VITAFOAM NIGERIA PLC

Company Overview

VITAFOAM produces flexible polyurethane foams for beddings and rigid foams for insulation in industries such as oil and gas, construction, agriculture, automotive, food processing and pharmaceuticals. 

Management has been growing the business by branching out into the production of allied products through its domestic and foreign subsidiaries. This has helped the company to broaden its product portfolio and achieve operational efficiency and profitability. 

Investment Thesis

Management has been growing the business by branching out into the production of allied products through its domestic and foreign subsidiaries. This has helped the company to broaden its product portfolio and achieve operational efficiency and profitability. 

Revenue has grown annually at a Compound Annual Growth Rate (CAGR) of 1.9% over the past three years. Nigeria produced a revenue increase of 2% (on a three-year CAGR basis) while operations outside Nigeria lost turnover of 37.9% on a three-year CAGR basis. Revenue from foam products, its flagship products, was NGN15.4 billion up from NGN11.7 billion, gaining 31.7%.

Debts are mounting and the interest payment has had a negative impact on net earnings and profit margin. Profit Before Tax (PBT) margin, which has been on the decline, was less than 1 percentage point. Profit After Tax (PAT) margin was -0.7%. Moreover, VITAFOAM obtained a NGN2 billion loan in September, 2017 to shore up its working capital.

VITAFOAM's shares should offer investors an expected return of 30.1% consisting of capital appreciation of 23.7% and a dividend yield of 6.4%.

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How much should you pay for Prestige?

PRESTIGE began operation as a Nigerian branch office of The New India Assurance Co. Limited in 1952. It was incorporated as a wholly-owned subsidiary of The New India Assurance Co. Limited in January, 1970 and named The New India Assurance Company (Nig.) Limited.

It enjoys the financial, research and technical support of The New India Assurance Co. Limited, an insurer established in 1919 with strong presence in Asia and Africa.  The experience of PRESTIGE in the Nigerian insurance sector spans over six decades.

Earnings growth has been unstable. And the company has been accumulating losses since 2012. The value of accumulated losses at the end 2017 financial year stood at NGN347.3 million (2016:NGN776.5 million, 2015:NGN991.9 million).  This halted dividend payment. Consequently, the management has succeeded in seeking approval to write off the accumulated losses in 2018 so as to pave way for payment of dividends to shareholders.

Company's performance has started getting better since 2016. Gross premium written profit improved by 7.6%, underwriting profit was NGN254.1 million compared to an underwriting loss of NGN422.3 million of 2015. Profit After Tax (PAT) was NGN222 million when compared to NGN145.3 million loss after tax of 2015.

Read full report in InvestmentFrontiers Magazine.

It is time to fire your adviser!

Many investors are dissatisfied with the services they receive from their advisers despite the bogus claims the advisers often make. You should look beyond the excellent sales presentation and hype. If he does not ask you about your goals and other factors that will determine the suitability of the product for you, your insurance agent may probably be only interested in making his commission. Furthermore, a stockbroker may coax you into buying shares of a company with a streak of losses. He makes money no matter how much you lose. If you buy shares that have proven to be bad investment, your stockbroker makes money twice when you buy and when you sell. A lot of investors are of the opinion that many advisers cannot justify the fee they collect from their clients.

Read more in InvestmentFrontiers Magazine.

Champion Breweries Plc is fairly priced

CHAMPION, a brewery, domiciled in Akwa-Ibom State, Nigeria was incorporated on 31st July 1974 as South East Breweries Limited. It was later renamed Cross River Breweries Limited. The company became Champion Breweries Plc on September 1, 1992 and its shares were quoted on the Nigerian Stock Exchange a year later.

Champion Lager Beer, its flagship product was launched in 1976. The company also produces Champ Malta, a non-alcoholic malt beverage. CHAMPION was shut down in 1990 due to working capital problem. It, however, resumed operation in 2001.

CHAMPION raised capital through rights issue and paid off its debts. Though it is debt free, the company's accumulated losses stood at NGN8.6 billion at the end of 2017 financial year. This prompted it to seek approval to write off its accumulated losses. We expect the company to resume payment of dividend soon and attract more investors.

