Back in 2017, I shared in an article, Now is a Good Time to Invest in the Nigerian Music Industry, the increasing appetite for Nigerian Music across the world and the importance of investing in the Nigerian music industry. I predicted that there was a need to watch out for the likes of Wizkid, Davido and Burna Boy, who even at that time were already leading the charge in the Afrobeats scene.
Two years later, the update on the Nigerian music industry has become even more interesting. The likes of Wizkid, who had already penned a deal with Sony RCA back in 2017, has begun to collaborate with more A list American artists like Ty Dolla $ign, Chris Brown, Goldlink, Swae Lee, Metro Boomin, and Offset (from the Migos). Wizkid also played a huge part in the recent Lion King album by Beyoncé, which showcased and celebrated an impressive array of mind-blowing Afrobeats sound.
Davido also went ahead to do major things in the diaspora. His songs “If” and “Fall,” which were released in 2017, became very trendy amongst the American audience recently. In fact, these songs are still constantly played on U.S radio daily. Apart from these two singles, he also collaborated with foreign artists like Casanova 2x, roc-nation rapper from Brooklyn, NY and R&B crooner, Chris Brown. He was also “brought out” to perform at a recent musical outing with the rapper 50 Cent in New York.
Other Nigerian artists have not also been left out. Tiwa Savage recently inked a management deal with Jay-z’s roc nation company, Tekno has produced for the likes of Swae Lee and Drake, Mr Eazi has begun to collaborate with Latin artists like J. Balvin & Bad Bunny, and Burna Boy has signed with Atlantic Records and released two albums that has greatly boosted his reputation in the diaspora.
Burna Boy is one artist to watch. Through his new project, he is beginning to walk the path of the political inclination of Afrobeat Icon, Fela. In his song, “Another Story”, which he sang with Ghanaian Artist, M.ani.fest, he talked about some aspects of the history of Nigeria. One can tell that he loves his country the way Fela did use his music as a podium to fight social injustice. The insights from the song “Another Story” is a fresh perspective teaching Nigerian history to the youths, who probably missed learning about Colonialism in the classroom.
Another Story becomes almost a history of colonialism which has become lost to the youth. He has used this to pitch and show people where Nigerians have come from and where they are going. In my opinion, I believe he is going further than Fela. Fela is the dough and now Burna has put the interesting toppings on the pizza – to use his analogy of Afrobeats at his recent interview with Trevor Noah. Music that endures should not be a pleasure for pleasure sake. It should hit the human cord, the rawness of human existence – I believe Burna has discovered that this is what makes a difference and he is running with it.
For Mr. Classic Man, Jidenna, his recent album which featured a song with Mr. Eazi called “Zodi” and another song “Sufi woman” capture the Afrobeats essence. Interestingly, he forayed into Afrobeatz before this album. His 2016 song “A little Bit More” and his 2017 collaboration with Major Lazer on the song “Particula” truly represent the Afrocentric vibes that now constitute this new sound of Afrobeats – though some people are still adamant that Jidenna style of music is a watered-down Americanized version of Afrobeats.
Apart from the leading artists in the Nigerian music industry, the alternative music scene is also growing. The likes of Santi and Odunsi are the leading faces in this genre. Santi released an album earlier this year and it featured notable American artists like Goldlink and DRAM. Odunsi has also found success as well. The artist recently signed with Universal Music Group Nigeria. This followed with the success of his album “rare,” which was released in 2018.
The album featured the likes of Davido, Santi, Tay Iwar & Nasty C from South Africa. Other artists like Jinmi Abduls have also risen in the past two years. He recently released JOLAG 2 in 2018, the follow up to his JOLAG EP in 2017. Currently, he has a new song called “Greed” with fellow alternative singer, Oxlade, who in his vein has gained credibility in the scene. He was also recently in Uganda where he performed at shows and also collaborated with new artists making waves in that country.
The state of the Afrobeatz scene is looking very solid right now and it makes perfect sense for foreign companies to invest in the industry.
Price Waterhouse Coopers (PWC) in a 2016 report estimated that the Nigerian music will be worth $86 million next year. This may just be a conservative estimate as the net worth of one player Don Jazzy is well above 86 million not to mention the net worth of the top ten in this league.
The growth may be accredited to the interests of foreign labels like Sony Music Africa and Universal Music Group as well as great revenues from mobile music, which depends on ringtones and ringback tones. By 2020, PWC estimates that digital platforms will make up 90% of Nigeria’s recorded music sales.
Nigeria should really begin to think deliberately on how to leverage music as they explore opportunities in the non- oil sector. Nigerian music can potentially be the Country’s export along with the Nigerian human capital.
The surge of the Nigerian music industry has been very impressive over the years; however, the issue of intellectual property remains a problem for artists and foreign investors, due to the constant piracy of content. The Alaba market area in Lagos is notoriously known for selling pirated albums of musicians, which in itself distorts the number of sales for an artist and infringes on copyright. There is also the challenge with the Collection regulatory environment.
In order to create further growth in the Nigerian music industry, the government can do more to encourage investments in this sector through well-thought incentives and regulatory environment that will encourage and not gag the growth of the sector. The protection and enforcement of intellectual property will further reassure current investors to expand their business and will attract new investors.
Whether the music is a soundtrack in Lion King or played endlessly on international radio stations, at clubs and parties across continents, the Nigerian Afrobeats music scene is getting increased visibility. World music is growing green and white.
