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How Tech is disrupting Nigeria’s transport ecosystem by Fisayo Durojaiye

This is an attempt to dissect Nigeria’s technology-enabled Transportation sector.

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Introduction

This is an attempt to dissect Nigeria’s technology-enabled Transportation sector. This post was borne out of my observation of the West, and how the transport sector has evolved to a point where I think it is getting ridiculous. I just wanted to track Nigeria’s innovation in this space as well.

During the week, I saw a story which suggested that Uber might be looking to acquire Careem, the Egyptian ride-hailing startup, and I thought to myself, whatever happened to Nigerian startups? I think that the Nigerian market is overrated. The middle class is disappearing; hence, technology businesses don’t have a large addressable market, which means that they cannot scale enough to attract a potential Uber acquisition. Anyways, that’s a story for another day. Let me focus on my industry analysis.

Disclaimer: this is not a research report; it remains an article. The companies and industry profiles are the ones I have noticed, hence this is not an exhaustive list of companies innovating in this space.

So that it is easier to read, I have categorized the industry into broad groups, for simpler analyses of the companies operating in those spaces.

  1. Ride-hailing (in order of appearance)

I believe that Nigeria’s ride-hailing industry started with Easy Taxi. It attempted to digitize an offline behavior, by leveraging existing Yellow Cab infrastructure. The idea (I believe) was to give existing taxi drivers smartphones with apps to which they could connect with potential riders.

If you remember, back in those days, the only way for you to get a taxi, was to leave your house to a busy junction, hoping to find an empty cab to hail. This process could take hours and was grossly inefficient. People who use taxis often typically have the phone numbers of some of their most trusted drivers. This is also a big problem because the driver is not always near your location. Conversations like “Where are you?”, “Oga I dey Ikorodu now ooo.” are typical.

In theory, I expected Easy Taxi to fly, but one major issue was overlooked – education! The existing driver network is largely uneducated and as such, unable or not willing to use a smartphone. Additionally, these cabs are so uncomfortable, that you might be better off at the front seat of a molue than some of them.

Needless to say that after a few years, Easy Taxi exited Nigeria.

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OgaTaxi, I believe, is our first attempt at Uber, but I guess funding was a big strain on their development, as they could not convince and recruit sufficient drivers and riders for the business to make sense. OgaTaxi is still operational, but it appears to be at a distant third position to both Uber and Taxify. I have not seen anyone who uses the OgaTaxi App as a primary or secondary ride-hailing app.

GoMyWay was another brilliant idea, but it had to shut down late last year. On the surface, I expected the business to work, this was because it was trying to digitize an offline behavior! People hitch rides with drivers they don’t know. This is a regular experience within Lagos.

If you doubt me, just try to park at Iyana Oworo (just at the foot of Third Mainland Bridge) on a Monday morning, then you will understand me better. I assure you, at least 20 people will try to get into your car. From a need perspective, a solution like this was required. It got better with the added security layer that GoMyWay also provided.

However, the biggest challenge I foresaw was the fact that GoMyWay would find it difficult to get repeat customers; this was because the users would try to take subsequent rides off the platform. Imagine you were paired with someone going to the Island once, and you both enjoyed the trip, why would you go back to the platform to be paired with another random driver or passenger, when you could easily arrange with the driver to pick you up at the same spot every morning since you are both going towards the same place every day.

I have written about the GoMyWay post-mortem in a previous article.

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I will say very little about Uber and Taxify because they had money to execute their strategies in Nigeria, thus, beating all the local rivals to it. Taxify’s copycat strategy is also working. Markus (the CEO) mentioned that Taxify FOCUSSES on being the second mover, most often behind Uber! “We go to markets where ride-sharing is already a proven concept… we come in and we improve on that by having cheaper commissions and giving more back to the riders and drivers. We don’t want to get into these regulatory troubles by wasting millions in lobby battles.”