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Guinness Nigeria Plc

Company Overview

GUINNESS is a subsidiary of Diageo Plc, a famed brewer of long-running brands with strong presence in 180 markets across   the world. It boasts of leading brands such as Guinness Foreign Extra Stout, Malta Guinness, Harp Lager Beer, McDowell's, Smirnoff Ice and Origin Spirit Mixed Drink. Diageo Plc controls 58% of the company.

Product relaunches and quality improvement assisted by Diageo Group have helped it carve a niche for itself in the Nigerian market. Besides, management has been unrelenting, continuously innovating and creating brand awareness through robust promotional campaign and strong community presence. 

Investment Thesis

GUINNESS acquired the right to market the brands of its parent company (Diageo Plc) such as Baileys, Gordons, Captain Morgan and Johnnie Walker in Nigeria. This has broadened its product portfolio and is expected to improve its earnings going forward.

Earnings growth has been unstable over the past seven years. Turnover appreciated by 6.5% while Profit After Tax (PAT) depreciated by 4.8% on a 3-Year CAGR basis. Marketing and distribution expenses jumped from NGN25.3 billion to NGN26 billion, representing a 2.9% hike.  

Read Full Report Here.

PBC LIMITED

PBC Limited emerged from Produce Buying Division, a department of the Ghana Cocoa Board. Ghana Cocoa Board is responsible for the production, processing and marketing of cocoa, coffee and sheanut. Produce Buying Division was incorporated as a limited liability company in 1981 and became a wholly-owned subsidiary of Ghana Cocoa Board. It was rechristened Produce Buying Company two years after incorporation.

Having completed its retooling, PBC Shea Limited would enhance earnings of PBC once it is fully operational. Golden Bean Hotel has yet to contribute positively to bottom line after three years of operation. Although it produced GH 10 million revenue in 2017, the hotel had a net loss of GH 2 million compared to GH 1.7 million of the year before.We are of the opinion that Golden Bean Hotel would benefit from being located in Ashanti, the most populous region in Ghana, which boasts of tourist attractions such as Centre for National Culture and Lake Bosomtwe.

Nigerian Breweries Plc

Company Overview
In 1863 Gerard Adriaan Heineken, against all the odds, decided to purchase a brewery at a time when the brewing industry in Amsterdam was witnessing a declining fortune. What began in the 19th century as a small family business has been transformed into a world-class company. Heineken N.V. has seen it all- two world wars, crises, boom, slump, decline and growth. Having been on the global stage for about one and a half centuries, Heineken N.V. is, undoubtedly, one of the most viable and well-run businesses in the world. Sales and marketing expertise, quality manufacturing skills which are important distinguishing core competencies of Heineken N.V. have reinforced its leading brands which have been around for more than a hundred years.

The Heineken Group controls about 56% of the largest brewing company in Nigeria, Nigerian Breweries Plc (incorporated in 1946). NB prides itself on the brewing and marketing of lager beer, stout and non-alcoholic malt and soft drinks. Its brand portfolio includes Star, Star Radler, Gulder, Maltina, Heineken, Fayrouz, Legend Extra Stout and Amstel Malta.

Investment ThesisNB has a well-established distribution chain. The company generates positive cash flow and high returns for the shareholders. Return on Equity (RoE) reached a 14-year average of 38.7% and dividend yield amounts to 3.1%.

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Neimeth International Pharmaceuticals Plc

Company Overview 

NEIMETH prides itself on the manufacture and sale of pharmaceutical and animal healthcare products such as Pyrantrin, ncp, Pancemol, Ciklavit and Neiva Stress.  The company commenced manufacturing and distributing Pfizer brands of pharmaceutical and veterinary products in 1957. Following the management buy-out of the 60% equity stake of Pfizer Inc.( New York, USA) in Pfizer Products Plc in 1997, the company was renamed Neimeth International Pharmaceuticals Plc.  The divestment of Pfizer Inc. paved way for the launch of its own brand of healthcare products.

