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Blurb

Time is running out for Courteville’s business model

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Hourglass by Aron visuals- unsplash.com

On Monday, April 16th, 2018, the share price of Courteville Business Solutions Plc reached its lowest level in five years, closing at ₦0.20 against outstanding shares of 3.55 billion. With this, the company’s market capitalisation stood at ₦710,000,000, indicating a very low level of investor confidence, among other things. This raises the question as to whether or not Courteville has been profitable over the years. To answer this question, we did some digging into the company’s financial records for the past five years. But before we let you in on what we found out, get to know a bit about what the company does.

An insight into Courteville

Courteville Business Solutions Plc was incorporated in 2005 as a limited liability company. It is an e-business solutions and advisory firm with a vision “to be a trusted partner to employees and curator of an excellent working environment.” Being one of the foremost ICT companies in Nigeria availed the company of endless opportunities. Its growth potentials were immense, because not only was the company selling important business solutions that many Nigerian establishments needed to fast-track their operations, they were the first company to do that.

It can be said that to a great extent, the company initially took advantage of the opportunities available to it. This is best reflected in the company’s initial steady growth rate and the fact that it was the first Nigerian ICT company to become listed on the Nigerian Stock Exchange, with more than US$20 million raised from shareholders.

What could be responsible for Courteville’s declining profits?

Courteville makes money from commissions on the usage of its Motor Vehicle Administration Documentation solution and revenue from its e-commerce platform, Egole and WebPeople, a web hosting platform. However, revenue has stagnated over the years at just over ₦1.1 billion per annum.  Out of the ₦1.1 billion in sales the company made in 2017, ₦670 million was incurred on the cost of sales, thereby leaving a gross margin of about 40%. However, its rising operating cost of about ₦606 million slices off over 90% of Gross Margins leaving shareholders with nothing to share. Over the years, a slow decline in revenue has been unevenly matched with a galloping increase in operating costs. While revenue has gone from ₦1.2 billion in 2013 to ₦1.1 billion in 2018, profits have reduced from ₦307.8 million to ₦36.9 million within the same period.

While Courteville and its shareholders continue to wait in vain for dividend returns, which have not been paid since 2013, the board and management of the company continue to sustain themselves with salaries, allowances and other benefits that they can accrue. There appears to be no impetus to force a change of the company’s operating model as it continues to decline in profitability year after year.

On Courteville’s declining market valuation

In 2016 when Courteville’s Group General Manager, Adebola Akindele, was asked about his company’s rather abysmal performance at the Nigerian Stock Exchange, he dismissed it as a general problem affecting the system. According to him, it was “nothing untoward, nothing different from what the economy has shown, nothing outside what has bedeviled the Exchange in the past two, three years. I have always maintained the fact that the Nigerian bourse is one, I don’t know of many more. It’s one that does not really react to information, other than the fact there would always be profit-takers around. The lack of response to any relevant information stimulus bedevils almost every stock that I know. Outside Forte Oil, how many stocks have recovered to the level of 2008, 2009 and 2010? None, even the best performing stock or the highest buy price stock has been Guaranty Trust Bank Plc and it’s still hovering around at ₦20 or thereabout, Zenith Bank Plc has refused to just cross that path. It’s not because the results are not good, I’m sure you know that they have been declaring huge profits and paying humongous dividends; showing all the reasons people should take almost permanent positions in them.”

The above statement is nothing short of an excuse. Agreed, many companies have been affected by the unfavourable business conditions prevalent in Nigeria. Yet, many of these businesses have also recovered from the challenges and recorded impressive growth. That said, Courteville should consider innovating new solutions and targeting more market opportunities. It should also device better marketing means for its current services and perhaps consider cutting down on its operational costs.

 Courteville's share price

Chart showing Courteville’s share price over the past five years. Notice the steady decline…
Credit: Financial Times

Governance Issues

In its 2018 accounts, its auditors, Thompson Aiyegunle & Co, cited that the “audit evidence we have obtained is not sufficient and appropriate to provide a basis for our opinion.” The auditors also pointed to a pending allegation of Corporate Governance violations against the Directors of the company with Security and Exchange Commission (SEC). It explained that “the management has not fully complied with the directives of the Security and Exchange Commission (SEC).” It also called out related party transactions between Courteville, Forster State Limited and Synergy Capital & Advisory Ltd revealing that “the transactions need to be reviewed in line with minutes of the Board meeting held on 24th October 2017.

