The latest Quarterly review of the Nigeria Extractive Industries Transparency Initiative (NEITI) indicated that a total sum of N4.545 trillion was disbursed as FAAC allocation to the three tiers of Government between January and September 2017.
NEITI Director of Communication, Dr Orji Ogbonnaya Orji while briefing the press, stated that N1.757 trillion was shared in the 3rd Quarter of 2017. The first and second Quarter figures was put at N1.411 trillion and N1.377 trillion respectively.
How it was shared
As usual, the FG received a large chunk of the allocation of N1.851.32 trillion, followed by the 36 states and 774 local government areas that received N1.509 trillion and N913.8 billion respectively. Giving a further breakdown of the allocation, Dr Ogbonnaya mentioned that the DPR, Custom services and the FIRS received N271.78 billion as cost of revenue allocation.
There was a significant drop of 42% of allocation to the states in the first three Quarter of 2017 due to a drop in total revenue. As a result of this sharp drop, the NEITI Director encouraged states to focus more on raising internally generated revenue (IGR) rather than depending wholly on monthly allocation from the Federal Government(FG). Failure to do this may impact negatively on budget implementation at the state level. Unfortunately though, most states have now resorted to borrowing to fill the deficit as a result of the shortfall.
Trends in FAAC Allocation
A negative trend mentioned by the NEITI Director was the fact that FAAC allocation to 15 states in Nigeria had a ratio of budgets lower than 20%. Following the usual pattern over the years, it was observed that revenue allotted to states and LGs were higher in the 3rd Quarter of 2017. The review showed an increase of 37.02% allocation from 2nd Quarter to 3rd Quarter. At the state and local government level, the percentage increase from 2nd to 3rd Quarter was 25.57% and 29.80% respectively.
The positive development in the oil sector which is the main stay of the nation’s economy was responsible for the increase in FAAC disbursements to the Federal, state and local governments. Giving reason for the usual rise in the 3rd Quarter, Dr Ogbonnaya stated that the global oil demand and subsequent increase in oil prices was responsible.
The NEITI Quarterly review is a derivative of data collected by FAAC, National Bureau of Statistics (NBS), Federal ministry of finance and the Budget office of the Federation. A positive indication as shown by the upward trend in revenue allocation to the three tiers of government are sure signs of a healthy economy which if sustained can accelerate the movement of the country from recession.
Highlighting a major trend in the report as par sharp disparity in FAAC disbursement between January and September 2017, Dr Ogbonnaya mentioned a difference of 75% and 58% between the Federal and Local government allocation in the month under review. State governments on the other hand got the lion share of allocations in September as indicated by a difference in revenue of 53% between the high and low revenue months.
As a result of the fluctuation in revenue allocation to the three tiers of government, economic planning has been virtually impossible, as the funds to implement fiscal projects at all levels of government may not be available. The solution therefore lies in diversification of revenue sources to mitigate economic instability and ensure a steady income stream.
Further highlight from the NEITI report showed that the 1st half of 2017 witnessed a drop of 49% between budgeted figures and actual revenue. N5.368 trillion was projected by the FG while only N2.712 trillion actually accrued as revenue in the first six months. Luckily, the disparity between projected and actual revenue for non oil sector in the half year wasn’t much as 2.667 trillion was projected and 2.701 trillion came as revenue.
On the flip side of the review, there was a shortfall in actual revenue for the first half of the year. Actual oil revenue was N1.587 trillion. This figure indicated a shortfall of N1.079 trillion. The significance of this shortfall was that underperformance was 40.4%. Non oil revenue on the other hand did not fare better as underperformance was 41.6%.
The huge gap between oil and non oil sector projected revenue was highlighted in the report. As always, oil sector performed better than its non oil sector counterpart by a whopping 41%. N1.587 trillion was realized from the oil sector while just N1.125 trillion came through the non oil sector. Predictably, the report showed no changes in the three tiers of government in terms of actual revenue and projected.
Not all bad
A comparative analysis of government earning in 2016 to 2017 showed that total accrued revenue in 2017 was higher in the first half of compared to same period covered in 2016 by 22%. The report also indicated all sources of oil revenues except rent, recorded a positive upswing in 2017 compared to 2016 first halves. The same trend was observed in the non oil sector revenues as Value Added Tax (VAT) was highest contribution with an impressive 16% increase over 2016 figures.
These positive developments were attributed to Federal government’s aggressive drive in revenue collection and rapid expansion in tax base of the FIRS. On a rather negative note, the report didn’t mention any revenue recorded from solid minerals and no dividend was declared from investments funded by FAAC.
Analysis: Total Nigeria needs a financial overhaul
Total Nigeria’s Q1’20 results are a testament that some might have it worse than others as it recorded a revenue drop of 9.3% to N70.2 billion
The Oil Industry has had a particularly tough year, owing primarily to the novel pandemic. The International Energy Agency (IEA) predicts that the global oil demand is expected to further decline this year as Covid-19 spreads around the world, constraining travel as well as other economic activities.
Organizations like Total depending on international trade will be forced to scale down operations until restrictions ease off. However, Total Nigeria’s Q1’20 results are a testament that some might have it worse than others.
