It was Saturday night on the 15th of December, 2018, and the hall was filled with fans of all ages. The crowd was in a state of frenzy, having been wowed by some of Nigeria’s biggest artistes of 2018. Among those who already performed was Teni whose popular song “Case” got the crowd singing along like it resonated with everything that was 2018 for them.
Tiwa Savage, by far the biggest female act in Nigeria and arguably the biggest in Africa had also performed and was so energised by the crowd that she took off her heels, giving her the right balance to show off her dancing skills.
Burna Boy, who many believe shone the most for most part of the year with hits upon hits, hit the stage hopping from one end to another while dishing out songs the crowd so loved.
Just as the crowd thought that was the peak of the event, the MC announced that another surprise act was indeed on his way, boisterously informing the crowd that, “they aint seen nothing yet.”
As DJ Spinall held everyone spellbound with renditions of more hits from his turntable, a group of heavy looking security agents sneaked in someone covered with a white sheet into the back stage.
Unbeknownst to the already charged up crowd, Nigeria’s biggest act of 2018, WizKid, was in the building. As he appeared on stage, the crowd went wild in hysteria, surging to the stage once again with their mobile phones to catch a glimpse of the mega star.
This was no ordinary crowd. It included top corporate executives, CEOs, directors of banks and other NSE 30 companies. Executive and Senior Management staff all seated by the VVIP close enough to the stage. Behind the cordoned VVIP area and to the left of the stage were employees, their family and friends all dressed glam to one of the biggest and most anticipated corporate parties of 2018. It was the Access Bank party.
The multi-million naira business surrounding corporate parties
In Nigeria, particularly the commercial capital of Lagos, corporate parties have become much-awaited events in December every year. It is an opportunity for companies to party hard after a challenging year. Corporate parties transcend economic events like recession, devaluation, banking crisis or fall in oil prices. No matter how tumultuous the year may have been, corporate behemoths in the financial services, oil and gas, and telecoms sectors take their time to splash tens of millions organising end of the year parties (EOYP, its widely used acronym).
Among those who benefit immensely from the budget for EOYP are Nigerian artistes such as those who performed at the Access Bank party. According to estimates, these artistes command from N3 million to as high as N20 million per show.
In fact, sources with knowledge of how much was paid to some of the artistes, inform Nairametrics that Teni collects as much as N3 million. Burna Boy, one of the star acts of 2018 commands as high as N14 million per performance. A-list artistes like WizKid and Davido command as high as N20 million per performance, exclusive of transport fare. Both artistes prefer to fly in rented private jets to enable them get to their destinations within and outside the country.
In one of the major parties of 2018, Burna Boy who was slightly late for his performance was said to have appeared in about 9 other shows that night. By the time he appeared on stage, keen observers noticed that he was already tired but most of the fans were too frenzied to observe. On that night alone, he is estimated to have made about N140 million (assuming the N14 million fee).
By Nairametrics’ estimates, Nigerian artistes may have earned over N1 billion alone from End of the Year Parties. No official figures exist, thus we had to rely on our own base case estimates.
Doing the maths
The math is not difficult to comprehend and some of us believe that they may have made even more. Wizkid for example, attended not less than 10 of these mega shows, putting him on track to earn over N200 million. Davido, another A-list act, is on track to earn over N200 million also. Between these two, corporate Nigeria may have splashed about N400 million to have them on stage perform for no more than 30 minutes. Add Burna boy’s estimated N140 million and we have crossed the N500 million marker.
Some of these artistes also hosted their own shows in Lagos and Abuja with sold out venues. Tickets were as high as N25k per person for VVIP and were mostly sold out. One attendee to the Burna Boy show spent N50k for a ticket with a face value of N15k on the day of the event.
These shows also had several corporate organisations as either partners or corporate sponsors adding to the amount the artiste could take home.
Other artistes who we tracked that appeared on some of these events include the likes of Kizz Daniel, Olamide, Simi, Wande Coal, Falz, Adekunle Gold, Mayorkun, Small Doctor, Run Town, Victor AD and legends like 2baba, MI and D’Banj. Some of these musicians made an average of N50 million each this December, by our estimates.
Nigerian Music has indeed come a long way, with the industry projected to be among the fasted growing in the country in the next 5 years.