What the CEO said, in essence, is that we wait for Uber to open up a market. We are not trying to do anything different, we just copy them but charge the drivers and riders a bit less, and that is our strategy.

I have seen newer entrants into this space. Has anyone heard of ProTaxi? Well, Protaxi is trying to break into the market too. I don’t know how they intend to do it, but let’s wait and see.

I thought I would be able to finish this in a single post, but no. I will need a part 2 and probably part 3. I still have a few segments of the market to cover and a few more companies to talk about. In my next post, I will write about how these technology startups are trying to solve the commute challenges for staff of large corporates (staff bus type services).

I will also write about how bikes are getting back on our roads, both for logistics and human movement (ACE Logistics, Gokada, MaxGo).

Additionally, I will write about how technology is solving problems with heavy logistics and market data gathering (Kobo 360, Truckit, Trade Depot and Delivery Science). I might touch on other sectors, including Interstate travel, Travel insurance, Lagos State Traffic System (Lagos Oyster Card) and Traffic Management (Lagos Traffic Radio and GidiTraffic).

If you guys have any other sector or startup to cover, please reach out to me on the comment section.

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    Why SEC should support democratization of sale of foreign securities

    In the spirit of progressive engagement and dialogue, many voices now suggest that the SEC take a fresh look at its latest position.

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    Best performing global financial assets in the last 7 days, Many Nigerians are trooping into foreign stocks, Foreign Investors Ignore Nigerian Stocks rally, Global stocks become blockbusters, optimism rises for COVID-19 cure

    The directive of the Nigerian Securities and Exchange Commission (SEC), issued 8th of April 2021, has been met with consternation and a straightforward (but hopefully simplistic) interpretation that; “the government is out to stifle innovators, again.”

    These perspectives aren’t unfounded, as innovators of all shades have taken a heavy beating lately due to a number of direct government policies or interpretations of these policies – irrespective of how well-intentioned these policies may be. On the contrary, micro-investment platforms deserve a fair shot within Nigeria’s capital market.

    This is especially true considering that the recent regulatory fervour coincides with a period where the innovation ecosystem is recording new milestones and gaining traction, solving problems for users in all walks of life, democratizing wealth creation, and creating high-value jobs, all of which Nigeria desperately needs.

    In the last six months alone, Nigerian startups have gained the confidence of some of the best investors locally and globally, leading to never-before-seen innovations, acquisitions, and investments into the economy. This promotes interest in the Nigerian innovation ecosystem from foreign market actors and increases its relevance as a high-value job creator. Some now wonder if our regulators want more or less of this positive momentum.

    This latest notice from the SEC warned Capital Market Operators (CMOs) to desist from selling securities not quoted or registered, as only registered securities in Nigeria can be issued, sold, or offered for sale. Ostensibly, the directive requires CMOs registered with the SEC to offer only securities listed on any exchange in Nigeria to the public.

    The challenge here is that High Net worth Nigerians (HNIs) have always had access to foreign securities offered or acquired through registered CMOs for the apparent benefit of the upside available in markets such as the United States. This should be democratized to allow Nigerians with smaller incomes to have access to valuable global stocks within fair rules, and this is what the likes of Trove, Chaka, Bamboo, and Risevest have done. In fact, this democratization should be applauded as one of the outputs of a thriving innovation ecosystem that provides practical
    palliatives for the stifling inflation and erosion of value we have all experienced as Nigerians.

    After all, what is suitable for Dangote should also be good for Musa, who earns NGN50,000.00, and thanks to any of the apps mentioned above, can today invest in shares of Dangote sugar while also adding a quarter of a Google stock to his portfolio every month. This “magic” of innovation is a poverty alleviator that should be encouraged and nurtured while ensuring that the public is protected from any harmful financial practices.

    It is important to acknowledge at this point that the SEC has been a positively progressive regulator, generally engaging its public fairly. The issuance of the guidelines for crowdfunding and accommodation of FinTechs within the capital market was encompassing and engaged stakeholders of all hues. This should be commended. The SEC’s position classifying crypto as an asset class is also fair, refreshing, and proactive. We need more of this and not less.