Courteville’s growth potentials still abound

As an e-business solutions and advisory company, Courteville’s clients cut across different sectors. Its solutions serve those in finance, education, commerce, public administration, etc. Some of their most popular solutions are- AutoReg MVAD, RPRM, SMELite, P-SEAMS, REPAS, CIID, and Egole, etc. These are marketable solutions which are sure to guaranty at least ₦1billion in annual revenues continually for the company.

For instance, AutoReg which is a mobile data capture solution that enables field officers to remotely capture information about anything, including land, property, and humans. It is also used for the registration, licensing, inspection/test, insurance, and issuance of roadworthiness certification for vehicles. The software is currently adopted by many states in the country.

Similarly, RPRM is a monitoring solution which serves those in the public administration sector. It is specifically used for the monitoring of controlled items such as drugs. Government agencies, specifically the National Agency for Food and Drug Administration and Control (NAFDAC) use it.  They also have other important solutions such as P-SEAMS which helps parents monitor the activities of their children on the internet. Egole is an online shopping mall where different traders and buyers meet up and transact.

All these services aside, the company also offers website development and maintenance services to their wide range of customers. Note that web development and maintenance is a huge market currently in the country as many small and big businesses need the online visibility that websites provide and are willing to pay big for it. With these in mind, it is easy to see the various potentials that are still available to the company.

It is, however, puzzling to see how they do not seem to be taking advantage of these opportunities.  Perhaps this could be due to two main reasons. Courteville’s Motor Vehicle Administration Documentation (MVAD) solution relies mostly on State Governments to generate its revenues. Motor Vehicle registration has declined over the last 3 years due to harsh economic conditions condemning the company to the flat revenue growth that it has experienced of recent.

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To increase its revenue profits, the company will have to better innovate and provide solutions for a mass market rather than rely solely on vehicle registration as a source of revenue. Its e-commerce segment is a relatively small business when compared to the likes of Jumia and Konga, and it is nowhere close to creating the sort of value which shareholders need. Courteville should also be pioneering in the blockchain space, a recent technology that is yet to be harnessed locally.

Verdict

For Courteville, something has to give way this year. If it continues on this trajectory, then it is likely going to end up with the infamous tag of hitting the 1kobo price floor for the first time ever.

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The company currently trades at 22 kobo per share and has lost a whopping 56% in value year to date. Despite this, it’s price-earnings ratio is 22x, suggesting that it is expensive even at this price. At a 5x earnings multiple, the share price could drop to 5 kobo per share.

At just over ₦781m in market Cap the company is trading for 22% of its book value and could even be worse if things don’t change.

Courteville Group Managing Director

Adebola Akindele, Courteville’s Group Managing Director

Emmanuel is a professional writer and business journalist, with interests covering Banking & Finance, Mergers and Acquisitions, Corporate Profiles, Brand Communication, Fintech, and MSMEs.He initially joined Nairametrics as an all-round Business Analyst, but later began focusing on and covering the financial services sector. He has also held various leadership roles, including Senior Editor, QAQC Lead, and Deputy Managing Editor.Emmanuel holds an M.Sc in International Relations from the University of Ibadan, graduating with Distinction. He also graduated with a Second Class Honours (Upper Division) from the Department of Philosophy & Logic, University of Ibadan.If you have a scoop for him, you may contact him via his email- [email protected] You may also contact him through various social media platforms, preferably LinkedIn and Twitter.

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Blurb

Dangote Sugar, sweet in more ways than one

Significant growth in gross revenue was driven largely by sale to Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited.

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Quick take: Sustained cost pressure weighs on profit, Dangote Sugar Refinery: Revenue recovers but cost pressures remain

By refining capacity, Dangote Sugar Refinery Plc (DSR Plc) is acknowledged as the largest Sugar Refinery in sub-Saharan Africa and one of the largest in the world. With up to 60 percent market share, it is also clearly, the most dominant player in the Nigerian sugar market.

DSR Plc recently released its audited Financial Statements for the year ended December 31, 2020 and overall and year-on-year group performance results were very good.

Despite the impact of the Covid-19 induced lockdown which curtailed distribution across the country and resulted in decreased revenues from income generated from freights, gross revenues increased by over 33 percent year-on-year to ₦ 214.3 billion. The significant growth in gross revenue was driven largely by a rise in revenue from the sale of its 50kg sugar, with the two main customers being the Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited who operate principally from Lagos.

Year-on-year, gross profit increased by over 40 per cent to ₦ 53.75 billion, Profit before tax increased by almost 53 per cent to ₦ 45.62 billion, and Profit after tax increased by 33 per cent to ₦ 29.78 billion.

