CORRECTED==>> PRESCO RELEASE UPDATED 2012 AUDITED ACCOUNTS

Some weeks back I blogged about the seemingly erroneous Audited Financial Statements released by Presco on the website of the NSE. They have now updated the results correcting some of the glaring errors in the financials. Though, I still have some unanswered questions, particulary with the cash flow statements as well as their valuation metrics for revaluation of biological assets and the tax implications. All the same, Presco looks like a fundamentally sound company and still worthy of my investment.



Presco 2012 Audited Accounts was updated on the website of the NSE

Raymondenyi: Can someonoe be pls kind enough to lucidly elaborate on mutual funds? Am very much interested! Thnk

Ok here is an article I wrote sometime back on my blog...hope it helps you. Cheers





What is a Mutual Fund?

A mutual fund can be defined is an entity that pools cash from a variety of investors for the sole purpose of investing the cash in shares, bonds, treasury bills etc (all together called a portfolio of investments). The profit derived from the diversified pool of investments are shared to investors in the funds annually or semi annually or as stipulated in the fund prospectus.

Who Operates a Mutual Fund?

Mutual Funds are operated by professional investment firms made up of people who are savvy with the money and capital market. Mutual Fund, like in Nigeria can be operated by the Investment arm of banks, stock brokerage firms, investment banks etc.

How is it different from a stockbroking firm?

A stockbroking firm is simply a company that on your behalf and instruction uses its license to buy and/or sell shares on the stock market. With a stock brokerage firm you give them an instruction to buy or sell shares of your choice. You also keep tabs of the performance of your stocks on a daily basis and monitor its performance independently. For a Mutual Fund however, they determine which Investment decisions to make rather than you giving instruction as to what shares should be bought for you or which you intend to sell. The shares you buy with the Mutual Fund is that of the fund and not that of the companies quoted on the stock exchange or indeed any quoted investments.

Do they only invest in stocks?

Off course not. Mutual Funds mainly invest in broad and diversified pool of investments. However these can be grouped into two;

A - Money Market

B - Capital Markets

Money Market - Example of Money Market instruments are Treasury Bills, Certificate of Deposits, Commercial Paper etc. These instruments are mostly debt note with a promise to pay a stipulated interest rates and the principal at a predetermined date.

Capital Markets - Capital Markets are markets where Bonds, Stocks (Shares) are traded on a daily basis. So, a Mutual Fund can also use your money to invest in stocks and bonds. For example, when they invest in shares they hope that the value will appreciate thus increase the value of their fund or making them a nice profit when they sell the shares.

But please note, most mutual funds usually outline the type of investments they hope to invest your money in. This can be found in their prospectus.

Do All Mutual Funds invest in the same categories of funds?

There are mainly 3 categories of funds they typically invest in

I. Fixed Income Funds - These are funds that are meant mostly to invest in fixed income securities. Fixed Income Securities are investments that pay a fixed return on an investment. For example, treasury bills offered by the Government are issued at a coupon (rate) of say 10%pa. Meaning, they pay an interest of 10% on any amount invested. Mutual Funds that are Fixed Income Related look out for safe investments that can guarantee a good income stream. They mostly suited for investors with a long term view towards returns. Fixed Income Funds are safe investments as it mostly involves securities in government securities. Due to the nature of government securities their returns are typically low.

II. Equity Funds - These are Mutual Funds that invest mostly in stocks and shares of companies are quoted. Some funds can also use fund assets to subscribe shares for private placements. Equity Funds offer high returns but are associated with high risk.

III. Mixed Income Funds - Mixed Income funds are a hybrid of Equity Funds and Fixed Income Funds. Because of their diversified nature, they often offer low risk for investors. Low risk as usual is associated with low returns.

Why Should I even Invest in them?

Mutual Funds afford people who do not have the time to invest in the money and capital market or do not know much about the business of buying and selling securities an opportunity to invest and make money. It also gives them an opportunity to save for the futre. By investing in mutual funds you have an opportunity of investing in a portfolio of heterogeneous instruments rather than having your money in just one basket. For example, your N100k investment in a single mutual fund can represent an investment in bonds, stocks, treasury bills etc.

How Much Can I Give them?

Mutual Funds typically have an investment band depending on the nature of the fund. Some can be as low as a minimum of N5,000, whilst some can be N100,000 and others N1,000,000.

Is it Profitable?

Like a every other business Mutual Funds are also exposed to the same risk and rewards that can determine whether they make or loose money. But since no business originally sets out to loose money they will often tell you that they are profitable. However, you can know how profitable a mutual fund is or can be if the fund owners already have a history. Most of the managers already have experience in running funds and so must have track records of their performance in the past. It is also important that you look at what type of returns they intend to offer to their investors.

What kind of returns can I expect?

This depends on the your risk appetite. For example, if you have N100k and think you can invest it in any business of your choice and get a profit of N20%, then investing in a mutual fund that promises 14% returns may not be a good idea for you. The return a mutual fund promises you should also be compared to returns one can get on risk free investments such as treasury bills etc. For example, if a Mutual Fund promises a minimum return of 12%pa and Government Pays interest of 14% on Treasury Bills, then investing yourself may just be a better idea. In general mutual funds will typically offer minimum returns that are benchmarked above inflation rates.

Are my returns tax free

No. The profit derived from investing in Mutual Funds are not tax free. Hence you will be taxed on the profit obtained by the relevant tax authority. Losses from Mutual Fund investment can not also be used to offset taxable profits.

