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Analysts declare Jumia a “fraud” sinking its share price

Analysts declare Jumia a “fraud” sinking its share price

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A Jumia warehouse, Police, Castle Logistics

Citron Research a US Based online investment Newsletter has declared E-commerce giant Jumia shares as worthless and that they had never “seen such an obvious fraud”. Jumia share price was down by over 18% as at closing of trading at the New York Stock Exchange.

The allegation: According to Citron, Jumia “fudged its numbers” ahead of filing documents for its listing in the US. Here are some of the allegations;

  • Jumia’s largest shareholders MTN and Rocket Internet wanted to exit the company after it reported in 2018 that it had a year’s cash left.
  • Jumia’s revenue declined from $145 million to $131 million while adjusted EBITDA loss went from $161 million to $150 million.
  • It claimed Jumia had in 2018 presented an investment memorandum that had information that was grimmer than what is presented for its IPO in 2019. Thus alleging that some critical information that could have priced the stock lower was removed.
  • Some of the material discrepancies it claimed Jumia reported include a rise in active consumer numbers from 2.1 million in October 2018 to 2.7 million by April 2-19. Suggesting that this could not have been true.
  • It also claimed that active merchants moved from 43k to 53k between the same period as well.
  • It further claimed that “the most disturbing disclosure that Jumia removed from its F-1 filing was that 41% of orders were returned, not delivered, or cancelled. This was previously disclosed in the Company’s October 2018 confidential investor presentation.” 
  • Thus implying that most of its orders were cancelled in 2018.
  • The report also accused Jumia of corporate fraud and related party infractions.

Who else was gored: The mention of MTN in this report is not appealing considering that the telecom giant is about listing on the Nigerian Stock Exchange. The research report suggests MTN offloaded Jumia stock because it knew the company was underperforming and not viable.

Perhaps the most significant casualty of this report was Jumia’s auditors Ernst and Young whom they claimed did not perform an audit on the company. According to SEC filings, Ernst & Young did not perform an audit of financial controls and provided no opinion on the financial controls of Jumia.

The implication for Nigerian startups – The scathing reports did not help local startup community as it characterized Nigeria as a corrupt country with people who are relatively poor and not suitable for e-commerce to thrive.

What’s in it for Citron – The newsletter is run by well know short-seller Andrew Left. Short-sellers profit from stocks when their share price tanks. Andrew might gain big from this report if he had shorted Jumia stock. The share price already crashed massively on Thursday. It is also possible that this report is a complete sham and a contraption to discredit Jumia. The market will have to determine.

Local rumours – Information reaching Nairametrics suggest Jumia’s businesses in Nigeria do not operate under the conditions one will expect. According to a competitor in the online travel space who wishes to remain anonymous, Jumia does not have an online IATA license but is somehow still being able to undercut prices. They also claim the company does not have CBN mobile money license yet it operates like one.

Upshots – The management of Jumia may want to respond vehemently against these allegations if it wants to stop its share price from falling. Nigerian regulators can also pick up this report and begin a probe against Jumia. This might have a wide-reaching implication on the e-commerce sector that is currently not being regulated.

See report 

Download (PDF, 2.02MB)

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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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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Nigerian Breweries leveraging, but stacking cash through rising input costs

The marathon continues for Nigerian Breweries with its 2020 financials.

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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.

READ: How COVID-19 has changed Nigeria’s consumer goods & industrial markets –KPMG

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.

READ: Flour Mills and its diverse challenges

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.

READ: Manufacturing sector in Nigeria and the reality of a “new normal”

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.

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