Data from the National Bureau of Statistics reveals that Nigeria’s arts and entertainment industry contributed about 0.24% of GDP or about N152 billion. The industry is still largely unstructured, and analysts believe that there is still a lot of room for growth.
Suffice to add that the relationship between corporate Nigeria and Nigerian musicians is not always rosy.
At the Zenith Bank fashion show over the weekend, star artiste, Burna Boy was reportedly late and threw tantrums at those who bothered to question him. He reportedly asked his manager to refund the money they paid him. After all, 2018 was so rewarding there is even more money to be made in 2019.
As corporate Nigeria ushers in 2019, it’s back to business in earnest. In an election year full of uncertainty, the markets are expected to continue where they stopped in 2018. The Nigerian Stock Exchange closed the year about 17% down, compared to a bumper 2017. Oil prices are set to fall even lower and there are rumours of a potential devaluation of the Naira.
For Access Bank, the focus has already shifted to the biggest merger in Nigeria’s financial services sector. The title of being the largest bank in Nigeria is not an easy crown to carry. The burgeoning Fintech industry could finally change the way we spend money and perhaps pay artistes. What we know for certain is that corporate Nigeria will continue to be a source of revenue for the Nigerian Music Industry. It’s a deep rooted relationship buttered by mutual benefits.
Analysis: Access Bank’s valuation highlights merger blues
Access Bank is valued much less than its peers and this is why.
From green bonds to foreign listings and a determination to plant its seeds across various nations on the African continent, Access Bank over the past few years has shown its desire to grow across its triple-bottom-line.
On the people front, the bank has a reputation for offering arguably the best incentives to its employees in the banking sector even though last year’s plan to cut down salaries threatened to dent this reputation.
It has also introduced some of the sector’s most innovating products aimed at driving financial inclusion and protecting the bank’s market share from FinTechs. The bank has also supported small businesses through loans and financial advisory in line with the CBN’s quest to improve private sector credit.
On the environmental front, it’s spending big bucks on CSR, making a name for itself as a leader in Sustainability, and in terms of dominance, its merger with Diamond Bank and other expansionary measures have turned it into Nigeria’s largest bank and one of Africa’s top banks.
While these moves have shed a positive light on the bank, investors are left to play catchup as the benefits of the mergers and acquisitions are yet to result in improved return on investment for anyone who bought the shares over a year ago.
Its low Return on Investment (ROI)
While Access Bank has many strides to its name, a lot more needs to be done to make it a winner with investors. Its share price has struggled to gain the same momentum achieved by its rivals in the banking sector, particularly the FUGAZ.
Year to date 2020 Access Bank stock has performed poorly when compared to its peers. While the likes of Zenith Bank (33%), UBA (21%), Fidelity (23%), and FCMB (80%) posted double-digit returns, Access Bank fell by 16% in 2020.
In terms of value, the market prices the stock lower when compared to its earnings, making it one of the cheapest stocks in the sector. This is buttressed by its 2.9x (as of January 22nd) price to earnings ratio, one of the lowest in the sector.
In the same vein, the Tier 1 bank also has a lower dividend yield compared to its contemporaries and has not been able to breach its 52-week high of N10.90. One reason for this is that investors are wary of the bank’s loan book mostly inherited from its merger with Diamond Bank. Investors will rather go with some Tier 2 banks that have better upward trends in price appreciation than getting stuck with low valuation multiples.
Access Bank merger blues
As mentioned, one Achilles heel to its valuation problems could be its aggressive expansion strategy, driven by acquisitions. Since its acquisition of Diamond Bank, its valuation has plummeted piling on paper losses for investors who have held the stock since then.
Access Bank is currently valued at N325.2 billion in market capitalization less than half of its N679 billion suggesting a price to book ratio of 0.47x.
While being large provides the benefits of economies of scale, it needs to be nimble and focussed to milk the opportunities provided by the synergies
The bank recognizes this challenge, recently holding an investor call where it explained its move towards a HoldCo structure.
Access Bank will maintain four core subsidiaries under the holding company. They are Access Bank Group – focussed on commercial banking services, Payment Business – its mobile money and payment services business, Lending & Agency Banking – microfinance and microlending services, and Insurance.
Its efforts in restructuring into a HoldCo structure as well as expansions to other African regions – from Kenya to South Africa, is expected to further enhance its overall returns, and perhaps drive up valuations.