What are open and closed mutual funds?

Open Ended Mutual Funds are funds that are open to continuous issuance of shares to investors. Operators of the fund continue to issue shares to the public to buy into the fund. Investors in the fund who do not wish to participate any further will simply resell their shares to the fund at the subsisting Net Asset Value. They can also reinvest in the funds whenever they want. Some Open Ended Funds also mandate you to keep your money with them for a specified period of time before you can sell or request for your money back. Open Funds are very common.

Closed Ended funds on the other hand are funds that have limited number of shares that are sold at the initial public offering (IPO). Once the IPO is over, the fund closes sale of its shares to the public. Being a regulated fund, the shares are traded on the stock exchange like the shares of any quoted company. So, if an Investor decides he want his money back he will simply put up his shares for sale. The share price of a closed fund are determined by both the Value of the Portfolio as well as the sentiments of investors towards demand and supply. This is unlike the Open Funds that are determined by simply dividing the value of the portfolio by the number of shares issues by the fund.

Which is best for me?

This is a matter of personal choice and risk appetite. Closed Ended Funds are regulated by the Securities and Exchange Commission as well as the NSE. They play by the rules set by the regulatory authorities. Their share price are also published daily on the pages of Newspapers and can also be found on the internet. Open Funds are mostly unregulated and are not traded on the floor of the stock exchange. They are mostly floated by reputable organisations with a track record for performance.

What is in it for the fund managers?

Fund Managers are in it for the fees they charge you for helping you invest your money. They sometimes charge you fees upfront when you invest and also charge you a fee when they make a profit on your investment. Remember, profits are declared after deducting from revenue, cost of investments, statutory expenses, taxes, etc. Managers can charge fees ranging from 2% - 5% of the Value of the Portfolio

janykute: Ugodre,Thanks so much for that wonderful analysis on ETI.My question is this,they awarded shareholders with a dividend of 0.04cent.How much does that translate in naira?If i own like 20,000 units of ETI how much dividend am i entitled to?

At the time they proposed that, the Naira value would be about 63kobo meaning you get a Gross Dividend of Net of N11,340 (after deducting 10% WHT). And its 0.4cents not 0.04cents

ECOBANK - INCREASE PRE-TAX PROFITS BY 95% TO N15.5BILLION - BUY BABY BUY?

Ecobank Transnational Inc (ETI)released its first quarter earnings report for 2013 today to the delight of investors. The company increased its Gross Earnings by 21% to N94.1billion when compared to the same period last year (2011 Q1: N77.7billion). Pre-tax profits also rose an incredible 95% to N15.5billion (2011: N7.9billion). The banks earnings per share at the end of the period was 66kobo more than double the 32kobo posted same period 2011.

What's exciting?

ETI's 2012 result was a mix bag of higher profitability but lower margins. Their profits after tax rose 41% to N45.4billion during the year whilst profitability margins dropped on nearly all fronts. The bank had claimed that the increase in operating expenses as well as loan losses was as a result "one time cost" incurred in acquisition (including Oceanic bank) and provisioning. In 2012, Nigeria contributed over 40% of the banks revenue whilst only contributing 18% of pre-tax profits. However, in the first quarter of 2013, pre-tax profits increased 95% to N15.5billion whilst profitability margins all came out higher than the prior year. This indicates that the bank had not only bettered the prior year earnings, it also did so more efficiently.

A downside of the results for me however, is the increase in loan loss expenses to N4.1billion during the period. In addition, the banks lent less on average than they did the prior year whilst deposits also dropped marginally. The banks lower lending probably is an indication that they are willing to allocate funds to safer assets represented by an increase in their Treasury Bill Assets by 71% to N254billion.

Share Valuation

ETI closed today (23/4/2012) at N15per share. Their trailing P.E ratio is 5.8x whilst their price to book ratio is just under 70%. The share price appears under valued at the moment and an investment I will like to own. However, their ability to reign in on the rise of operating expenses resulting from their M&A activities and expansions into other regions in Africa is key to their underlying growth.





Ecobank posted its results on the website of the NSE

shigidi:

A reason why i still favour diamond bank. NPL are 5% despite growing loans.

Banks mostly manipulate NPL's so you should adjust that to about 7-8% in my opinion.

shigidi: @ugodre, All the banks seem to be doing well. Forward p/e's average at about 5.

True that. My worry however, is their loan losses. Seems not to be abating. But lets see their Q2

BERGER PAINTS POST 2013 Q1 RESULTS - EARNINGS DROP BY 23%

Berger paints Plc posted its 2013 First Quarter earnings report with Revenue rising 12% to N606million. Gross Profit despite rising 6% to N230million did not better 2012 comparative results as margins dropped 5.3%. The company posted a pre-tax profit of N44million (2012 Q1: N57million) SG& A continues to eat deep on Gross Profit Margins. SG& A sliced off 91% of Gross Profit compared to 85% the year before.

I am yet to see an improvement in the companies operational efficiency.

ZENITH BANK PLC Q1 EARNINGS SEE PRE-TAX PROFITS RISE 25.5% TO N28.8BILLION

Zenith Bank released its Q1 2013 earnings report with pre-tax profits rising 25.5% to N28.8billion. Loans and advances also rose 21% to N1trillion and customer deposits also rose 16.5% to N1.9trillion compared to the prior quarter respectively. Below is a break-down of the results

UNITY BANK PLC POST N2.5BILLION Q1 2013 PRE-TAX PROFITS

Unity Bank Plc released it 212 Q1 earnings report with pre-tax profits rising 8.3% to N2.49billion. Loans and advances increased 6.76% to N237.7billion and deposits also rose 10.8% to N299billion compared to 2012 Q1 respectively. Breakdown of the results is below;

STANBIC IBTC PLC POST N10.1BILLION PAT - SHARE PRICE TANKING??

