R.T. Briscoe (Nigeria) Plc

Company Overview

RTBRISCOE was incorporated as a private company on March 9, 1957. It went public in 1973 and was quoted on the Nigerian Stock Exchange (NSE) in March 15, 1974.  It is principally engaged in the sale and service of Toyota and Ford motor vehicles, forklifts, industrial compressors, mining and drilling equipment and generating sets. Its subsidiary, Briscoe Properties Limited, deals  in facility management, property development  and property leasing while CAWS Technical Nigeria Limited sells industrial equipment.

Mr. Clement Adekunle Olowokande is the chairman of an eight-man board comprising seven non-executive directors and one executive director.  Mr. Bukola Oluseyi Onajide  is the managing director.

Investment Thesis

The sale of motor vehicles and industrial equipment slowed. This is a cause for concern because it is the major contributor to earnings.  The company also makes money from the servicing and maintenance of Ford and Toyota motor vehicles. However, the company has recently lost its Ford dealership. This will no doubt impact earnings negatively as motor vehicles account for about 80% of its turnover.    

Property development and motor vehicle servicing both have a gross profit margin of 30%, the highest for the business. However their joint contribution to total revenue is about 10%. Management should aggressively grow the non-auto business, having lost its Ford distributorship in Nigeria. But this may be difficult in the short-run owing to declining purchasing power of consumers caused by the meltdown in the country.

RTBRISCOE is debt-laden and increasing debt servicing cost has made it difficult for the company to make profit.  A total of NGN9.3 billion was outstanding at the end of September, 2016 compared to NGN11.1 billion recorded at December, 2015. Short-term debts accounts for over half of total indebtedness . Unless the company can restructure the loans, it may face an uphill task meeting its maturing short-term obligations. Also, better working capital management will reduce untoward pressure on profitability and solvency. This is particularly important now.

Returns have not been encouraging because the company has been making losses after tax since 2012. And shareholders are not adequately compensated for their investment in the company.

Management plans to restore profitability by pruning the business of unprofitable segments, running down inventories and restructuring some of its debts.  However, we will continue to keep in touch to see how management turns around this ailing company.

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AFRICA PRUDENTIAL REGISTRARS PLC

Company Overview

AFRIPRUD, formerly UBA Registrars Limited, was incorporated in March 2006. It was a spin-off from UBA Plc occasioned by the directive of the Central Bank of Nigeria to banks to divest from non-banking subsidiaries. The spin-off was approved by the shareholders on 13 December, 2012 and it was listed on the Nigerian Stock Exchange in January 2013.  It provides share registration services to private and public companies.

The acquisition of UAC Registrars in 2013 is an asset for AFRIPRUD. UAC Registrars Limited (founded in 1978) is a former wholly owned subsidiary of UAC Nigeria Plc.

International Equity Capital controls 24.7% of its shareholding while Heirs Holdings Limited has 12.8% stake in the company.

AFRIPRUD’s investment in technology enables clients   to have access to the company’s services online. Its products include   e-registrar solutions, e-dividend, e-offer, and  e-replacement.

Peter Ashade is the Managing Director of AFRIPRUD while Chief (Mrs.) Eniola Fadayomi is the company’s chairman.

Investment Thesis

Fee income is growing despite the economic quagmire; it accounts for about 40% of revenue. The company is generating considerable income from investment in treasury bills, bonds and term deposits. Though its contribution declined in the year, it poses less risk to the company. Interest on treasury bills form the bulk of net investment income.

Investments in technology and human capital have impacted revenue positively; AFRIPRUD has recorded a 12.2% CAGR in revenue over the last three years. Improved investment capability has enabled the company to grow net investment income by 51.9% in three years. Also, we expect process automation to deliver some cost savings and efficiency going forward.

We believe if management does not relent, AFRIPRUD stands to benefit from the opportunities in the registrar industry in the country. 

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How much is PHARMDEKO worth?

Company Overview

In a bid to promote its pharmaceutical products, Parke-Davis & Company (US) started a non-trading branch in Nigeria in 1962. In 1969, it was incorporated as Parke-Davis & Co (Nig.) Limited.  And a change of name to Pharma Deko Limited was adopted in 1980. In addition to pharmaceutical products, it produces consumer products like SANS Cream Soda, Dextra Black Currant drink and Bien Flavoured water. 

The directors control about 80% of the shareholding of the company. Mr. F.R.A. Williams chairs the board while Mr. J.A. Abibu is the managing director.

Investment Thesis

Revenue growth added 5.2% to grow by 12.6% over the past three years on a 3-year CAGR basis. However, this is less than 29% achieved two years ago. Pharmaceutical division lost 4.2% whereas the consumer products segment dropped by 6%. In addition, revenue growth of its different segment has been erratic.   Administrative expenses as a ratio of turnover jumped to 74.3% from 31.4%.