Investment Thesis

Management has transformed NEIMETH from being a licensee of Pfizer Inc.  to developing its own brands. Brands such as Pyrantrin, ncp and Pancemol are well patronised in the market. Its relationship with Pfizer Inc and other international brands will help bolster product portfolio and boost revenue.

Recommendation: Hold

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Investment Report on Accelerate Property Fund (Updated)

AFP has a portfolio of 67 properties worth R12.3 billion. We believe that Fourways Mall development would improve shareholders' value when completed. Fourways, Johannesburg, has a good transport network and capacity to attract  office and retail accommodation tenants. South Africa accounts for 89.4% of gross leaseable area and 91.7% of turnover of AFP.

The European operation made revenue of R100.1 million at year end (March 31, 2018) which translates to 8.6% of total revenue in the year under consideration.

Revenue has been growing by 18.4% in the past three years. Investors enjoy tax benefits as they are exempted from capital gains tax and they do not have to pay securities transfer tax whenever they buy and sell their shares.

Read full report here.

How to recognise your investment emotions

The most critical factor that determines your investment success is the ability to control your emotions. Emotions becloud your judgement and make you biased if you fail to contain them. 

Pride

This prevents you from acquiring the requisite knowledge before committing your money into an investment. You may believe that you can never make mistake. Pride goes before a fall! Even successful investors have to do research before investing in any asset class because past events do not guarantee future success.

Recency bias

When you use short-term information to invest over the long haul, you are bound to fail. The fact that a stock has been rising in price in the last three months does not justify long-term investment in the stock. You have to dig deep to determine whether the price is as a result of market sentiments or improved performance of the underlying company.

Wanting to belong

Every human being wants to belong. But jumping on the bandwagon by buying popular stocks without doing your home-work first is a sure-fire way to investment fiasco.

Analysis paralysis

Fear of losing money or fear of being wrong may prevent you from taking advantage of opportunities in time. You keep analysing time and again. In other words, you over-analyse. Once your investment criteria are met, grab the stocks.


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Investment Report on UBA

Company Overview

In 1949 the British and French Bank Limited, a subsidiary of Banque Nationale de Crédit (Paris), began operation in Nigeria. It was against the backdrop of Nigeria's independence from Britain that British and French Bank Limited metamorphosed into UBA in 1961. UBA became a company quoted on the Nigerian Stock Exchange in 1970.

Investment Thesis

It has a large distribution network in Nigeria from where it derives roughly 75% of its revenue and 73% of its Profit After Tax (PAT). Total deposits have grown at a 3-year compound  annual rate of 9% compared to 5% of a year ago. However, loans are expanding faster than deposits which has pushed total debts to over NGN500 billion. 

Financial Overview

The bank's turnover has increased at an average of 18.9% over the past six years due to a steady rise in interest income. Interest income has been growing at compound rate of 19.2% in the last six years.

Read Full Report Here.  

It is time to buy

The Nigerian stock market is in the bear territory having loss about 20% from its last peak as indicated by the All-Share Index. Foreign investors are reacting to political tensions leading to 2019 elections in Nigeria by liquidating their holdings on the Nigerian Stock Exchange. Investors, generally, feel apprehensive about the prospects of companies and a selling spree ensued sending stock prices into a tailspin.

It is time to go contrarian since the fundamentals are strong. Crude oil price is above $70 per barrel in August, inflation rate is down to 11.14%, the official exchange rate is relatively stable against the dollar and external reserves hover near $47 billion. Other macroeconomic variables, of course, have not deteriorated. We advise investors not to embark on panic selling; rather, they should look for buying opportunities in the stock market. There are quality stocks trading below their fair values.

Read free investment reports on companies trading below their valuations HERE.

Before you take a plunge

As an investor, you do not need to jump on the bandwagon due to the hype in the property market. It is never too late to invest in real estate. Whether you are buying your first or twentieth property, you should be concerned about the future prospects of a city not the past. And because real estate involves a substantial capital commitment, you need to first do a fundamental research. Ask probing questions to uncover the potential of the area and ascertain the reasons for rising demand to determine whether the momentum can be sustained or not. Before you buy any property, consider the following:

Rising average income

If an area's average income is rising faster than the state or regional average, property prices will be propelled upward. Strong demand may push price up even when average income in an area is unchanged or declining such as when retirees are attracted to an area. This can only be profitable in the short-run but not in the long-run.