Stanbic IBTC released its 2012 audited accounts with Gross Earnings rising 45% to N91.8billion. Net Interest income rose 21% to N33.5billion and income from commission and fees adding another N25.5billion about 42% of total Operating Income. The bank will go on to declare a profit after tax of N10.1billion, 53% higher than the N6.6billion posted in 2011.

Result Overview

Stanbic IBTC is a well known respectable bank boasting quality employees who have over the years prided themselves as sound investment bankers. In 2011 the bank made N18.3billion in commission and feed following in that up with an impressive N25.5billion in 2012. That's not surprising as most M&A deals involving foreign corporations will often list the bank as a financial adviser. What is surprising however is the huge loan loss write off of about N6.89billion in the year under review. That amount was about 20.5% Net Interest Income, way higher than the industry average of 11.5%. This huge drop affected profitability ratios helped only by taxes which helped pushed PAT higher in comparative terms to N10.1billion.

Market Price Metrics

The bank's share price took a beating today, dropping 5.69% to N12.26 about 24.5x its earnings per share of 50kobo. They also propose dividend of 1o kobo per share yielding just 0.8%. The bank helps investors derive the intrinsic value of equities and investments. It will be a great surprise if they dim the current share price worthy of its value considering the price multiples placed on its better performing peers.


Stanbic IBTC posted its 2012 Audited Accounts on the website of the NSE

PZ CUSSONS INCREASE 9MONTHS PAT BY 200% TO N2.9B

PZ Nigeria Plc released its 9months to 2013 unaudited financial statements with revenue nearly flat at N51.5billion (2011: N51.8billion). Gross Profit at the end of the period was N12.8billion up 12% from the same period last year. Pre-tax profits at the end of the 9months to March 2013 was N3.9billion (2011: N2.3billion).

PZ Operational Overview

PZ Cussons is very well known in Nigerian and has been in operations for decades selling the likes of Robb, Morning fresh, Cussons baby products etc. In the last few years the company has been struggling with dwindling revenue growth and high operating cost. Their parent company PZ Cussons Worldwide (which owns 69% of PZ Nigeria) noted this in the 2012 Audited Accounts claiming that the January 2012 strikes and unrest in the north affected the groups growth prospects. Africa contributed about 42% (£362million or N90.5billion) of PZ worldwide revenues, second only next to Europe. Thus Nigeria effectively contributed about 24% in Global revenues making the country an integral part of its global push for growth.

Result Overview

The fast moving consumer goods market (FMCG) is a highly competitive industry often facing flat revenues and increasing operational cost. To keep afloat, will involves a robust attempt at cost cutting and delivering products that consumers find important and willing to pay for. PZ also operates in the WhiteGoods Household (Home Appliances) sector very well represented by Haer Thermocool products. In 2012, their branded consumer goods segment constituted about 71% of revenues up 13.6% from the prior year. Revenues from Home Appliances however, remained flat growing just 4% year on year. Giving this backdrop, 2013 may well be a more challenging year for the company in terms of top line growth considering revenues remained flat year on year at the end of March 2013. However, cost of sale seemed to have dropped 4% and operating expenses flat both helping the company increase its operating profit by a commendable 73% to N3.8billion. This has helped operating profit margin increase to 7.5% and inevitably more than doubling pre-tax profits margin.

Its probably too early to celebrate but this result gives one a sense of direction at reigning down on cost. Revenue might probably also not get anywhere close to meeting 2012 five year high of N72billion. But if cost is kept low (no debt) then earnings will surely beat 2012's disappointing result. Whether they can keep Gross Profit Margins to around 20% by year ends will be key.

Share Price Valuation

PZ Cussons rose highest in February 12, 2013 N44.48 and dropped to N35 on April 8. Today (19/4/2013) it traded for N42 up 7% on release of this result. The current P.E ratio is a high 69X and Price to book ratio 4.07. The two valuation metrics is enough to conclude its an expensive stock. Nothing in the valuations justifies this type of premiums on their earnings. Last year's ROE was just 6% and based on the current result increased to 6.6%, factor in inflation at thats a negative returns already. As it is, April 2012 may have been the best time to buy this stock.



PZ Cussons, 2013 9months unaudited results was posted on the website of the NSE

GT BANK Q1 2013 RESULTS REVIEW: PRE-TAX PROFITS UP, MARGINS DOWN

GT Bank Plc released its 2013 Q1 unaudited results with Gross Earnings increasing 20.83% over the same period last year to N63.5billion. Net Interest Income, the core revenue streams for banks, increased 6.34% to N33.4billion. Pre-tax profits at the end of the period was N28.5billion (2011:N24.3billion).

The above results while better than last year's, is a reflection of shrinkage now being experienced as yields on government securities start to drop. Net Interest Margins which was 81% in 2011 dropped to 77.3% and 73.9% in 2012 and 2013 respectively. Whilst this is pretty much the trend now, the large increase of loan losses is a worry. Could it be a one time write off, or beginning of several write offs that may occur during the course of the year? It will be interesting to see where this takes us to.

