A friend of mine once told me he hated reading financial analysis and reviews by stockbroking and investment firms despite their very in depth and constructive assessment they conduct on company results and projections going forward. For those seeking to invest in stocks, such information can be very useful especially if you are not financial savvy or do not have the time to conduct an analysis yourself. To him though, motive was more of a concern than ignorance. He believed the motive behind every financial analysis representing those firms was make you sell or buy a stock. As such no matter how “fair” their reviews might be, one is forced to buy or sell the stock meaning they make money either way. That to him was a much larger risk than not knowing anything about the company’s financials in the first place.
Well, some four years back one of such reviews had a caption directly opposite from mine above, saying, “Starcomms: A rising star”. The review assigned a long term buy option on Starcomm valuing it at 36% higher than its market price at the time which was about N14.57. Today the share price just 50kobo and has basically been so for the past year. Unlike the share price that has fallen by over 100% since then, its losses has continued to rise since the company began operations in 2003. Since it began operations in 2002 it has only made profit in once, in 2007, posting a cumulative loss of over N47billion as at December 2011. Now that is not a company of the rise.
Starcomms, like most CDMA firms have faced their fair share of competition, shrinking market share, high capex cost and meagre investments. It is why recent news that the company had just struck a deal that we see it loosing control of about 90% of its equity in exchange for cash and assets of about $210million could be seen as a light in tunnel for a “star” that has failed to shine. According to the official market bulletin of the NSE which provides details of the deal, Capcom (an SPV set up to invest in the company) will be making an upfront cash payment of $93million badly needed to halt the company’s imminent slide into bankruptcy. The other part of deal will see Capcom contributing other assets which it had acquired in other companies such as the spectrum licenses of MTS and the CDMA business of Multilinks.
The company suggest this new investment will stop the hemorrhaging of both losses and subscribers and help the company “create a leading CDMA operator in Nigeria”. They also claim “with the benefit of the 20 MHz of contiguous 1900MHz spectrum ……., the new entity is positioning itself at the forefront of the shift away from current generation of services into a Long Term Environment (LTE) technology platform capable of delivering new 4G and related data and other services that will offer customers substantially improved performance. Monetizing the new broadband services and applications will provide Starcomms with crucial first mover advantage in the Nigerian market with its 4G / LTE network rollout”. This is in a broadband market that has yet to fulfill the basics that a 3G network can offer.
Starcomms need their fortune to change urgently, and though this investment comes with an indispensable lifeline, it is highly impossible that shareholders will get returns on investments anytime soon. The CDMA market has about 18.4m in installed capacity and 13.8m of which are connected according to the latest data released by the NCC. To make matters worse, only 3.3million of those lines are active dropping 36% from the 5.2million activities lines about a year ago. Investments are good for the ailing company but the permanent cure lies within its ability to raise the appetite of a fast growing consumer marker badly in need of an alternative to the endemic poor quality service associated with GSM companies.
Starcomms share price has largely remained unchanged at 50kobo for over a year now.