The Central Bank’s Monetary Policy Committee (MPC) will meet for the last time this year on Wednesday and Thursday this week.
The meeting earlier scheduled for Monday and Tuesday, 19th & 20th November was shifted due to a public holiday declared by the Federal Government to mark the Eid El Maulud.
At the last meeting
At the last meeting, the MPC decided by a vote of seven (7) members to retain the MPR at 14 per cent.
However, three (3) out of these seven (7) members voted to raise the Cash Reserve Requirement (CRR) by 150 basis points, an indication that left to them, we should have tightened. The other three (3) members voted to tighten through raising the MPR by 25 basis points.
Here’s a look at various analyst views and Nairametrics view on the likely decision on Thursday.
About the MPC
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is made up of 12 members of which the CBN Governor is the Chairman.
The committee’s mandate is to facilitate the attainment of macroeconomic objectives such as economic growth, price stability (which includes inflation, interest rates and exchange rates) and providing economic policy support to the Government.
The committee’s primary tools of doing so, are the Monetary Policy Rate, Liquidity ratio and Cash Reserve Ratio.
What MPR, CRR and Liquidity ratio mean
MPR is the interest rate at which CBN lends to the commercial banks. The MPR is the benchmark against which other lending rates in the economy are pegged and is usually used as an instrument to moderate inflation in the economy.
CRR simply refers to the ratio of customer deposits (i.e. your money in the bank) banks are expected to hold as cash or keep with the CBN.
Liquidity ratio refers to the amount of highly liquid assets that banks should hold in order to meet their financial obligations to customers.
What do analysts think?
Analysts had mixed opinions regarding what the CBN should do next. From a sample size of two analysts taken, one was for MPR to be increased, while the other was of the opinion that it should be left at the current rate.
To this analyst, a hike in the MPR was necessary in order to keep the large volume of dollars that would accrue to foreign holders of fixed income securities within the country. A tweak in the CRR would also not be out of the question.
To another analyst, despite the increased call for tightening, there was no need for hiking the MPR as it had little or transmission effect on the real economy. Other methods such as OMO and the current effective CRR method would be more effective in controlling the money supply. While CRR is currently at 22.5%, the CBN’s computation method brings it closer to 33% for most banks.
The MPC will most likely leave all rates unchanged. While the October inflation report may show an increase in inflation, expected spending has not kicked in yet.
Nigerian Breweries leveraging, but stacking cash through rising input costs
The marathon continues for Nigerian Breweries with its 2020 financials.
Humanity might need more booze to survive the increasingly daunting intricacies of life, but Nigerian Breweries 2020 financial statement is proof that even the best can get caught up in the reality of changing business lifecycles.
Nigerian Breweries Plc had floored the market providing both alcoholic and non-alcoholic premium quality beverages across the nation. But with brands like Star lager beer launched as far back as 1949, Gulder lager beer launched in 1970, and even the family-friendly Maltina introduced as far back as 1976, it is only natural that both the old and new generation competition gives them a run for their market share.
Much like other old money companies, Nigerian Breweries has done its bit to remain relevant in the industry from creating new variants of existing favoured brands to paying dividends consistently annually for the past few years. Yet within the same period, the company’s financial statements have been a testament to its streamlined market share and reducing profits. The marathon continues with its 2020 financials. The industry giant may as well be setting itself up for a debt quagmire peradventure its projections do not match the true reality of events.
2020 financials: A tale of higher costs & larger debts
2020’s unfavourable financial/ business environment led to the increase in the prices of raw materials and disruptions in logistics for many Nigerian-domiciled businesses including Nigerian Breweries. Raw materials and consumables witnessed a 17% increase despite the marginal growth in revenue.
While the group’s 2020 results revealed a 4.35% increase in revenue from N323 billion in the prior year to around N337 billion, these gains were curtailed by a higher-than-par increase in cost of sales which had risen by 13.9%, from the N191.8 billion expended in 2019 to N218.4 billion as its 2020 financials reveal and interest rates going way up.
The company’s lower operating expenses were not enough to salvage the disruption caused by the raging interest expense following increased charges paid on bank loans and overdraft facilities as well as the significant increase in overall debt. Between 2019 and 2020 alone, long term loans and borrowings increased by 974% from N4.8 billion to as much as N51.8 billion. Even trade and other long term payables increased by 35%.
In its financials, the company noted that it has revolving credit facilities with five Nigerian banks to finance its working capital. The approved limit of the loan with each of the banks range from ₦6 billion to ₦15 billion (total of ₦66 billion) and each of the agreements had been signed in 2016 with a tenor of five years. The Company had also obtained Capital and Working capital finance from the BoI in 2019.
