrier to NAHCO's bussiness is still intact, which fends off competition and keeps ROIC high for the business.
2. There’s still legroom for flight volumes to return to pre-covid levels, with the economy stabilizing. For a bussiness with high operating leverage, this will not only grow NAHCO's earnings but the ROIC as well. Which will translate into the excess cash flows it will distribute to shareholders.

Though we may not have a crystal ball on the strength of the growth engine for NAHCO, but with the high ROIC it has, even with a modest growth rate, NAHCO would still generate excess cash flows for shareholders.

Ades1:
Abeg bros, I have a question and I want you to answer based on your experience.

How much would I need to invest in NGX to have a ₦1,000,000,000 portfolio in 11 years abeg? Lets assume I was able to beat the market by 20% annually.

Just rough estimates is fine. I want to check something

At 20% compounded, to get to ₦1B, you need ₦125M.

Remember the Rule of 72?
72/20 = 3.6 years
So at 20% per year, your money doubles every 3.6 years.

Next Question you should ask is how many doubles can you have in 11 years, at 20% per year?
In other words, How Many 3.6 years do we have in 11 years.
11/3.6= 3 Doubles
If you reverse that doubling (halfing) to get back to starting Capital, it will be ₦1B/2 /2 /2.
₦1B/2 = 500M /2 = 250M/2 = 125M.

hope it helps

emmaodet:
My concern with stocks like betaglass and vitafoam is the business itself.
Vitafoam is not your everyday consumption. You buy it once and for the next 10 years, you may not need another one coupled with the fact that there are many competitors I. The market.
So the earnings may not be consistent.
For Betaglass, the long term sustainability is shaky because government is forcing companies to be switching away from bottles.
I am even surprised that they made grate sales in Q1/25.
Not only did they sell a lot of what they produced, their inventory went down alot which is impressive.
Wondered what happened between January and March to warrant that since it is not festive period when people drink a lot.
But what is obvious is their operating leverage.
Since management and companies have little to none control over cost of goods affecting gross margins, the bulk of reducing operating expenses lies on good management of a company which they have proved.
That is a good management there

Their Biggest Cutomers is NB, it is likely that NB stockpiled packaging inventory in Q1.

Sunrisepebble:
Those who followed me to buy Vitafoam when I was hawking it at N22. congratulations on 100% ROI

Bought at #17

Sunrisepebble:
MTNN is a N350-400 stock in my opinion. I think they will do very close to N1.5trn revenue and N150+bn PAT

Been saying here since. Thank God Someone else is seeing it.

1.5trn in Q1 would be huge but possible.
I am looking at 1.3tr, which is the highest in a Quarter so far. they did 988bn last quarter.

Princkez:
Haaaaa.....
LAFARGE #4 interim dividend ooooo

Please where are you seeing this from?

Is there a way we can listen to or watch Lafarge's AGM tomorrow ?

Does anyone have a link?

emmaodet:
For Osita ....
See below pics

For emmaewumi, didn't snap it but you can always access cash-backed loans from brokers e.g united capital.

This is very helpful. If this is the only thing i learnt today, that's more than enough. Thanks a lot, Bless your heart

emmaodet:
Using 20m in mutual funds at 20% interest rate given 4m per annum as profit as an example.
It means you will have to take a loan that both the yearly interest and one third of the principal can be paid yearly, total payable in 3 years.
Which means you can take a 7m loan and invest in stock payable in 3 years without external cash been used to clear the debt.
1st year, you pay 2.1m interest and 1.9m principal, balance 5.1m.
2nd year, you pay 1.5m interest, 2.5m principal, balance 2.6m
3rd year you clear the loan with roughly 500k cash balance.
Which brings us to the next question - inflation and devaluation in 3 years so as not to render your initial capital useless at the long run.....

Please It would be helpful if you can quote the place Ositadinma and emmanuelewumi taught about this, i will really appreciate that

megawealth01:
If you bought my 5th stock's recommendation, don't be in a rush to sell as it rises. Give it a little time before selling unless you have urgent need for funds. Please keep it for at least 6 months...

Do your own research

Please remind us the stock again

Why is NAHCO with a 10% dividend yield at this price selling off

emmanuelewumi:
Don't cherry pick, better to dollarize the revenue and profit from 2020 to 2024 to find out if there is growth.


You didn't look at the improved efficiency and profitability from 2020 to 2024.

Return on equity increased from 7% in 2020 to 64% in 2024.

Profit margin increased from 4% in 2020 to 24% in 2024.

An investor who got a dividend of N2.54 million last year who will now get a dividend of N5.94 million from the same number of shares will tell you that his dividend income from the stock beat currency devaluation between last year and now

I agree with you. Your numbers are correct.

My point is that you can't use past 5 yrs performance to forecast the next 3-5 years. You have to look at the 3 factors that fueled that type of growth in the past, and discount for it In your projection cause this may no longer be the case.

In Being Paranoid, Management trying to diversify to other areas (hospitality, Logistics etc) will tell you they're looking for growth in other areas. There's limit to how far they could grow depending on price increases alone. And this worries me a bit.