[READ FURTHER: Meet the woman winning in a male-dominated paint market]
At least for the music industry …. we are in exciting times.
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?
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.
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!
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
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.
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%.
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%.
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?
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 Assets||Long Term Debt to Assets|
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…
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.
Is something fishy going on at Custodian Plc?
Custodian stock hit a year high just as it announced a Convertible Loan Instrument set to be approved at its AGM.
Custodian Plc, one of the largest insurance companies in Nigeria is currently trading at a new year high of N7.10 and is up 21% year to date. Nairametrics Blurb team has in recent days noticed an upsurge in its share price especially since the company announced its AGM.
As we pen this article, about 2.9 million units have exchanged hand at a share price of N7.
The stock is included in the Pension Index and by some measure quite illiquid. It is also one of the stocks recommended in our Premium Service Stock Select Newsletter thus the need for further introspection.
Custodian Investment AGM
Typically, when companies announce AGMs we are keenly curious as this is where decisions that can ultimately affect shareholders (especially smaller retail investors) are approved.
In its recent filings, the company stated as follows in item 10.
That the Board of Directors of the Company be and is hereby authorised to:
(a) raise the Naira equivalent of up to $15,000,000.00 (Fifteen Million US Dollars), as additional capital through a convertible loan instrument;
(b) convert the loan in the Naira equivalent of up to $15,000,000.00 (Fifteen Million US Dollars) into shares in the Company (the “Conversion Shares”) at a conversion price, being the higher of N6 per share or the 12-month historical average daily share price of the Company derived from the Daily Official List of The Nigerian Stock Exchange (for the period ending on March 23, 2021), subject to adjustment upon the occurrence of certain adjustment events;
(c) allot the Converted Shares to the Lender upon the exercise by the Lender of its right to convert the Loan into shares in the Company, subject to applicable law; and
(d) take steps necessary or reasonably desirable to give effect to the foregoing resolutions and for effecting any transactions pursuant thereto, including the appointment of professional advisers, and the obtention of relevant regulatory approvals.
What this means?
In simple English, the directors of Custodian are seeking the approval of its shareholders to borrow $15 million (N6.1 billion) in convertible loan instrument.
A convertible loan instrument is simply a loan that you can convert into shares if the lender so wishes. The share price for conversion are predetermined and in this case, they stated N6 per share or the 12-month historical average daily share price of the company’s stock.
If the lender does decide to convert the loans to shares at the current share price of N6 per share, it means about 1 billion shares will be offered to the lender, an equivalent of 17.4% of the total outstanding shares of the company. This loan is in effect, a potential dilution of existing shareholders of the company if it is approved at the AGM.
So why is the company seeking a convertible loan or even diluting its shareholders?
Fishing around for why
Typically when a company decides to raise money via a convertible loan instrument, they are looking for lower interest rates, debt that avoids the burden of periodic repayment, and/or looking to delay when the actual equity is issued. There are also tax considerations at play but not as significant as the ones mentioned above.
Except, Custodian is looking to purchase another asset, after it bought UPDC, we do not understand why it will be looking to raise capital huge enough to dilute existing shareholders. It also did not explain why it is seeking to raise the said capital in its AGM Notice, a slight departure from the norm in cases like this.
- Custodian is also highly capitalized with a Net Asset of about N46 billion and a balance sheet size of N176.1 billion (after the acquisition of UPDC) as of 2020.
- Suffice to add that the company recently paid shareholders about N2.6 billion in dividends, making us wonder why it is seeking to dilute shareholders when it could have just ploughed that amount to its capital raising needs.
- In fact, the dividends paid in 2020 was just 21% of profits, meaning it had retained about N10 billion in profits made during the year. Again, why does it need N6.1 billion in loans?
- Custodian also has a thriving insurance business which fetched it about N58 billion in gross premium income out of which N32 billion was from non-life. Again, why does it need N6.1 billion on convertible loans?
- The company currently carries a debt of about N5.5 billion which was inherited from its acquisition of UPDC. The debt is mostly a bond issued at an interest rate of 16% per annum and due for full liquidation in 2023.
- There is no rush to pay down this debt.
We are lost as to why the company is looking to raise this capital and can only now think of two reasons. Firstly, could it be the existing shareholders looking to tighten their stake in the company? Custodian’s majority shareholders are Gratitude Capital Limited and Mikeade Investments Limited with 22.48% and 15.72% respectively.
- The company CEO Oluwole Oshin represents Gratitude Capital while Business Mogul Micheal Ade (Elizade) owns Mikeade Investments Limited. Could it be either of these two investors looking to up their stakes?
- There could also be a reason for this back door approach. About 74.5% of the company is owned by just 20 shareholders so it is clear that increasing majority stake will be difficult to achieve.
- The other reason is perhaps an institutional investor looking to acquire a significant stake in the company through the backdoor. Is this plausible?
Well, these are speculations that only Cusdotian can confirm. We hope they do so as soon as possible.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- Cornerstone Insurance Plc notifies stakeholders of late submission of financial statements.
- NSE approves delisting of 11 Plc shares.
- Berger Paints Nigeria Plc reports a 67% decline in Profits in FY 2020.
- MTN Nigeria raises N73.5 billion from CP Issuance to finance operations.
- Jaiz Bank proposes dividend worth N884 million for shareholders.