Growing population

The influx of people into an area is an indication that property prices may rise. If an area can boast of a conducive environment to business, people will be attracted to it. The availability of ample job opportunities, proximity to an industrial estate, security, lower tax rate, friendly labour law and industrial harmony signal that property prices will rise in the future.

Proximity to a town witnessing a price hike

Real estate boom in a town or city may eventually spill over its borders into neighbouring towns. A redeveloped area witnesses a price hike that spreads to surrounding older towns.

Transportation expansion

Major transportation upgrade pulls in buyers and tenants. This drives property values up and reduces vacancies.

Double Your Money In Ibeju-Lekki

Ibeju-Lekki Local Government is a coastal area carved out of the old Epe Local Government in Lagos State. It can be accessed from Lekki, Epe and Ikorodu. Property prices in Lekki are out of the

reach of the middle-income workers who work in Victoria Island, Ikoyi and Lekki. This makes Ibeju- Lekki the next property hub for the

middle-income investors who may wish to enjoy rental income and property appreciation in future. A lot of estates have sprung up and we expect many more soon. We expect massive developments in the area in the coming years.

Lekki has witnessed huge developments in the last few years and prices of properties have skyrocketed. The Lekki Free Trade Zone will make Lekki an important industrial estate in the next few years. When the Lekki Deep Sea Port and the airport are completed, Lekki would be the gateway to the world.

The Lekki axis has been witnessing influx of people which would put pressure of property prices going forward. The proximity of Ibeju-Lekki to Lekki has made it the next property destination for the middle class. Though few developments are taking place in Ibeju-Lekki, we expect demand to increase. Over the long term we expect Ibeju-Lekki to deliver handsome returns. Major real estate acitivity in the area still revolves around land buying and selling and construction of mostly residential property. Demand for land is on the increase as many investors discover the opportunities in the area. Land is affordable in Ibeju- Lekki; it ranges from NGN1.3 million to NGN5 million.

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UAC of Nigeria Plc

Company Overview

UACN is a diversified business whose operation in Nigeria dates back to 1879. The company is an active player in the food and beverages, real estate, paints and logistics sectors of Nigeria's economy. Its subsidiaries include UAC Foods Limited, MDS Logistics Limited, UAC Restaurants Limited, Chemical and Allied Products Plc, UACN Property Development Company Plc, Grand Cereals Limited, Warm Spring Waters Nigeria Limited, Livestock Feeds Plc, Portland Paints and Products Nigeria Plc. UACN boasts of leading brands such as Gala Sausage Roll, Supreme Ice Cream, SWAN Natural Spring Water, Dulux paints, Debonairs Pizza and Binggo Dog Food.

Management has been growing the business through both organic and inorganic means. The ability to consolidate its market share in the Quick Service Restaurants (QSR) business through franchising is a plus for the management team of UACN. Besides, the company acquired Livestock Feeds Plc and Portland Paints and Products Nigeria Plc in order to enhance its market share in the relevant segments of its business.

Mr. Daniel Owor Agbor chairs an eight-man board of directors while Mr. Larry Ettah was appointed the managing director in January 2007, after about 2 decades with the company.

Investment Thesis

UACN is a leading player in the food and beverages industry with its brands of Mr. Bigg's, Gala, Supreme Ice Cream and SWAN Natural Spring Water. Food and beverages had a revenue boost of 17.5% in 2016 compared to 8.1% of the previous year. It is responsible for about 70% and 50% of total revenue and Profit Before Tax (PBT) respectively.