Earnings Per Share (EPS) surged to NGN6.6 from NGN1. Despite a fall in revenue (year-on-year), returns to shareholders got better in the year under review.

The working capital management is a plus for the management; consequently, the company is not headed for liquidity problem. The company has been reducing its indebtedness in order that profitability will not be impaired. In fact, giant strides have been made in this regard.

Capital spending has been responsible for dwindling free cash flow. PHARMDEKO does not pay dividend regularly to shareholders.  Instead, it ploughs back its profit into the business and this has reduced the need to borrow heavily to expand the business or upgrade its capacity. We believe the shareholders stand to benefit from this going forward.

We are of the opinion that sales will rebound once the recession in Nigeria abates. Equipment overhaul halted production and led to a revenue decline in Quarter 3 of 2016. 

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Tips on Personal Financial Planning

A considerable number of us do not plan for life in retirement. Unfortunately, our future financial security is not determined by how much we are making now, but how much we can keep and for how long. Corporate and government pension schemes have proved to be unreliable. In Britain, they talk about Self-Invested Personal Pension (SIPP) while the Americans call it Independent Retirement Account (IRA). No matter the nomenclature, you have to make an alternative provision for yourself.

It is estimated that we will need about 60% to 70% of our current income after our active years are over. We can estimate the amount we will need at old age. First, estimate how long you will live for after retirement (say 30 years); then multiply by 60% of your current income (say, 60% of NGN1.2m per annum= NGN720, 000). Thus, you will need NGN21.6m during your old age (30x NGN720, 000). Divide NGN21.6m by the number of years to retirement (how long you still need to work), say 25 years, you need to save NGN864, 000 annually (NGN72, 000 monthly). Using the power of compounding to your advantage, you do not need to save NGN72, 000 monthly for retirement. Assume you invest at 10% interest for annum, you need to save a total of NGN1, 993,594 now (NGN21.6m= P (1.1)²⁵)! You could save what you need to secure your future in less than 5 years.

The following are guides on securing your future:

1. Reduce your liabilities: Liabilities are things that drain your financial resources, e.g. car loan, mortgage and so on. Reducing them will help increase your savings which can be used for investment purposes. Wise people save first and spend the remainder, not spend first and save the remainder.

2. Stocks Investing: Stocks offer a much higher return but is risky if you are not financially informed. However, when you do your homework, you could profit from the ignorance of other market participants.

3.  Real Estate: This investment vehicle is safer than stocks but has a lower return. A great obstacle is the huge capital requirement which makes it available to only those with enough capital.

4. Treasury Bills and Government Bonds: These are government securities that are completely risk-free. However, their returns are very low.

5. Insurance: It is a good investment. One could become an annuitant receiving a fixed payment for a specified period or for life after retirement. However, a lot of us in this part of the world have yet to embrace it.

6. Emergency Fund: Keep fund for exigencies. It could be in a bank savings or any other liquid asset.

UNION BANK OF NIGERIA PLC

Company Overview

UBN, one of the first generation banks, started as a branch of Barclays Bank Dominion Colonial Overseas (DCO) in 1917. In 1969, it was incorporated as a private limited company in Nigeria. UBN went public a year later and was subsequently quoted on the Nigerian Stock Exchange. The new UBN is an amalgam of the old Union Bank, Universal Trust Bank Plc, Broad Bank Plc and Union Merchant Bank Limited in line with the consolidation programme of the Central Bank of Nigeria.

Having divested from non-banking subsidiaries of Union Trustees Limited and Union Pensions Limited, the bank’s principal activity is the provision of banking services. It plans to offload UBN Property Company Ltd and Atlantic Nominees Ltd.  Union Bank UK Plc is its UK subsidiary which is responsible for about 2% of its revenue and 6% of its total assets (2014: 8% of total assets)

Foreign investors account for 85.9% of its shareholding. Union Global Partners Limited, a consortium of investors, now holds 65% (2014: 61.39%), while Atlas Mara Limited retains 20.9% equity stake in UBN. Thus only 14.1% is available for diverse investors.

Mr. Cyril Odu was appointed to chair a 17-man Board of Directors on November, 2015 while Mr. Emeka Emuwa is the chief executive officer (CEO). The management has embarked on restructuring of its operations to increase its brand preference and image. Its efforts include upgrade of its branch network and information technology in order to create a stronger and reliable bank.

Investment Thesis

The bank has shown improvement since it was recapitalised in 2011 by The Asset Management Corporation of Nigeria (AMCON) and Union Global Partners Limited. But management need not rest on its oars. The bank is divesting from its non-banking subsidiaries to focus on banking. However, the retail banking’s contribution to revenue has been on the decline in recent years. It is lucrative but could expand the creation of risk assets.