Notwithstanding the good result, the group operating results showed some issues and headwinds. First, during the year, DSR Plc wound up Dangote Niger Sugar Limited (one of four companies that had been set up to acquire large expanse of land and locally grow sugarcane as part of its concerted backward integration project). The winding-up was sequel to continued community dispute over land acquired in Niger State for this purpose. This winding-up event cost DSR Plc approximately ₦ 100 million.

Second, there continues to be a heavy reliance on Lagos for its gross revenues as revenues generated from Lagos State increased significantly from circa 33 per cent at the end of 2019 to over 50 per cent by the end of 2020. The share of the Lagos segment in gross revenue thus continued to grow and currently represents a significant market concentration risk for DSR Plc.

Third, provision for impairment on financial assets or in simple terms, receivables that are unlikely to be collectable, also trended upwards from ₦ 1.3 billion in 2019 to ₦ 1.45 billion by end of 2020 with net financing expenses also rising significantly from ₦ 516.2 billion in 2019 to ₦ 1.92 billion by the end of 2020. This rise in expenses was largely driven by a significant rise in exchange losses incurred in the ordinary course of business, rising from about ₦ 7 million in 2019 to over ₦ 1.57 billion at the end of 2020.

Finally, administrative expenses represented mainly by employee salaries grew year-on-year by over ₦ 1.2 billion.

With the recent reopening of land borders, we expect that revenues and margins will become squeezed as sales and production volumes become constrained by the influx of largely smuggled, lower quality, and much cheaper sugar and its substitutes. DSR Plc’s sugar refinery is also strategically located very close to the Apapa port and its logistics operations, distribution of raw materials and delivery of finished goods will continue to be impacted by the infamous Apapa Traffic Gridlock and road diversions/closures around the axis. Although the effort of Lagos state and the recent introduction of the electronic call up of truck by the NPA has eased the issue, still, it needs to be watched closely.

Earnings per share at the end of 2020 was ₦ 2.45 (2019: ₦ 1.87; 2018: ₦ 1.85)

Subject to approval at its forthcoming Annual General Meeting, DSR Plc board of directors have proposed a dividend of N1.50k per ordinary share (2019: ₦ 1.10k, 2018: ₦ 1.10k).

This performance is sweet in more ways than one.

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Blurb

CBN “Naira 4 Dollar Scheme” Explained

What the CBN’s Naira 4 Dollar scheme means for your money.

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CBN

In what appears to be an attempt to incentivize dollar remittances by all means possible, the Central Bank of Nigeria (CBN) released a circular to Deposit Money Banks (DMBs), International Money Transfer Operators (IMTO), and the General Public, advising that remittances paid into a bank account will attract an additional credit alert for every USD$1 received!

Yes, you read that correctly. The CBN will facilitate a special additional credit alert of N5 for every USD$1 received. In other words,

  • if someone sends you $10,000, you get an additional special credit alert for N50,000.
  • If someone sends you $100,000, you get an additional special credit alert for N500,000.

Who is eligible?

To be eligible, the diaspora remittances need to be processed and received from one of the registered IMTOs and funds received into a Bank account operated by the DMBs. (So, if you are receiving funds via Crypto sorry you are not eligible).

Additionally, the circular says this “incentive runs from Monday 8th March 2021 to Saturday 8th May 2021″. So, if you have plans to receive dollars, you can plan accordingly.

The circular is not clear how exactly the commercial banks will know which account to pay the extra special credits into. Although, that may be a question diaspora funds recipients will need to ask their DMB accounts officers to clarify for them.

How will this be funded?

The circular notes that the “CBN shall through commercial banks, pay to recipients the N5 incentive for every USD$1”. In other words, it is the CBN funding the cost of this special extra credit.

  • One would argue that given the costs of alternative incentives to attract dollars such as the special OMO window for FPI, this may be a cheaper alternative for the CBN.
  • But we will need to see the volume of expected remittance to be certain of that. Nigeria attracts about $5billion per quarter in remittances and only trails oil in terms of foreign earnings.

Why this matter to Nigerians?

Following the collapse of US Dollar inflows into the country, the CBN initially tried to balance its current account deficits and avoid an official devaluation by tackling FOREX demand (Think ban of 41 items, etc).

Finally, this short-term Naira-4-Dollar scheme will not be called an official Naira Devaluation. But a question is what do we call the new short-term price of N412.50 + N5.00? Maybe we can call it Naira Modulation.

 

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