Though this segment has low margins, we believe that increased sales volume and cost containment would help improve earnings and margins. The company mitigates its risks with a broad product portfolio. The margins from paints and logistics are encouraging despite the harsh operating environment. Paints produced 10.4% (2015:12.4%) of revenue and had a PBT margin of 25.4%. However, the company made a huge loss of NGN1.8 billion from its real estate business despite recording 25% revenue rise. Food remains its core business and revenue from this segment has been increasing over the years. UACN should benefit from the Quick Service Restaurants business owing to the large branch network of its franchised restaurant, Mr. Bigg's. Gala Sausage Roll remains a leading brand in the country. We hold a buy recommendation for UACN at the current market price of NGN17.39. Historical Price/Earnings (P/E) ratio is 5.6 times and Price to Sales is 0.4 time. Earnings yield gained 5% to end the year at 18%. Total assets are growing; Book Value Per Share and Sales Per Share averaged NGN36.5 and NGN40.7 respectively.

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Quick Steps to Restructure a Business

A company that is consistently under-performing and losing its market position needs to restructure its business. Contrary to popular opinion, it is not all about cutting costs and downsizing. This is because doing so may jeopardise the ability of the business to compete well going forward. And there is a minimum resource level required to make the restructuring process a success. In fact, you may need to increase the staff strength to enable the business tap opportunities and turn the corner. The following steps are important for a successful restructuring:

1. Obtaining Background Information

Before you can successfully diagnose the business and proffer solutions, you have to understand the nature of its  business. It is essential in order to identify the company's  strengths and weaknesses. In addition, you much juxtapose the company's strategies  with competitors' strategies to determine how industry participants position themselves in the marketplace. Understanding the industry will uncover industry key success factors such as product performance, product quality, distribution network, cost structure, service delivery and so on. 

2. Examining the Company's State of Affairs.

A company embarks on restructuring because things have gone awry and the company needs to be resuscitated. You must investigate deeply the causes of dismal performance. It would help determine which part of the business can be retained or which one should be discarded. Also, you would know whether the business is overstaffed or understaffed. 

3. Devise a Blueprint

The commitment of the staff of the company is required for the plan to be carried out successfully. Therefore, they must be involved in crafting strategies to revamp the company. In addition, external stakeholders such as banks and creditors have to be involved. For instance, the restructuring process may need loan from the company's bankers. 

4. Execution and Review

Strategies outline the courses of actions to achieve stated objectives. There won't be results if strategies are not followed through. Furthermore, there must be a review to ascertain whether things are working according to plans. This will reveal what works and what doesn't work. This is how the company can stumble on a great strategy because what works on paper may not work in reality.

Double Your Money

Doubling your money might be a major headache to you. No worries,  Rule 72 will do the magic. Assuming that you know the rate of return on any investment vehicle-interest rate on deposit, capital appreciation on sticks, and rental income-number of years to double your money is 72 divided by the rate of return.

Number of Years to Double= 72 ÷ Rate of Return

This is a quick screening method to know whether the investment suits your risk appetite. So, you do not have to dissipate energy digging deep when the payback period is unappealing to you.

Contrarian Investment Strategy

Eugene Fama and Kenneth French propounded the ''Contrarian Investment Strategy'' which requires the investor to embrace stocks whose prices are in the dumps because they have fallen out-of-favour with most other investors-being greedy when others are fearful and being fearful when others are greedy. This is in tandem with the secret of successful investing which requires an investor to buy low and sell high.

Warren Buffett, under the tutelage of his mentor, Benjamin Graham, imbibed this principle. He, however, modified and christened it ''Selective Contrarian Strategy''. While the traditional contrarian strategy does not consider the long-term fundamentals of the company to be invested in, selective contrarian strategy advocates investing in low-priced companies that have long-term economics that can make their prices soar in the future.

Warren amassed stupendous wealth by taking advantage of the ignorance of unscrupulous investors in the capital market. Templeton described himself as a ''Philanthropist'' because he was buying from people ( when they sell out of fear), and selling to them (when they buy out of greed). What a philanthropist!

Ten Trading Rules From Bernard Baruch

Bernard was born on August 19, 1870. He became a broker and then a partner in A.A. Housman & Company. Thereafter, he established his own brokerage firm (1903) and was a well-known financier on Wall Street.  Bernard was a millionaire in his early thirties. Presidents Woodrow Wilson and Franklin Roosevelt appointed him as economic adviser due to his success in business. He laid down the following rules:

1. Don’t speculate unless you can make it a full-time job.

2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of “inside” information or “tips.”

