Conglomerates are companies that operate multiple lines of businesses which may either be heterogeneous or homogeneous in their operations. For example, a company that has interest or own subsidiaries that operate in Oil and Gas, Manufacturing, Retail, Hospitality businesses etc is a conglomerate. Conglomerates around the world are multibillion dollar companies and employ tens of thousands of people.
Nigeria has its own fair share of conglomerates and some of them are listed in the Nigerian Stock Exchange. Conglomerates give investors an opportunity to invest in multiple sectors of the economy without having to invest in several companies. The benefit thus is that investors can easily contain diversification risk with one company rather than with multiple companies spanning across several industries. Conversely, the demerits is that investing in the wrong conglomerate may cost you all your investment if it goes bust as it is unlikely that all of your investment will go bust had you invested in multiple companies.
The Nigerian Stock Exchange has some conglomerates listed as well and some of them have been doing well fundamentally and in terms of their share price. However, there are some you might want to avoid based on either poor profitability growth or weak share price appreciations over the last 5 years.
John Holt – Is into Sale, Leasing and servicing of Power Equipmentand Motor vehicles and the Distribution of Consumer and other Products. The company is one of the oldest in the Nigerian stock exchange and is one that would have given investors returns over two to three decades. However, things do not seem too right for the company at the moment. The company’s latex audited accounts in 2012 was a profit of N424million. However, this was because the company reported exceptional item of N2.4billion which helped turn the loss before tax of N1.8billion into profit. In 2011 they posted a loss of N1.5billion. Looking forward in 2014 results for the year ended March, I will not be surprised if there is another loss. In fact their last released 9 months result to September 2013 was a loss before tax of N562million. In terms of share price, it was about N11 some 5 years back and today? Well it trades for N1.2 and was highest at N1.42 in the last one year. Not sure I want to put my money here.
Scoa Plc – Is another old timer in the Nigerian stock market. The company describes itself as a company into Technology, infrastructural development, equipment supply and turnkey solutions is our business. We are a leading project & technology management firm and service provider in the field of information and communication technology (ICT). They are into Power, Furniture, Motors, Medicals etc. Whilst these look like an impressive collection of businesses it’s not certain how that helps retail investors. The company 2013 Full Year result was a profit of N110million out of a revenue of N6.3billion. Pre-tax profit for the first quarter of this year is just N57million out of a revenue of N1.5billion. The company did declare dividend of 15kobo per share it came to about 3%. For a profit that low and dividend yield of 3%, it’s obvious trading volume on the stock must be very low. The share price is currently N4.9 and was N10 5 years ago. Bloomberg listed its 30 day average volume at 1,509 only. That alone scares me.
AG Leventis – This is another old time conglomerate which incidentally happens to be in my portfolio. The company sells and services passenger cars, commercial vehicles. motorcycles, agricultural and construction equipment and industrial machinery through its subsidiaries. AG Leventis also develops and manages real estate, and provides administrative services to subsidiaries, associated and related companies. The company profits however haven’t been that spectacular relative to its revenue. In 2013, it declared a 43% rise in profits to N405million however that was a margin (with respect to revenue) of 3.4% and a return on equity of just 4.1%. Dividend declared this year was 15kobo and a dividend yield of 9% (N1.57) as at the day before the register was closed (7th of May). Now this all looks good on paper except that there are a few problems. The company isn’t so dominant in the market that its various interest dominates in and revenue growth does look small. The so called dividend closed for payment in April will only be paid in September, another factor if you consider the time value of money. Apart from in February 2013, share price has been under N2. In fact the highest it got to in the last 5 years was N5.10 back in April 2010. At N2.86 kobo same period 2009 and at N1.33 today it’s hard to predict any immediate growth in share value for the stock. I know its good in terms of dividend yields and price earnings but it does nothing tangible for portfolio appreciation.