Welcome to Follow The Money; a weekly review and preview of the Nigerian Investment space. We focus on the key issues in the Nigerian Economy and as it affects the Stock and Money Market in Nigeria.
ONE – For the Money
This is a good time to be a billionaire. Jim Ovia raked in about N8 billion in dividends from his shareholding in Zenith Bank. Alhaji Aliko Dangote is in line to receive over N150 billion in dividends while Tony Elumelu could get as much as a billion in dividends. Forte Oil’s Otedola and Conoil’s Mike Adenuga could also be earning some megabucks when they release their results. If there is one thing these men have in common, it is that they all founded their business empire.
Talking about Dangote, his Cement empire impressed with a blistering 2017 Full Year results. The company’s N204 billion profit from a revenue of N805 billion means it earned N25 for every N100 of revenue made. Despite the impressive returns, investors did not care as the stock closed lower during the week. Zenith Bank stock closed higher at N9.42 as investors renewed interest in the bank following profit taking that ensued last week.
Zenith Bank and UBA are on my buy list while Dangote Cement remains on the watch list and yet to be upgraded to a buy. The 21x price-earnings ratio is a tad expensive. Fun fact, Dangote Cement’s earnings per share of N11.65 is lower than that of the Company (Nigerian Entity) at N14.94. In fact, the group’s earnings per share as negative CAGR of 0.42% while the Company has a CAGR of 4.9% between 2013 and 2017. Bottom line is that Dangote Cement profits are no longer growing as fast it did 5 years ago.
TWO – Big Banks
Access Bank and UBA both released their much-anticipated results last week. For Access Bank it was worse than expected. The bank reported a fourth-quarter loss spooking investors as they rummaged through the results. A N21 billion loan loss provision in the 4th quarter and a lower than expected Interest Income for the period was enough for investors to dump the stock. The stock closed 3% up during the week but bounced back to close positively. Something tells me this stock will break below N11 this week.
As for UBA Plc, a 140% return in the last one year is as good as it gets for its investors. At a 6% plus dividend yield and a 5x price-earnings multiple, there is still room for upsides. Also worth noting that the bank’s subsidiaries outside Nigeria contributed a third of the Group’s top-line revenue and 45% of the profit for the year, an improvement from 31% contribution made by the offshore subsidiaries in 2016.
THREE – A faster Elephant
First Bank hosted a media parley last week and I was in attendance. It was a unique opportunity to hear from the bank’s top management as they gear up to release their 2017 results. First Bank has been undergoing a restructuring since its CEO, Dr. Adesola Adeduntan came on board from the African Finance Corporation. Risk is a key issue for the bank and they pretty much admitted this. The bank has hired a new Chief Risk Officer from ADB who is expected to help prevent the bank from taking on bad loans. First Bank share price rose about N12 last week as investors await announcement if its results. You may wish to note that the bank will not be declaring dividends to its parent company.
FOUR – Twice as nice
GSK topped the gainer’s chart last week gaining 21.43%. The gains positive reactions to the company’s promise to issue both a special and an ordinary dividend. The Special Dividend was from proceeds of the sale of its drink division to Suntory last year. The asset was sold for N20.9 billion. Profit from the disposal was N5.6 billion, they paid tax of N1.6 billion bringing Net profit on disposal to about N4 billion. Dividend paid out of this amount was N8.7 billion or N7.10 per share. Another 40 kobo in dividend was also paid.
Should I buy? I believe the current rally is tied to the dividend and could dissipate by in a few weeks time. If a dividend is your goal then you have until April 23rd to buy it (ample time remaining. GSK is trading at 5x earnings so it looks like a decent buy at the moment. However, look closer at its cost of sale for 2017. It spiked nearly 3 folds taking eating up N11 of every N16 revenue earned. I’ll wait till I see their Q1 results to put this stock in the basket.
FIVE – What’s up Fidelity
This stock rallied again last week as investors took position ahead of its expected results something this week. The stock gained 17.75% and remains the best performing Tier 2 bank stock bar Unity Bank. You see, when stocks gain like this ahead of a result a little bird inside me is whispering “someone has seen the result”.
SIX – Unity Bank, Japaul, Resort Savings and Loans Milost Axis
So after a spirited press release, Japaul Stock closed the week on a positive note. It reversed a 4 day loss with two strong back to back gains of 8.6% and 9.5% respectively. Unity Bank did not get much love as it closed the week 4.4% lower. So why did one gain and the other lose? While investors can sometimes be irrational, you could point to the difference in their press releases.
On one hand, Japaul confirmed that a deal was indeed in the offing and that the regulators had been notified. They also explained that they had nothing to lose at the moment as no fees had exchanged hands. Unity Bank, on the other hand, denied that a deal was anywhere close and that Milost was not the only party they were speaking to. Important to note that, this deal is predicated on an increase in share price (read this) thus the higher the share price leading to any investment by Milost the better it is for the likes of Japaul and even Unity Bank.
SEVEN – Non-Interest income on the cusp?
I am not a fortune teller, but I am beginning to believe now more than ever that Non-interest banking will soon become the mainstay for banks in Nigeria. Bank lending has been flat over the last two years as financial institutions pour in most of their free cash into treasury bills. With the Treasury Bills bonanza, nearly over banks will have to renew their appetite for risk. But there is something else I feel banks should worry about. The rising interest in the bond market is, in my opinion, a renewed thread to bank interest income.
Whilst bonds to a large extent means they get to spread risks with a wider lender’s market, they also get to share interest income. This leaves non-interest income as a major revenue driver for banks. We saw a bit of this from Zenith Bank’s and Access Bank’s results. Zenith Bank’s non-interest income of N270.5 billion is 119% up compared to interest income after impairment of N159.7 billion. Access Bank non-interest income of N131 billion is also higher than its net interest income after impairment of N129 billion. GT Bank did suffer a fall but watch this space.
EIGHT – Race to N1 trillion
I am suddenly fixated on seeing the first N1 trillion revenue Nigerian company. My bet is on between Zenith Bank and Dangote Cement and it appears the latter could prevail. Yes, MTN Nigeria revenues are in trillions but it’s still a South African owned entity.
NINE – Dividend Blizzard
Loads of Dividends announced last week. However, if you are looking to cash in on GT Bank and Stanbic IBTC, you have till Monday to buy. Africa Prudential and United Capital will be paying dividends this week. You should receive an alert if you subscribed to e-dividend.
TEN – Teleology
Oh yes, Teleology finally made payments meeting the Thursday deadline. With $50 million paid, they have another $500 million as the balance to pay in 90 days. While I am excited about the impending 9 Mobile takeover, there is a bit of worry regarding how this transaction is being funded. From what I hear, Telelology is relying heavily on debt to fund this transaction and will hope to repay via a subsequent equity raise. On paper, this looks great but I doubt this will solve the 9 Mobile problem. Why is this important? Banks have basically provided for the 9 Mobile loan losses and could write them back if a sale is eventually consummated. But that will also be predicated on the new owners being able to service their loans as and when due. Looking at 9 Mobile’s Balance Sheet you worry about a leveraged acquisition at a time when interest-free cash is what is required.
Correction: First Bank CEO, Dr. Adesola Adeduntan previously worked in African Finance Corporation and not African Development Bank as previously stated.