The Federal Government recently announced that a list of 27 new industries have been included in the list of companies eligible for Pioneer Status in Nigeria. Any company that is designated as a Pioneer company is not expected to pay tax in the aspect of their business that is under Pioneer Status. This can result in increased earnings for shareholders either distribution via dividends or being added to their retained earnings.
Implicitly, this should impact positively on a company’s valuation and could also increase its share price in the medium to long-term. We looked at the 27 industries to identify which stocks in the Main and Premium section of the All Share Index can qualify to obtain Pioneer Status. The Nigerian Stock Exchange has about 200 listed companies and most of them are in various stages of business maturity. Pioneer Status, as we explained in this article, is mainly for new businesses or business lines/segments so not a lot of quoted companies can benefit. We did however find a few and here they are;
Animal Feeds – The only company on the Nigerian Stock Exchange that is specifically into the Manufacture of Animal Feeds is Livestock Feeds. The company is engaged in the manufacturing and marketing of livestock feeds and concentrates, so could benefit from Pioneer Status if it applies. Livestock feeds is profitable, but is trading a price to earnings multiple of 10.6x, having closed at 96 kobo last week.
Processing and Preservation and Production of Meat and Poultry Production – UAC Foods, the owners of the Mr Biggs fast food chain can also benefit from Pioneer Status under the Production and preservation of meat and poultry. Incidentally, Livestock feeds is also a subsidiary of UACN. AG Leventis can also lay claim here if it decides to expand its food business into meat and poultry production. UAC and AG Leventis have been struggling of late, in terms of their share price but could get a bounce if its acquires Pioneer Status.
E-Commerce Services and Software development & Publishing – Whilst most people believe this new addition to the list is targeted at Startups and some of the popular e-commerce brands in Nigeria, the Nigerian Stock Exchange also has a list of companies that presently play in this space. Let’s look at a few examples;
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CWG – Computer Warehouse Group, CWG, is a leading provider of Information, and Communication Technology solutions services in Nigeria. Apart from selling computer hardware resources, it also sells its proprietary software applications to banks, SME’s and other businesses. It was listed on the NSE in 2013 and has struggled to position itself as a value proposition for investors. In its 2016 full year results, the company went from a loss of about N1.7 billion to profits of about N127.6 million through a combination of cost cutting and business operations restructuring. The company can now enhance its valuation offerings by benefiting from being a Pioneer company.
Courteville – This is another company playing in the computer and E-commerce space. Courteville currently sells the software that is being used by vehicle license registration offices in about 22 states in the country, including Lagos State, one of the richest states in the country. The company also sells other software related products and has an e-commerce website called Egole. Courteville’s performance has gone from bad to worse more recently posting a profit of just N38 million in 2016. Despite suffering from poor management and a business model that is unable to leverage on its competitive edge, it can still benefit immensely from obtaining Pioneer Status for some of the business currently in the pipeline.
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Real Estate Investment Vehicles under the ISA – This represents companies that are into the development and sale of properties in the Nigeria, specifically those who do so by pooling funds from the public under the approval of the security and exchange commission. There are quite a few in Nigeria such as the UPDC Reits, Skye Shelter Funds, UPDC and Union Homes. This sector hasn’t done quite well in terms of price appreciation of their stocks but they have each posted modest profits, apart from UPDC. Since, they are in the business of developing real estate through pooling of funds, they stand to benefit by applying for pioneer status. We will be surprised not to see companies in the sector applying for Pioneer Status.