Loans and advances increased 5.4% year on year though, some might expect that it should have been more. Loans and advances grew 10% between Q1 2012 and Q1 2011. Deposits also grew 5.4% to N826billion as the bank strives to hit the N1.5trillion mark. GT Bank share price at the close of business 18/4/2013 was N23.7.





GT Bank Q1 Earnings Report was posted on the website of the NSE

shigidi:

Couldnt you also say that diamond wanted to keep the cash since they still intend to raise $750m??

That is not the case. They just don't have distributable reserves so can't pay dividends. Dividends can only be paid if a company has distributable reserves or not.

Born 2be Rich: I noticed that of recent, some stocks for example diamond bank decided not to pay dividend or bonuses so that they can grow and expand, yet some shareholders were displeased with the action leading to a sharp fall in price...

So i want to find out, as an investor, do you prefer dividend paying stocks or non dividend stocks that may rise in value in the future?

It doesn't really matter as the decision to pay or not doesn't affect the inherent value of a stock. Rather than bother on what the market does ask your self these questions.

1. Did the company fail to may because they don't have distributable profits? If yes then that's a company in trouble

2. Did the company refuse to pay because they made profits and don't have cash? If yes, then that's a company with liquidity issues

3. Is the company not paying because it made a loss in the current year despite having distributable reserves? Then that's a company either trying to crawl out of a hole or sliding further in.

4. Is the company not paying because it wishes to invest its earnings? Then you must check to see if its trailing ROE is above your expected returns or at least above local bond yields.

Diamond Banks case I think was the first

Sterling Bank Q1 2013, Results is out

Sterling Bank released its 2013 Q1 Unaudited Results. My first impressions are that they seem to be reigning in on cost. They also earned good money (over N5b) on other investments. They also continued with their aggressive lending by N18billion. Their deposit base also grew 13% from last year. Does this erase all the worried of 2013? certainly not. But is it a good start, yes it is. Your opinions pls

Aks: Hi Ugodre,

Unity bank just released their result and i think it's fairly ok giving the stock price (0.67) as at the moment. I need your professional analysis for guidance. Attached is a copy of the result

I have seen the result and it is a marked improvement. However, they need to improve on their efficiency by reducing operating expenses and increasing operating income. At N0.67 the stock is quite cheap considering its book value and earnings. But they have negative retained earnings of N14.7billion,meaning they cannot pay dividends this year and going by their current PAT, it would take them two more years. If you factor that in, then 67kobo may well look expensive. The stock even shed 5.63% today but that shouldn't deter you. There lies a buying opportunity if you believe in the ability of the management to turn things around. Cheers

SKYE BANK POST N12.6BILLION PAT: LOAN LOSS STILL SKY HIGH

Skye Bank Plc released its 2012 Audited Accounts posting a Gross Earnings of N127.7billion up from the N102.3billion posted in 2011. Net operating profit at the end of the period was N15.6billion, a massive 480% improvement from N2.8billion posted in 2011. The bank will proceed to post a profit after tax of N12.6billion an over 870% rise from the N1.3billion posted a year earlier. Things couldn't have been better or is it getting worse?

Result overview

When a bank increases earnings by more than 8x it is either the prior year result was a loss or a major plummeting of profits. It could off course also mean that the current result was due to some exceptional income or extra-ordinary income that are unlikely to occur again. So what was Skye Bank's issue? Skye Bank suffered a tumultuous 2011 writing off about N26billion in loan losses. The bank just barely managed to post a profit of N1.3billion. In August 2012, the CBN put restriction on banks participating in foreign exchange auctions. Their share price took a beating on that announcement as investors expected the bank to incur huge cost in its inter-bank lending rate.

Skye Bank's Net interest Income Margin for 2012 was 44% way lower than the industry average of 60%. The bank thus incurred N66 in interest expense for every N100 of interest income earned. As if that was not enough, the bank further wrote of another N13billion in loan losses during the year taking the total write offs for just two years to a whopping N40billion. Their 2012 write off is about 30% its Net Interest Income. Compare that the Diamond Bank at 19%, Zenith at 5.8% and GTB at 0.6% and you know how bad that is. Return on Equity at the end of the period will end up being 12.2% and Return on Assets just 1.6%. Financial Year 2012, despite being an improvement on 2011 results, provides a platform for erasing the errors of the past. The only problem is that for banks, the past is mostly always representatives of the future.

To buy or not?

Skye Bank announced a plan to raise 150m (N24billion) to shore up its value and furthermore the capital adequacy ratio. Its share price was N5.80 today shedding 3.3% on the day. The share price is currently 6x its current earnings per share of N0.95 (95 kobo) and 28% less than its net book value per share. So if you are asking if the share price is cheap on those basis then it surely is. But that would be a misleading pricing mechanism. The risk of further loan losses is still lurking and competition is rife in the industry, so putting an extra 17% discount on the current price will be a good start for the bargain hunter. Nevertheless, for those who have the risk appetite, it probably time to buy,



Skye Bank 2012 Audited Accounts is posted on the website of the NSE

MacLovington: Union Bank analysis has remained somehow elusive......good job though.

The results are not out yet

DANGOTE SUGAR POST N10.8BILLION PAT...BUYING OPPORTUNITY?