But UBN has a remarkable experience and performance in treasury and investment services such as issuance of short term notes, money market investment management and fixed income sales and trading.

UBN operates only in two countries-Nigeria and UK. The subsidiary in the UK only accounts for about 2% of its revenue and about 7% of its assets.  Returns to shareholders are low and the bank is trying to rebound after recapitalisation. And such they depend largely on capital appreciation.

UBN is cautiously growing its loan portfolio. Asset quality seems to be improving. And we are of the belief that retail deposit mobilisation will increase its margin going forward. Also, this will improve its internal capital generation and its liquidity.

It should watch its capital level as this is on the decline. It is creating more risky assets than it is growing its capital. The bank is not consistently generating positive free cash flow. Shareholders have been benefitting from non-dilution since 2011. And a decision to raise more capital from the market may erode their wealth.

We would like to keep tabs on the company to see how management’s efforts at restructuring the bank and putting it on the pedestal of profitability pan out. We may still witness another round of consolidation in the industry going forward.

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The Richest Man in Babylon

The Richest Man in Babylon is an ageless literature that is written in old-fashioned English. Though written in the 1920s, it has become an indispensable companion for anyone who craves for wealth. Scintillating stories were used to expound the essentials of financial prosperity in an ancient setting (Babylon) for readers to have a grip on the subject-matter. George Clason seeks to acquaint the readers with the “Wisdom of Age” which is, undoubtedly, immutable even in this dynamic environment of ours. According to him, “Gold is reserved for those who know its laws and abide by them”.    

RULE 1: “Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family”.

The only way to secure your future is to earmark 10% of your income for asset accumulation. Endeavour to keep your expenses under control. A well-designed budget will instil discipline into you so that you could set aside your “seed money”.

RULE 2: “Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field”.

Make gold work for you. It is a tiny seed that grows into a mighty tree. Therefore, take advantage of opportunities to multiply your seed money.

RULE 3: “Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling”.

The need to seek professional advice before investing cannot be overemphasized. This is the only viable option available if you want to preserve your capital.

RULE 4: “Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep”.

Only invest in companies whose businesses you grasp easily. Dig deep to unearth valuable information before investing. Avoid climbing on the bandwagon- do a thorough analysis.

RULE 5: “Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment”.

Gambling is different to investing which is concerned with purchasing something of value that will yield a fair return commensurate with the risk assumed over the holding period. Gamblers fall easy prey to fake financial advice.

These laws will help to fatten your lean purse and enjoy the best things of life.

Mitigating your risk with exchange traded funds

It is probable that the expected return from an investment  differs from the actual return. The investor has to contend with two major types of risks-diversifiable and non-diversifiable risk. Some risks cannot be diversified away by holding a portfolio of investments. The investor still has to face the risk associated with the whole economy e.g. exchange rate, interest rate, environmental, legal and inflationary risks. But it behooves the investor to avoid the security-specific risks by holding a diversified portfolio of securities. But oftentimes it is expensive for the investor to hold a diversified portfolio of investments. Exchange Traded Funds (ETFs), like mutual funds, can do the magic. But unlike mutual fund, they may trade at a discount or premium to their Net Assets Value (NAV) per share. NAV is total assets minus liabilities.

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With ETFs the investor is afforded the opportunity of owning part of a portfolio managed by an experienced fund manager for a fee. An ETF could be designed to track equities, government bonds or corporate bonds.  The fund manager aims to replicate the performance of an index by holding a portfolio that is a typical representative of the constituent securities of the tracked index such as S & P 500, Nikkei 225 and DAX.  For ETF that tracks a stock market index, it can hold all the shares or a sample of a stock index or target a specific sector of the stock market.

ETFs are not constantly traded by the fund managers to take advantage of daily movement of the indices. Therefore, the expense ratio of an ETF is often lower than that of an actively managed portfolio of investments. However, they are reappraised at regular time intervals to reflect changes in the composition and weighting of the securities in the benchmark index. ETFs are actively traded on the stock exchange like other stocks or bonds and can be obtained through the stockbrokers.

An astute investor can benefit from investing in ETFs in Nigeria. Although the Nigerian economy dipped 1.5% in 2016, the fundamentals remain strong.  Many stocks are trading at a hefty  discounts to their intrinsic values. The NSE All-Share Index lost 5.1% year to date but has gained 21.6% over the past 5 years.  Unitholders of ETFs are usually exempted from paying taxes on the dividends they receive and capital appreciation upon disposal.