Fundamental analysis of recent financials
Access Bank has recorded positive strides in terms of its fundamentals. In its latest 9 months results, net interest income decreased by 6.6% year-on-year, but profits increased by 15% to N102.3 billion.
Access Bank also implements one of the most aggressive recoveries of bad loans in the banking sector pulling in N38.9 billion in recovery in 2019 and N24.7 billion in the first 9 months of this year. These recoveries filter into the bottom line and bolster confidence about its ability to confront its challenges and win.
How Access Bank got Japaul to pay up N37 billion loan that had gone bad
Brute force, Courts, quid quo pro are hallmarks of Access Bank’s debt recovery schemes.
In 2018 when Access Bank took over Diamond Bank, in what is the largest merger in Nigeria’s banking history, they knew it was not a match made in heaven like their PR agencies will make you believe.
In merging with Diamond Bank and taking over their juicy assets, they had also taken over the lemons that had for years bedeviled the bank who had pioneered mobile banking applications well ahead of its time.
When Access Bank merged with Diamond Bank, the latter had total loans and advances of N787.8 billion out of which N219.9 billion in loans were impaired. Oil and gas-related loans made up a significant chunk of the loans and were estimated at about N302.6 billion, most of them distressed.
Included in the oil and gas loans was a $66.4 million in loans owed to the bank by Japaul Oil and Maritime, as they were referred to at the time. The loans had gone bad accumulating unpaid interest of about $11.2 million. By the time Access Bank took over the loans, Japaul agreed to a restructuring rolling over both the principal and interest.
This is typical of most Nigerian companies burdened with debts they cannot pay. To avoid being run over by the bank, the debtors will negotiate a restructuring, extending the loans by one to three years and if lucky, reducing the interest rates. In return, the bank books new fees (which are often paid in advance of the restructuring) and then gets to avoid huge provisioning mandated by the central bank.
It is often a ‘win-win’ situation that essentially kicks the can down the road until, like in the case of Diamond Bank, the chicken comes home to roost. But Access Bank is not new to slugging it out with debtors, particularly those who do not pay up. Upon takeover in 2019, Herbert Wigwe, the CEO of Access Bank announced that his bank was going to go after Diamond Bank debtors. In an interview in 2019 he maintained that “we recovered N2.2 billion bad debt in the year under review. Access Bank will intensify effort to ensure that it recovers the debt owed to Diamond Bank. We will go out for Diamond Bank’ debtors and if they are not ready to redeem their debt we will publish their names in the newspapers.”
In 2019, Access Bank swooped on Japaul Plc seeking repayment of their Diamond Bank loans which was now about N37 billion. The bank took over Japaul’s trading assets and integral to the going concern status of the company. Before now, Japaul made money rendering marine services, dredging, mining and construction mostly for the oil and gas companies.
But business has been bad for years now leading the company into net accumulated losses of over N50 billion as of 2018. For the 5 years leading to 2018, the company posted back to back losses with revenues going from N5.3 billion in 2015 to about N85.8 million in 2019. External loans had also ballooned from about N18.8 billion to about N38.8 billion. Its share price had also fallen to about 20 kobo per share by the end of 2019. It was nearing bankruptcy and something had to give.
They began a court battle with Access Bank over the loans and the threat of a liquidation eventually settling for a deal. Sources inform Nairametrics that Access Bank is one of the most aggressive banks in the business when it comes to playing dirty with debtors. Unlike Diamond Bank, Access Bank is ready to battle in the courts and is ready to deploy any legal means necessary to recover their loans even if their actions are viewed as uncanny.
Recently, the bank obtained a Mareva injunction sealing the offices and taking over the assets of Seplat due to a related party loan owed by the latter’s Chairman, ABC Orjiakor. Just like Japaul, the loans owed by ABC Orjiakor were also obtained from Diamond Bank. According to sources, when Access Bank swoops in for their loan recoveries, they deploy all tactics in the books to ensure all or most parts of the loans are recovered from chronic debtors.
Eventually, Access Bank and Japaul agreed to settle the matter outside the court. In exchange for repaying the N38 billion loan, Access Bank settled for a repayment of N30.9 billion. The deal involves Access Bank taking over two of Japaul’ s Dredgers (12& 13) for N5 billion and a Barge (Beau Geste) for N25.9 billion. Japaul also gave up its land in exchange for working capital of N1.5 billion from the bank.