3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.

4. Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars.

5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.

6. Don’t buy too many different securities. Better have only a few investments which can be watched.

7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.

8. Study your tax position to know when you can sell to greatest advantage.

9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.

10. Don’t try to be a jack of all investments. Stick to the field you know best.

Towards a Better Credit Control

The major cause of credit risk is lack of regard for credit control policies. Companies have their liquidity expunged by accumulation of huge trade receivables. In most of them, management overrides laid-down credit control measures.

The Boards of directors  sometimes fail in discharging their oversight functions. And the song on the lips of everybody is: Strengthen the risk management in these companies. Suffice it to say that the chief cause of failure of all risk management measures is neglect of the implementation of the measures put in place to reduce the undesirable effects of risk.

P.M. Stevenson, a credit expert in the U.S., proffered the following guides for the effective control of credit risk:

1. Classify your customers based on their credit-worthiness.
2. Set a credit limit for each customer and refuse to give credit that a customer cannot handle conveniently.
3.   Avoid ambiguity in stating the terms of payment before the credit is given.
4. Ensure that probable excuses are eliminated by delivering only goods in good condition to the customers or giving allowance for faulty ones immediately you have been notified.
5. Use correspondence, telephone conversation and visits by key officers in trying to collect debts.
6. Do not hesitate to write-off any debt that seems irrecoverable, instead of wasting valuable resources in chasing the customer who has defaulted.
7. Maintain a proper record of sales debtors by compiling a good sales ledger.
8. Periodic, regular reports on debtors, their outstanding balances and overdue accounts should be given to the management.
9.  A periodic target of cash collection from debtors should be set and monitored.

Navigating the Sales Crisis

The upshot of the abating economic quagmire is dwindling corporate earnings. So, measures must be adopted to rescue the business from imminent collapse. Taking your sales to the next level requires the following purposeful action steps:  

Ø   Positive Attitude: Negative attitude, during conversations, inhibits sales success. Be optimistic and associate with optimistic people.

Ø  Sales Goals: Formulate your sales goals and act on them. Top salespeople often encounter rejection. When you run into obstacles you have to refuse to give up. As Henry Ford once said, “Failure is the opportunity to begin again, more intelligently.” Obstacles are latent opportunities.

Ø  Superior Services: It is an irrefutable fact that the reason most customers do not repeat their purchases is they feel you do not care, or show indifference. Make a list of your top customers, and call one each day, asking,” Is there a way I could serve you better?” It opens the doors of endless possibilities.

Ø  Gain Access: Ask for referrals from great customers; send out helpful information to key prospects. If you can uncover information about the prospect-such as his or her challenges (business or personal)-and then research information and materials that could be useful for that person, it makes a lasting impression.

Ø  Listen More: Most customers prefer salespeople who listen more but talk less. Get them talking about their challenges, goals and interests.

Ø  Follow Through: When you follow up with a call, a thank-you note, it ensures that the customer  feels important and not like he or she has been sold.

Nepotism and Investment

Investment by firms is a key determinant of future growth and value of the business. This is the reason why shareholders often sacrifice current dividends in return for future capital growth. Workers selected based on family ties rather than merit may lack the requisite skills for investment decisions. Relatives are often less qualified than outside workers because they are selected from a smaller pool of candidates and for reasons that are unrelated to their skill. As a result, they are not adept in  recognising valuable investment opportunities. In addition, they may enjoy protection from being fired when performance is subpar or receive utterly unwarranted  remuneration not commensurate with performance.

Relatives often  often exert minimal effort. And  lenders perceive firms employing family members as riskier thereby reducing the ability to procure external finance for investments. It is pertinent to note that siblings and children have the more damaging effect than spouses and distant relatives. This could be attributed to the fact that directors are often reluctant in delegating real authority to spouses and distant relatives.

The presence of several ties among top managers is detrimental to investment in physical assets and R&D. Nepotism in recruitment does not increase the  value of the firm and private investments in the economy.

Courtesy of BIS