 

LOTUS HALAL EQUITY ETF

It was listed on 14th November 2014 to track the NSE Lotus Islamic Index(NSE LII) of the Nigerian Stock Exchange. NSE LII comprises 15 Shari’ah compliant stocks from five sectors of consumer goods, industrial goods, healthcare, agriculture, oil and gas. It is reviewed periodically in order to ensure that component stocks continue to comply with Islamic principles. Distillers/brewers, tobacco companies, non-islamic banking companies are excluded. It comprises large-cap companies like Dangote Cement, Nestle, Mobil, Dangote Sugar, FO, Mobil ,etc.

Investors have the opportunity to invest without compromising their religious beliefs. The index has lost 24.6% since inception. However, the NSE LII gained  6.5% month on month. It is managed by Lotus Capital Limited. 

International Breweries Plc

INTBREW, formed by Dr. Lawrence Omole in December 1971, did not start operation until 1978 when its flagship product, Trophy Lager, was first produced. It became a public company in April, 1994. Subsequently, the company got its share quoted on the Nigerian Stock Exchange a year later.  

In a bid to prevent the company from going under the company embarked on reorganisation of the business. In 2008 funds were sourced from the Nigerian Capital Market in order to put INTBREW on the pedestal of profitability and growth. In the same year the Warsteiner Group relinquished majority of its shareholding to the Castel Group, a French brewer. These climaxed in the overhaul of its operations and the subsequent resuscitation of the Trophy Lager beer. In addition, other world class brands were introduced to widen its product portfolio and its revenue base. In January 2012, SABMiller Plc, a South African brewer founded in 1895, entered into strategic alliance with the Castel Group. 

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Turbocharge your portfolio with Access

With an asset base of over NGN3 trillion, ACCESS remains one of the biggest banks in Nigeria. Its expanded branch network has contributed to the growth it has achieved.

Deposit expansion trails loan expansion. Therefore, it has raised $300 million Eurobond and commercial papers of NGN35 billion in the year in a bid to shore up its capital and take advantage of opportunities in the countries where it operates.

We believe that the decision of the management to explore the retail market will drive cost of funds down and impact the bank's net interest margin positively going forward. Revenue from this segment jumped by 38.7% in 2016 compared to 33.6% of 2015.  However, it accounts for only 17.2% of total revenue and 3.1% of total assets. Its contribution to total PBT is 13%; PBT margin is   17.9%, up from 1.8% of the preceding period.

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The Business of the 21st Century

Robert Kiyosaki was brought into  spotlight by the Rich Dad Series which counselled readers to take charge of  their  finances. The Business of the 21^st Century was written by Robert Kiyosaki, John Fleming and Kim Kiyosaki.

The authors averred that the rules of the 21^st century are entirely different from those of the industrial age. Employment in the corporate world, pensions and real estate could secure one's future in the industrial age. There is no such thing as job security in the information age and establishing your own business is the surefire way to securing your future.

Capital should not be an obstacle to creating your own business. All you need to do is persuade the customers to purchase your products. And your employees will make a lot of money for you. Ayn Rand, author of Atlas Shrugged, said, “Wealth is the product of a man’s capacity to think.”

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Are you an intelligent investor?

Being an intelligent investor is not dependent on your IQ or academic prowess. It is more of the character than the brain. Fortunately, everyone can cultivate this character! An intelligent investor is one who does not give full rein to his emotions. He exhibits enthusiastic desire  to learn and is patient enough to dig deep before committing resources to any investment vehicle.

Your best investment ideas will come when you do your homework. Spend time reading annual reports of companies, industry articles and investment magazines like InvestmentFrontiers. Stop wasting your time predicting the direction of the market. Always do your own investigation. Stop depending on those who make a living advising people to take unreasonable decisions.

Sir Isaac Newton was a failure!

He was a man of genius and, undoubtedly, one of the greatest scientists of all time, by all standards. Isaac Newton discovered gravity and made immense contributions to mathematics and science. His investment in shares dates back to 1720 when he bought the hottest stock in England then South Sea. Newton cashed in on the unsteady nature of the stock market, walking away with £7,000 (making 100% profit).

However, he later succumbed to the madness of the market participants by buying overvalued stock. By allowing his judgement  to be clouded, the world's greatest scientist acted like a fool losing £20,000 (worth over $3 million now). Until his death, Newton prohibited people around him from mentioning "South Sea". Sir Isaac Newton was indeed an investment failure!

How to finance your child's education

Secure your child's future

The cost of financing good quality education is becoming a financial burden on parents. It is therefore absolutely imperative for parents to seek alternative sources of funding their children’s education. There are many affordable plans by financial institutions in the country that can ease the burden on parents and help secure their child’s future. But parents should take into consideration factors such as interest rate, flexibility, additional benefits and ability to use it as collateral for loans.

Your dream of  giving  your children the best education they deserve can be achieved if you start with as little as NGN1,000. We will apprise you of products that can ease the burden on you.

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