Dangote Sugar is one of the most profitable arm of the huge conglomerate owned largely by Africa's richest man. The company released its 2012 audited accounts posting a revenue of N106.8billion. Operational profit at the end of the period rose 49.5% to N16.3billion (2011: N10.9billion) helping increase post-tax profit to N10.8billion at the end of the year or an earnings per share of about 90kobo per share (2011: 62kobo).

Result overview

This is one of those result that fails to deliver organic growth but yet increased profitability by almost 50%. How was this possible? Despite delivering flat revenue growth the company managed to cut down cost of sale by nearly N8billion resulting in a 55% boost in gross profit. The more than 100% rise in SG&A could be attributed to the high cost of doing business, a common peculiarity with manufacturing companies. But that is more of a worry rather than excuse considering that this rise is the highest in the last 4 years of operations. Before now S,G & A was highest in 2009 at N4billion. To get a grip of what this means is to imagine the impact of revenues remaining flat in the next couple of years and expenses rising at this trajectory.

Naysayers to my worry will probably look to the wider economic outlook for the industry to allay my concerns. The GEJ government last year boosted the local sugar industry when it announced it will remove import duties on machinery and spare parts used for sugar processing. A tax holiday was also announced as part of the incentives just including a higher tariff for importers of Raw Sugar. A recent article on Financial Times also suggest that by 2020 Sub Saharan Africa will rely less on imports of Sugar and become a net exporter of the commodity. Nigeria consumes about 1.4million metric tons of sugar per year and produces about 1million metric tons. What this all means is that the prospect for growth is there for Dangote and in typical fashion, with the help of the government.

Buying opportunity?

Dangote Sugar share price ironically dropped 4.6% today to N8.3 per share. The share price as risen nearly 150% year on year and at todays has a price multiple to earnings of 9.2x. It is proposing a dividend per share of 50kobo, representing 56% of current year's earning and a current yield of 6%. The company still has a revenue reserve in excess of N20billion and a cash pile of about N25billion at the end of the period making its related party loans innocuous. I wouldn't miss this buying opportunity if I have the cash.

Some might wonder if the current price is a bargain? That depends on your metric and what you are looking for. An ROE of 25.3% look impressive to me and justified by an equally good ROA of 21%. The company also has no debt rendering the high price to book ratio (2.5x) unnerving. Surely, all this attributes may not classify the share price as cheap but it certainly isn't expensive.



Dangote Sugar 2012 Annual Report was posted on the website of the NSE

This was my review of Dangote Sugar sometime last year after they released their 9months earnings. They have just released 2012 full year results which I am currently reviewing. Why don't you wet your investment appetite with this while the review comes up soon.

STILL SWEET – DANGOTE SUGAR 2012 9 MONTHS EARNINGS REVIEW

Dangote Sugar released its 9months 2012 unaudited accounts growing revenue by 2% to N81b compared to the same period last year. The growth rate is down from the 10% posted in the first six months of this year, indicative of a slow down in demand in the second half of this year. However, Gross profit margin rose 51% to N15.5b as direct cost (cost of sale) gulped nearly 80% of turnover. The cost of sale N65b is down 5% from same period last year even as inventories dropped by more than half to N8.8b from the N19b it held same period last year. This is bound to reflect positively on cost.

Operational Profit also increased to N11.2b representing an 82% rise over last years figure. Pre-tax profits was N12b helped by interest income of another N796m for the period. Dangote Sugar is known to borrow less from banks as it relies heavily on cash from its parent company to fund its operations a model that is not immune to its own frailties. However, with net cash flows from operations of N15b, the company is in a sound financial footing with enough liquidity to compete. Investments increased three folds to N2b, still it is just 13% of operating cash flows.

Earnings per share was for the period was 68kobo 85% higher than the 37kobo posted same period last year and 47% higher than the 46kobo it earned the whole of last year. It’s early times as the last three months of the year is usually known for exceptional and extraordinary items which can make or mar a companies full year earnings. But with pre-tax profits in excess of N12b there is enough comfort for shareholders to remain optimistic. Share price has remained steady at N5.3 currently down from its year high of N6.75 in October. Nevertheless, this still represents a sweet price earnings of 7.79x and even sweeter at 5.82x when annualized. My taste buds must be buzzing.

FIDELITY BANK PLC POST PAT OF N18.2BILLION- SOUND INVESTING?

Fidelity Bank Plc is currently the 6th biggest bank in Nigeria and is probably N60billion - N80billion short of 5th in terms of Net Assets. The Bank released its 2012 Audited Financial Statements with Net Interest Income jumping 20% to N36.8billion. The banks also made an additional N40.4billion in commissions and other income, making up more than half of the the total operating income of N72.6billion. Pre-tax profit also rose to N21.8billion (2011: N161million) after a 2011 that saw loan losses wipe out over 33% of Operating Income.



Result overview

Fidelity Bank's annual report is not yet out however one can rely on their 9 months earnings report break down where their strength lies. Like most banks this clime, the bank's net income has mostly relied on risk free high interest yielding government securities. The bank also increased lending 23.7% during the year to N345.5billion, representing half about half its total deposit base. Corporate lending takes up 74% of its total loans. The bank claims its non-performing loan levels currently stands at 6% down from 13% the prior year. But that is not surprising, most banks this year are expected to claim a better loan loss ratio despite lending more.