The period recorded a revenue drop of 9.3% to N70.2 billion in the first quarter of this year compared to Q1 2019. Total earns its revenue from three main sectors namely: Networks, General Trade, and Aviation. Revenue from Aviation fell by 39.5%. The decline in Networks is attributed to the reduced demand as a result of the enforced lockdown and restriction on travel across the nation.
Yet, it is clear that the company had its own challenges pre-COVID-19. In the quarter, it attained a loss after tax of N163 million which was 65.6% better than the loss after tax of the comparative quarter; it is overwhelmed by a myriad of distinct issues.
First off, its revenue has experienced a steady fall over the years; reasons for this is tied largely to its lack of importation of petroleum products.
It is also burdened by inefficiencies in its operations evident in its high operational and direct expenses, as well as its high debt over the past years. The company has carried on huge loans and borrowings in its books: N40.6 billion in 2019 and only a marginal reduction of N2.2 billion in the current year.
Even higher are its expenses after an 8.38% reduction in the just-released results, it arrived at N69.7 billion for Q1 2020. Amongst its high operational expenses is the high and increasing technical fees it pays to its parent company. From N251 million in the first quarter of last year, it incurred around N700m in the year under review. It also has cash flow issues with about N22b in negative cash and cash equivalents. In its 2019 report, it revealed that the year had been tough with its cost of doing business rising exponentially as evident in its interest expense, 395% higher than the previous year as a result of repayment for products and a high level of borrowing.
The company, in its last full year annual report, noted that to make significant savings to both operational and capital expenditure costs, a series of initiatives relating to cost efficiency, process optimization, and significant reduction of working capital requirement and finance costs, were put in place and are in motion for this year.
As Dr. Fatih Birol, IEA’s Executive Director put it “The coronavirus crisis is affecting a wide range of energy markets – including coal, gas, and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand transport fuels.”
However, Total’s position goes beyond the impact of the pandemic. Its rebound rests on its ability to carry on with cost control and lower debt commitments, together with the speed of the containment of the virus. That said, the company might need to raise capital soon while also coming up with formidable strategies to strengthen its business model.
Merger, Tax incentive boosts BUA Cement FY 2019 result
BUA Cement Plc recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.
One of the industries set to experience the downsides of the Covid-19 pandemic is the construction industry. Given the slowdown in construction activities as a result of the lockdowns and constrained economic activities, the reasons are not farfetched.
Prior to the outbreak of the pandemic, Globe Newswire had predicted an accelerated growth pace of the global construction industry from 2.6% in 2019 to 3.1% in 2020. This growth has now been revised to 0.5%. What is even more daunting is that the revised growth rate is based on the assumption that the outbreak will be contained across all major markets by the end of the second quarter of 2020.
It is only after that (including freedom of movement in H2 2020) that events could facilitate reverting to the normal course of activities to foster businesses in the industry like BUA Cement or those that depend on it to restart activities.
Nigeria’s third-largest cement company, BUA Cement Plc, however, still has its 2019 victories in order. Involved in the manufacturing and sales of cement, BUA Cement has 3 major subsidiaries and plants in Northern and Southern Nigeria.
With a market capitalisation of N1.18 trillion ($3.3 billion), BUA is the third most capitalised company on the NSE. Its recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.
The company’s profits also increased by 69.1% from N39.17 billion in 2018 to N66.24 billion in 2019. Core operating performance was strong, and this was supported by strong cement sales in the domestic market, impairment writes back, and other income.
The main reason for the company’s increased earnings is from the cost synergy and increased revenue as a result of the merger that took place between CCNN Plc and Obu Cement Company Limited.
There was also a striking jump in its income statement on its tax for the year. For FY 2019, it incurred a tax expense of N5.6 billion, in comparison to the N24.9 billion tax credit it received in FY 2018.
This was as a result of a reversal of previous tax provision made on Obu Line 1; it received approvals for an extension of the company’s pioneer status on Obu line-1 and Kalambaina line-2 in February 2020, to leave effective tax rate at just over 8% in 2019. The pioneer status will help the company save funds that will otherwise have been spent on higher taxes.
(READ MORE:Dangote Cement to access more debt funding)
BUA reported an impressive FY’19 result. Its performance shows the growing strength of the company and its increasing market share. On the back of the strong performance, management declared an N1.75 dividend per share that translates to a dividend yield of 5.5% on current prices.
Cash flow position was also robust with a strong closing cash balance – from N2.8 billion in 2018 to N15.6 billion as at year ended 2019. The company’s growth, as well as the impact of its merger, present a great buy opportunity of the highly capitalized, low-cost stock. As of today when the market closed (21st May) its share price stood at N35.60 from a 52-week range of N27.6 and N41.
What we see is a great growth stock further heightened by the population expansion and increased urbanization. However, we expect the impact of the Covid-19 pandemic to be felt from the Q1 results of the company.
The industry could slow down for the year as the level of commercial construction also slows down. Yet the best part of holding stocks like this is that even with stalled operations for a period, a resurgence will always emerge.
Analysis: Airtel Nigeria is winning where it matters
Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.
Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.
Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.
Performance Overview: Airtel Africa
Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.
Full Report here.
Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”
Behind The Numbers – Nigeria
Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.
Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.
On cash flows…
The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.
“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”
To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.
Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.
It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.