It is no news that the company is involved in diversified lease arrangements. Following reclassifications made in 2019 to some of its lease assets, the 2020 asset base also witnessed significant increase in Right of Use Assets which increased by 288%% from N11.1 billion to N42.9 billion. Yet, the fact that in one year, interest expense on Lease Liabilities rose from N19.7 million in 2019 and to a whopping N4.171 billion shows that the company is taking way more debt than its books require.
But what’s it using all the cash for?
Beyond rising material costs, borrowing costs have been huge and the annual interest payment by virtue of these loans make the possibility of higher profits for the company a mirage. That said, the overall increase in total liabilities might not have been such a bad idea if the funds were being used to increase revenue and profits. But having a huge chunk of all that money in cash creates a different kind of challenge. Cash and bank values in its statement of financial position significantly increased by 377% from N6.4 billion in 2019 to N30.4 billion in 2020.
Is the cash being held to mitigate possible challenges of the volatile economy or are they being used to pay dividends? Even at a share price of N52 per share, the company’s price-to-book value sits at 2.5816, testament of its dire overvaluation. Consequently, there is an ardent need for the company to come up with newer ways to attract the wider market and keep its book in the green with a little less external funding.
Secret behind MTN’s blistering performance
Despite COVID-19 disruptions, MTN Nigeria’s 2020 financials showed marked improvements compared to its 2019-year-end.
MTN Nigeria Communications Plc (MTN Nigeria) released its audited financial results for the financial year ended December 31, 2020.
Despite a challenging 2020 to individuals and businesses caused by COVID-19 disruptions, MTN Nigeria’s financial and non-financial information showed marked improvements compared to its 2019-year-end as well as prior quarters of 2020 results that were impacted by the COVID-19 pandemic.
Indeed, the evolving pandemic which intensified lockdown, remote working, and work-from-home procedures, appeared to have led to increased adoption of MTN Nigeria data and digital services.
Specifically, year-on-year on non-financial information, mobile subscribers increased by 12.2 million to 76.5 million; active data users increased by 7.4 million to 32,6 million while the company’s mobile money business continued to accelerate with a 269.2 % increase in the number of registered agents to over 395,000 and 4.7 million active subscribers from approximately 553,000 in 2019.
Year-on-year on financial information, service revenue increased by 14.7 % to NGN1.3 trillion driven principally by voice (with revenue growth of 5.9 %) and data revenues (rising by 52.2 % led by increased data use and traffic); profit before tax (PBT) grew by 2.6 % to N298.9 billion; profit after tax (PAT) increased by 0.9 % to N205.21 billion; while Earnings per share (EPS) rose by 0.9 % to N10.1 (N9.93, 2019).
Nonetheless, significant increases were noted in its operating expenditure as well as capital expenditure. First, there was a 2.3 % increase in operating expenses arising from the rollout of new sites and the impact of naira currency depreciation affecting the costs of MTN Nigeria lease contracts. Secondly, EBITDA margin declined by 2.5 %age points to 50.9 % (from 53.4 % in 2019) There were also other significant cost rises including a 25.4 % increase in net finance cost, and 19.4 % increase in capital expenditure which had a 11.7 % knock-on increase in depreciation and amortization costs.
On the back of the year-end result, MTN Nigeria has proposed a final dividend per share (DPS) of N5.90 kobo per share to be paid out of distributable income and brings the total dividend for the year to N9.40 kobo per share, representing an increase of 18.7 %. MTN Nigeria paid N4.97 as final dividend for the year ended December 31, 2019. This was in addition to an interim dividend of N2.95, which brought its total 2019 dividend to N7.92 per share.
The proposed dividend implies a yield of 3.4%. Having paid an interim dividend of NGN3.50 in 2020, the proposed dividend, if approved, will bring the total dividend per share to NGN9.40 or c.19% higher compared with 2019. We expect a positive reaction from the market due to the marked improvement in earnings. However, the market’s reaction may be dampened by negative investor sentiments on equities arising from the uptick in yields on fixed-income securities.
We expect that the introduction of additional customer registration requirements requiring subscriber records are updated with respective National Identity Numbers (NIN), and the continued suspension of the sale and activation of new SIM cards will affect subscriber growth.
MTNN share price remains unchanged at the end of trading yesterday at N174 per share.
Tade Fadare PhD, is an economist, and a professionally qualified accountant, banker and stockbroker. He has significant experience working or consulting for financial institutions in Europe, North America, and Africa.
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