How does one now predict where the risks lies and when it may crystallize? The bank has a well balanced loan portfolio lending to almost every sector of the economy. As at September 2012, Manufacturing had the highest with 24% followed closely by the transport& telecoms sector at 22%. You may be wondering why they merged up both telecoms and transport? I am wondering too!! A more pertinent question may well be how the two(three?) sectors perform in the coming years. After all, banks don't operate in a parallel market. When the wider economy starts to tank expect banks to follow suit two to three years after. Thus, if investments in manufacturing and the transport sectors don't grow as expected the bank is bound to suffer as well. The telecom sector one might argue has been struggling to reman profitable amidst stiff competition. We all know the problems with manufacturing.

Measuring the bank efficiency levels is somewhat tricky considering the distort created by the disparity in loan losses in the comparative years. So, if we are to eliminate loan losses, it will appear the bank's cost cutting measures had improved by about 9%. Earnings per share following IFRS has improved from a dismal 9kobo (2011) to 63kobo per share (2012).



Worth Investing?

The Banker Magazine named Fidelity Bank the "Soundest Bank in Nigeria" (whatever the heck that means). Their share price is currently N2.99 down from its year high of N3.47 back in February. Using its year high price of N3.47 will produce a price earnings ratio of 5.5X. The current marked value is also just 53% its Book value, a huge discount of a price. Mind you, even at this price their share price has grown 119% in the past one year.

Banks operate in a cyclical market where there are constant boom and bust cycles making it difficult to hold for long. However, if there was such a time it was worth investing in Fidelity bank then it probably is now.



Fidelity Bank Plc 2012 Audited Accounts was first posted on the website of the NSE

mercylicious: Fidelity bank result is out.
http://www.nse.com.ng/Financial_NewsDocs/2334_FIDELITY_BANK_PLC_FINANCIAL_STATEMENTS_APRIL_2013.pdf

Plz review.

Yeah I've seen it. I'm currently reviewing it.

johnnykuku:
 think this company need serious change in management

which company?

This was my review of Guinness Nig Plc back in February. Share price has crashed to N260 today (15/4/2013) since then. N200 anyone??

REVIEW: GUINNESS NIGERIA PLC RESULTS SHOW SHRINKING MARGINS

There have been so many quotes about greatness in the past but none as short and precise of that of a French Mathematician in the 17th Century who aptly believes “Mans greatness lies in the power of his thought”. What he however didn’t mention was that greatness even wen achieved is not static, and must always adapt to changes in environment and off course competition. Guinness Nigeria Plc a company that associates its brand with Greatness knows that much and admitted in its half year earnings report that results “inflationary pressures” and “high interest rates” have all but ensured that “bottom line growth” is “suppressed”. Currently as was reported months ago in a blog post, their earnings report currently falls short of the greatness that it espouses.

Competition is rife and the Nigerian beer market is flooded by brands which for the first time we can say are of good quality. One way to also fight competition and maintain market share is to flood the market with products that cuts across market segments. A ?model companies with years of dominance and high margins love to hate but yet adopt. Its no wonder Guinness introduced Snapp a product that lovers of Smirnoff Ice, Gordon Sparks and ever Malta Guinness will also like. That’s a move not borne out of an attempt to give customers variety but to stave off competition from similar products that on the contrary rank as premier for lesser known competitors.

Moves like this cut hard on margins and its no wonder Gross Profit Margins for 6 months to December 2012 to shrunk 2.9% when compared to the same period last year. Operational Profit margin also shrunk comparatively by 8.13% due to increase in Advert & Promotional Cost as well as Admin expenses. Despite all of this Guinness Nigeria Plc is still one of the best performers on the Nigerian Stock Exchange and still consistently report profits. A return on equity of 16.2% for the first half of the year is still very much impressive. Cash flow from operations N16billion very much covers its loans repayments of N4b and investments on capex of N9billion.

For dividend seekers, the current share price of about N297 provides a 2.6% yield, a return that should only please the most risk averse investors you can ever think off. As per capital appreciation there is a different but nonetheless expected feel. Share price has risen 35% over the last one year even though at 24% it fell below the NSEASI of about 35% as at December 2012. A pricey N297 per share provides a P.E ratio of 33x . With growth slowing and equally good stocks like GTB & Zenith trading at P.E’s of 12X and 10X respectively, then you wonder what is great about buying this stock for 33 times its trailing earnings.

This was earlier written in January...then its share price was N22.71, today (15/4/2013) its N21.25 and I believe the market is waiting for its 2012 Audited accounts to swoop. Despite its relatively good fundamentals the current price is not a bargain price considering its high P.E and PB ratios.

INTERNATIONAL BREWERIES – DRINK UP, OUR SHARES IS STILL RISING

Take a sit, relax and here…. have a cold beer. Except that it is not one of your regulars. This one is called Castle Beer and by the way they have Castle Milk Stout if you care. The Nigerian Beer market is set for a massive competition and boy haven’t we been over due. A market currently dominated by the likes of Nigerian Breweries (Heineken) and Guinness (Diageo) with 64% and 33% market share respectively makes the grand entry of SAB Miller simple a no brainer.

SAB Miller, the worlds second largest Brewer second only to AminBev (owners of Corona, Stellar, Budweiser) and their entry into Nigeria is whether they admit it or not is a defensive tactic designed to protect their territory from the seeming expansion of the likes of Heineken and Diageo. Nigeria is Africa’s second largest beer market (South Africa is first) and is estimated to be growing at about 6% per annum. Nigeria’s Per capita consumption of beer is also estimated at about 10liters per year compared to South Africa’s 60 liters according to SAB Miller website.