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    At a time when we are exploring how the Nigerian capital markets can become a viable option for listing tech startups, this latest body language of the SEC, and the Nigerian government as a whole can be further misinterpreted.

    In the spirit of progressive engagement and dialogue, many voices now suggest that the SEC take a fresh look at its latest position, as these innovations are widespread, publicly accepted, and valuable. Furthermore, these innovations support some of the registered and regulated CMOs by offering white-label solutions that are accelerating the ability of these legacy CMOs to better serve their HNI customer base, with local and foreign securities. The emergence of these innovative micro-investing platforms has triggered investments into local Nigerian securities in multiple folds. The volumes these innovative platforms channel into Nigerian stocks are arguably the most significant development in Nigeria’s capital market in a decade.

    By virtue of the existence of these innovators, their combined strength has introduced over 150,000 new market participants who are primarily millennials: a majority of whom purchased their first set of stocks through these platforms. Before now, they had no active interaction with the capital market. These new entrants are now trading in excess of NGN10,000,000,000 (Ten Billion Naira) monthly through these apps. Note that a good chunk of the highlighted trade volume is routed through local CMOs to purchase Nigerian securities on the Nigerian Stock Exchange(NSE). Long term, these innovations would also serve as a channel to offer Nigerian guarantees to a global audience which would be a massive positive for the economy.

    The quest for diversification of portfolios to include foreign securities can only be good overall. It underscores the global trend in cross-border trade in securities as disintermediated by technology and the need to enhance portfolios’ value globally.

    Rather than curbing the practice of offering Nigerian and international stocks in a basket, this micro-investing trend should be allowed to flourish within reasonable regulatory frameworks. These platforms make investments attractive, easier, and affordable. Micro investing will curb the menace of pyramid and Ponzi schemes while introducing a new generation into Nigeria’s securities market in parallel with their appetite for global securities. Regardless of what we decide, the world has gotten smaller, and information that enables people to easily seek the best economic outcomes is readily available. While other nations gain from micro-investing, shouldn’t our people do too?

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    The ultimate beneficiary of increased wealth for Nigerians is the Nigerian economy. Rather than shutting Nigerians off from the rest of the world, we should be accelerating global access for our millions of people; hence this is the time for dialogue, not shutdowns.

     

    Kola Aina is the Founding Partner at Ventures Platform and writes from Lagos, Nigeria.

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    Buy what? Dangote vs BUA Cement

    Dangote Cement has a market capitalization of N3.65 trillion, while BUA posts a N2.49 trillion capitalization, but does size win?

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    I want to review the performance of the largest quoted companies in Nigeria.

    On the Nigerian Stock Exchange, they don’t come any bigger than Dangote Cement (Dangote) and BUA Cement (BUA). Only MTNN stands with both cement companies in terms of market capitalization. Dangote and BUA are both blue-chip companies, in the same sector and both enjoy federal import protection, they also both serve a local market with huge demand for cement.

    Which is a better investment? Let us assume I have N100,000.00 (One Hundred Thousand Naira,) which should I buy? Let us review both stocks with FY 2020 results they posted. For consistency, I am going to use my trading view terminal numbers.

    READ: Dangote Cement joins MTN in the trillion-naira club, as 2020 revenue surpassed N1 trillion

    Market Capitalization

    First, we talk about capitalization, (Market cap is the number of shares issued x market value of shares ). Dangote Cement has a market capitalization of N3.65 trillion, while BUA posts a N2.49 trillion capitalization. Does size win? Dangote is bigger? Not yet!

    Market Price

    With N100,000 I can buy about 465 shares of Dangote at N215 a share and 1,360 shares of BUA at N73.50 per share. Is BUA cheaper? do we have a winner? Not quite. Let us dig deeper.