In return, Japaul gets to clean up its balance sheet erasing what is left of its debt, booking a profit of about N40 billion and wiping off its negative equity of N35.5 billion. However, in one fell swoop. From negative equity of N35.5 billion, the company’s net assets are now N4.69 billion. A win-win for everyone.
We are not exactly sure what Access Bank plans to do with dredgers and barges it took over from Japaul. Interestingly, in the deal, Japaul also gets to lease back the two dredgers for a period of 6 years from Access Bank for a sum of N1 billion paid annually from 2021 – 2026. Japaul got a one-year moratorium on repayment expiring in December 2020.
Japaul has since changed its name to Japaul Gold and Ventures citing the dwindling oil and gas sector for its reasons. The company believes gold mining and technology are the future and is seeking to raise N25 billion in equity to pursue this course. Its share price has ostensibly risen by 150% since the turn of the new year, the best performing on the stock exchange.
For Access Bank, aggressively going after bad loans have paid off immensely. In 2019 the bank recovered N38.9 billion in bad loans barely a year after taking over Diamond Bank. In the first 9 months of 2019, a total of N24.7 billion was captured in bad debts recovered. It is a strategy that is working and there is no betting against Access Bank doubling down on aggressive recovery this year.
Champion Breweries, Raysun deal highlights disclosure shortcomings
Is Heineken taking over Champions Brewery?
Champion Breweries Plc informed the Nigerian Stock Exchange, last week, via a press release that an insider, Raysun, had purchased about 1.9 billion shares at a price of N2.6 per share.
The disclosure was part of the stock exchange’s requirement that listed companies must reveal deals made by insiders of the company for the benefit of shareholders and the investor community.
That’s about how far the press release went. It did not reveal why Raysun was purchasing? Who they purchased the shares from and why the deal is being consummated? In terms of corporate disclosure, this was a dud.
Raysun is the largest shareholder and majority owner of Champions Breweries. Raysun is also an entity owned by Heineken, the majority shareholder in Nigeria Breweries Plc – the largest brewer in the country. Thus, Heineken is an indirect shareholder of Champions Breweries.
These relationships give this deal enough scrutiny to warrant a better disclosure starting from the actual purchase of shares revealed in the press release.
Here are some contexts;
Champion Breweries shares breakdown
- Champions Breweries has a total of 7.82 million shares outstanding at the time of this purchase
- Raysun held about 60.4% shares in Champions Breweries according to disclosure in its 2019 annual report.
- Asset Management Nominees and Akwa Ibom Investment Corporation own 12.3% and 10% respectively. The rest of its shareholders own about 17.3% or 1,351,954 units.
- At the current share price of N1.12, Champion Breweries is valued at N10.57 billion by the market.
- However, Raysun’s purchase of 1.9 billion shares at N2.6 per share (valued at N4.9 billion, almost half of the current market capitalization), now values the company at about N20.3 billion.
Where did the shares come from? This is a vital question and here is why.
Going by the number of shares they bought last week (24% of equity), they only could have been able to purchase that many shares by buying up all the shares owned by the Asset Nominees (12.3%), all the shares owned by Akwa Ibom Investment Corporation (10%) and another 3% from other regular shareholders.
It could also be that either or both Asset Nominees and Akwa Ibom IC sold part of their shares and then they made up the rest by purchasing some from the market. Why is Heineken, through Raysun, acquiring so many shares? Is there a takeover deal in the offing? Do they plan to merge Champions Breweries with Nigeria Breweries or still keep it as a standalone company? Will Champions Brewery cease to exist if there is a merger or will they delist following this massive acquisition of the shares of their subsidiary?
The speculation is palpable.
This is what happens when listed companies refuse to properly disclose transactions involving mega share purchases of this nature. How does a majority shareholder go from 60.4% of shares to 84% and an announcement is not made explaining or clarifying who sold and if this is a takeover bid.
But investors seem not to mind at the moment, if the momentum of the share price is anything to go by. A 57% year to date gain is a testament to this. It appears investors expect a mandatory takeover announcement to be made anytime soon and are scrambling for the shares ahead of any announcement.
Unfortunately, this is not how markets should work anywhere, and the sooner it stops the better. The Nigerian Stock Exchange has made massive progress with compliance to disclosure requirements and we believe strongly that they will at some point bring Champion Breweries to order and have them disclose all the requisite information about this transaction. Better late than never.