For a hawkish investor, information like this is treasure map and more often that not leads to where the money is. SAB Miller has invested in about 4 breweries in Nigeria but only one is notably quoted on the Nigerian Stock Exchange. International Breweries Plc have been in the Nigeria market for years but without much growth to bottom line. That trend seems to have reversed with the acquisition by SAB Miller last year. In fact if you had invested N1m in SAB Miller by August last year, when they opened the brewery in Onitsha, that money would be worth N3.2m today, a whopping 323% increase in value.

Whilst market sentiments and the bullish nature of the Stock Exchange may have had a part to play in this, the company fundamentals currently does a lot to sustain the rally. Revenue jumped 31.3% year on year at the end of their 3rd quarter 2012. Operating profit on the other hand increased a whopping 130% year on year despite a surge in operating expenses. Much of their efficiency was their ability to maintain a modest 7% increase in cost of sale despite a triple digit increase in revenue. Debt is also very low as finance cost remain below 4% of Operating profit. Operating cashflows are equally strong at over N3billion and Net Assets more than doubling in just 9 months.

A healthy balance sheet, if nothing is what SAB Miller may have provided as well even as the company continues to project growth in revenue. They forecasted an additional N6b to top line revenue for the period between October and March 2013. Though not the kind of rapid growth that is inline with its bullish stock price, still it is in line with current trends.

Not all beer tastes nice and certainly the figures in their financial statement are not without apprehension. They still retain a negative working capital of about N3b following their Q3 unaudited results as trade payables soared 400% to N14b in just 9 months. The accounting impact of their huge investment in plant and machinery ay take its toll in the coming years they begin to write down cost of wear and tear on their assets. For now though, relax and enjoy the moment and remember as you sip, put your money where your mouth.

This was written in February as well and expect its audited accounts this month as well

RED STAR EXPRESS – DELIVERING RETURNS TO INVESTORS

Red Star Express Plc is a leading logistics and delivery firm who recently appeared on the news when they acquired an airside facility at the international airport in Lagos. The moves help them cut back on the time wasted in clearing their goods from the airport. ?The company released its 9months to Dec 2012 unaudited results with revenue rising modestly by 6.88% to N3.8b when compared to the same period last year. Pre-tax profits remained flat only increasing 1% to N361m compared to same period prior financial year.

Red Star is a tightly held company with Dr Koguna (Chairman) and the company named after him owning about 31% of the company. In fact, 56 people own a total 72% of the company’s nearly 590m outstanding shares as at the last financial year. Despite this, the company appears very well run having posted consistent profits and dividend payout over the years. Last financial year it posted revenue of about N5billion up 19% from the prior year and CAGR of about 10% over 5 years. Much of its revenue are derived from its courier business making up 68% of revenue last year alone.

Typically, businesses like this are the bellwether for predicting economic growth in the west, as the performance of delivery businesses is an indication of how economic activities are performing in terms of the sale of goods and services. It’s not so in Nigeria, the room for growth in delivery business is hinged on huge infrastructural development such as roads, safer airspace etc.

Between the end of the end of the last financial year and date of the post their share price has risen over 39% to N3.40. Current P.E Ratio based on its trailing Eps of 55kobo is 6x, a cheap stock if you ask me. The company has no long term or even short term debt to any financial institution, has a strong working capital of N1billion and about N600m in cash as at the end of the quarter ended Dec 2012. The company currently relies on its assets to drive returns as margins are thin at 9%, however, shareholders can’t complain much with 9 months returns on equity at 15%. Surely, the balance sheet shows the company is well placed to expand its business efficiently if it can just borrow below its impressive returns on asset of 11%. Its cautious and organic approach to growth is understandable and surely will evolve to a more aggressive one in future. Just as customers want their goods delivered not only safely but quickly, investors look forward to a sustainable double digit growth in revenue every quarter rather than depend on the fourth quarter to boost revenue.


The share price was N3.80 as at today (15/4/2013). I still think this stock is cheap on the back of the 9months result.

This post was earlier written on my blog in February. I think its a prelude to their Annual results which I hope should be announced this month or early next month.

ACADEMY PRESS – NO PRESSURE TO DELIVER

Imagine owning a business that earns you a profit of N40,000 for every N1million it generates in revenue, meaning the remaining N960,000 is spent on direct cost and other expenses. Not worth your time right?? Wrong!! Time don’t matter to some as has been the case for Academy Press over the last 5 years. The company recently released its third quarter to December 2012 unaudited results with revenues increasing a meagre 1.3% to N1.55b when compared to the same period last year. Operating profit however also remained flat at N119million whilst pre-tax profits dropped 41% to N21million.

Directors at the company are quick to blame the harsh economic environment as a reason for the poor results even as they also blamed the violence in the North as contained in the Chairman’s statement at last financial year’s annual report. In that same report they also highlighted the need for the Government to ensure Universal Basic Education Contracts for supply of books are given to books printed in Nigeria. These narratives are not uncommon and is surely not enough excuse for some poor operational results. A thin profit margin of less than 2% indicates operational expenses are high gulping 86% of Gross Profit in the first 9months.

The company will lay claim to its 11% drop in cost of sales as a sign of reigning down on cost even though a review of how it measures its closing stake may throw more light to their claims. “Goods in transit” and “Paper” make up over 71% of Inventory in 2012 and 65% a year earlier.