    Dangote Cement posted a Net Income figure of N276 billion, if we divide this earning by the number of issued shares which is 17 billion, we get an Earnings Per Share (EPS) of N16.14, so every share of Dangote Cement earns (not pays) the investors N16. Similarly, the Earning Per Share of BUA is N2.0

    READ: BUA Cement loses N162 billion in market value in a week

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    Thus when I buy Dangote Cement N215 per share, I am buying 16 times the earnings of Dangote. We can simplify this by simply comparing the price I pay per share of Dangote to the EPS of Dangote (Price to Earnings Ratio), thus I invest my cash of N215 to buy 16 times the earnings of Dangote, thus the Price to Earnings Ratio of Dangote is 13.31 (P/E). Using the same calculation, the price for each earnings of BUA (the P.E.) is 35.38. This means even though I am paying more cash for each share of Dangote, I am paying less to buy the earnings of Dangote, thus Dangote is cheaper than BUA.

    So our first milestone is reached, we have used the Net Income, Market Price, and Number of Issued shared to get the Earnings Per Share, we have then determined what amount of earnings we are buying to determine which stock is at a bargain.

    READ: Oba Otudeko’s stakes in Firstbank and Honeywell are worth over N10 billion

    What else?

    Let us look at the earnings that will be paid in cash. Remember, Earnings, is just the Net Income of Dangote, we as equity holders have the opportunity to share in any portion of the Net Income.

    Dangote in 2020 paid out from earnings N272.69 billion as dividends, this translates to about N16 per share or in terms of returns 7.44%. We get this Dividend Yield return by comparing the dividend paid to the market price per share (D/P). BUA also in 2020 paid out N59.26 billion as dividends from earnings, this translates to a dividend yield of 2.81%.

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    So, if I invested N100,000 in shares of Dangote Cement, I would earn a cash return of 7.44%, if I did the same with BUA I would earn a cash return of 2.81%.

    READ: Jumia: In search of the elusive break-even sales

    Let us go a bit deeper…

    When you buy a stock, you are buying into the earnings and cash flow. Dangote Cement in 2020 earned N276 billion and paid N272 billion as dividends meaning they retained about N3 billion for that FY while generating over N248b in Free Cash Flow. Similarly, BUA earned a net N71.52 billion, paid out N59 billion in dividends, retained N19 billion but posted a negative Free Cash Flow of (N95.49 billion). Should BUA cement have simply used that cash to finance working capital rather than paying it as dividends? Perhaps. Let us speak more of Cash flow.

    Cash retained is cash not paid to you the investor. You have to ask how well your company is utilizing that cash retained. Should it all be paid out as dividends? Or retained in the company to fund expansion and growth?

    READ: Three things Nigerians can learn from Warren Buffet’s latest letter

    Look at it this way, if Federal Government Bonds were offering a Yield of 15% and we see that Dangote is offering a yield of 7.44%, then as shareholders you should demand that Dangote pays more cash to you to allow you to invest in FGN bonds because you get a higher return (at lower risk). The point is any company retaining cash or paying cash at a lower yield than the market is hurting the investors, who are missing the opportunity of investing higher elsewhere.

    Let us score both company managers by how well they have managed the revenues and capital of the companies

     

     Return on Assets %Return on Equity %Return on Invested Capital %EBITA Margin %Net Margin %Debt to AssetsLong Term Debt to Assets
    Dangote Cement14.6231.2126.9244.0424.310.240.08
    BUA Cement11.1519.1215.3541.8732.030.360.23
    FY 2020

    Across the board, the management of Dangote Cement has done a better job when compared to BUA Cement in managing the assets of the company. Dangote Return on invested capital is higher with a much lower recourse to debt and of course a higher FCF number.

    Overall, on Earning, Returns and Efficiency, it appears Dangote Cement posts better fundamentals…

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    Do follow @FinPlanKaluAja1

    This is not investment advice, this is not a recommendation to buy or sell. Past performance is not a guarantee of future performance. Speak with your adviser before investing. Equity is risky.

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