The shareholders may not be too bothered anyway? Not when 18 of them own over 65% of the outstanding shares. A board with an average age of over 50 (by my estimates) surely can’t be lured into taking a risk that might result in some dilution of ownership; a recipe for intrusion and pressure to adopt a more aggressive approach to increasing margins. Currently, the company seem satisfied with a 40/60 debt equity ratio with the inexpensive bank of industry loans making up about half of the loans. As far as they’re concerned their Net Assets of N764m is currently valued at about N1.4b and possibly rising. Is it your money??

Their share price was about N1.64 back in October and rose to over N4 a month later before crashing to about N1.62 at the end of the year. The volatility in its share price remains as it has now risen to N2.82 as at the time of writing this blog. You just can’t bet on this can you? Its free cashflow per share of 79kobo makes its current share price seemingly expensive. Equate that to its last year dividend per share of 7kobo and current market price of N2.82 and you get a yield of 2.4%.

NOTE: Share price was N1.85 today (April 15, 2013)

manie:

UACN is a conglomerate, you need to get and analyse the annual report of UACN to get the contribution of of UAC Foods to UACN bottomline. Grand cereals, another subsidiary of UACN contributed more to UACN bottom-line than the real estate subsidiary.

Good observation. But also note that UAC Restaurants hasn't done so well and saw a 65% drop in Revs at the end of H1 2012. In fact, they have successfully spun off that arm of their business putting it in line for a potential sale. That is the same business model the likes of Tantalizers, Big Treat etc operate. As per UAC foods it is still doing well but facing shrinking margins. Their Tiger Brand affiliation may well be a turning point for them. Cheers

shigidi:

Going by the analysis of.diamomd bank and sterling. Doesnt this make skye high risk as well? Assets as a percentage of loans is 20%

It does seem so too. They have to either shore up capital or reduce lending. Lets see what their full year report reveals

Also this was a flash back review for Skye Bank 2012 H1 results.


Skye Bank released its Q2 earnings and gladly did not disappoint. The bank kept up with impressive results recently released by Diamond Bank, UBA growing is Gross Revenue by 22% to N59.66b. The Bank also managed to increase its Interest Income by 26%, from N38b to N47.88b. However, total operating income only grew by a paltry 0.92% from N32.8b to N33.11b.

The Banks Profit After Tax at the end of the period was N8.19b a 39% increase from the N5.86b earned in the same period last year.





Bottom Line

The Banks seemingly impressive profits after tax when compared to the same period last year, boils down to cost cutting. The Bank was able to save over N2b in operating expenses over the N25b spent in the previous year. This is commendable as most banks have realized the need to drill down on cost amidst a highly inflationary economy and strife competition. The Banks profits may even had been better, had they been able to lower interest expense, which increased 59% to N24.75b. This resulted in an Gross Interest Income Margin of 48%, lower than the 57.8% margin obtained in the prior period. However, we bank profits not margins so a N23m net interest income, 2% over the prior year is welcomed. The bank has basically remained profitable via a combination of growth in revenue and a mix efficiency in operations.

On the balance sheet side, it does seem the banks is stretched in terms of loan to customer deposits. The Bank has lent out about 81% of its total deposits. Its Loans is also more than 5 times its Net Assets, still acceptable by CBN standards. However, the banks needs to increase its deposit base to about N1tr if it is to remain very competitive amongst its peers.

Share Price

According to the Meristem Research below, the Bank currently has a Price Earnings Ratio of 5.4X, making it relatively cheap. Its market price of N3.07 (as at time of this report) is 38.9% of the Book Value Pershare, meaning that the market price is way less than the Book Value. These are indicators of a cheap stock by any standards.

Josh121: Please i need your analysis on Oando , and transcorp , also Unitybank

As mentioned their results are not yet out. But here is a review of Oando's Q3 I wrote a few months ago.

OANDO, THINNER WITH MARGINGS STRONGER WITH EARNINGS


Oando Plc released its 9months 2012 unaudited accounts with revenue jumping 24% to N487b when compared to the same period last year. The company posted a Gross profit of N50b as direct cost gulped almost N90 of every N100 of revenue it made. Operating profit increased marginally by 9% to N25b when compared to the sale period last year. However, this was just 5.1% of revenue as against the 5.8% posted last year. The drop in margins doesn’t start or end there. Gross Profit margins was 10% compared to 11% same period last year and profit margin dropped even further to 1.9% from the 2.2% posted same period last year.

Oando Plc, continues to invest heavily in plant and machinery this year, sinking in over N17b in pp&e alone. The company is leveraging on its huge assets of N486b to borrow funds which it has used to finance it operations as well as investments. With long term debt and overdrafts of almost N260b it will need more than 43 times its current operating cash flow to repay its debt without having to refinance or source for additional equity. That is wishful thinking in the current clime as a combination of new equity and net increase in receivables remain the only logical option. Its not as if this is an immediate threat to its operations as banks will remain happy to lend to the local oil giant especially with turnovers set to hit N500b this year.

For shareholders, margins maybe thin and interest payments as a percentage of operating income twice more than comfort levels but returns on equity is where you’d expect at least for now. At almost 9%, it still is below inflation rate but far exceeds what was earned in the whole of 2012. Earnings per share for the first 9months is about N4.4, more than double the N1.62 for 12 months last year. Its share value has lost almost 62% in 12 months trading at N11 currently. The market suggest it is rising again

Kennyfancy: pls d person posting this analisis.. pls i would like to contact u.. my email kennetheganyomake@gmail.com... pls drop ur numb.. plsss 08164421812

You can send me an email on ugodre@yahoo.com cheers