A lot of people may find it difficult to believe that there are companies in Nigeria today that do not have official websites. As absurd as this may seem, it is indeed true. Mind you, we are not talking about mere start-ups here. Rather, we are talking about fully-fledged corporations, some of which have existed for decades and are even listed on the Nigerian Stock Exchange. For this week’s company profile, we are focusing on seven of these companies, as we try to understand their lack of websites.
Why would a fully-fledged company not have a website in 2019? This is a question that has puzzled analysts at Nairametrics for a while now. Could it be that these companies have no knowledge of the importance of websites, or that they simply cannot afford one? How do their shareholders feel about this? And how do they interact with their customers? There is so much curiosity about this. But first, let’s get to know the companies.
Here are the companies
In the course of researching into these companies, we found some unique characteristics and common trends among them. For one, they are all little-known companies on the NSE, with very small market capitalisation and low-priced stocks. Most of them have also been struggling financially, which might explain why they cannot afford to expend money on something as important as a website.
At this juncture, you probably cannot wait any longer to know these companies. We also cannot wait to list them out to you. However, before we do, it is important to point out that this article is not intended to serve as a name-and-shame. Far from it. Moreover, having an official website is not a pre-requisite for doing business in Nigeria. We are only trying to understand how possible it is for quoted companies to successfully do business in 2019 without having the necessary online presence which a website can afford. That said, below are the companies:
- Unic Diversified Holdings Plc
- Golden Guinea Breweries Plc
- Greif Nigeria Plc
- Nigerian Enamelware Plc
- Roads Nigeria Plc
- Smart Products Nigeria Plc
- Studio Press Nigeria Plc
About Unic Diversified Holdings Plc
Incorporated on September 11th 2015, Unic Diversified Holdings Plc is a financial services provider which was set up following the delisting of Unic Insurance Plc from the Nigerian Stock Exchange. The company’s principal activities range from serving as a holding company while investing the held shares in blue chip companies.
If you recall, Unic Insurance Plc was delisted from the Nigerian Stock Exchange in April 2017 after years of repeated failure to release financial results. Earlier in February of that year, some 70% equity stake in the company was acquired by Liberty Mutual.
It appears the company is still restructuring since 2017. It has a market capitalisation of about N516.4 million, no thanks to a share price that is as low as N0.20. Note that Unic Diversified Holdings Plc has not released its latest financial results. As a matter of fact, the NSE X-Compliance report said the company has not rendered quarterly financial statements between 2015 and 2019. Little wonder it doesn’t even have a website— apparently there are issues of greater importance.
Golden Guinea Breweries Plc
This company’s many problems can be traced back to the Nigerian civil war which ravaged most parts of Eastern Nigeria, particularly Umuahia, where the brewer is located. Established in 1962 by the government of the then Eastern Nigerian region, Golden Guinea Breweries Plc was a dominant brewer in South Eastern Nigeria, producing many loved brands. Unfortunately, following the havoc wrecked by the afore-mentioned civil war, things have never been the same for the company.
There have been several attempts to revamp the company, thanks to the likes of Coutinho Caro, a German firm. Unfortunately, in 2003 a fire outbreak wrecked further havoc on the company’s factory. But further attempts have since been made to resuscitate it. In April 2019, Golden Guinea dispelled rumour that it is back in operation, suggesting that it has been out of operation for a while. This probably explains why it has no website. The company has a share price of N0.89 and a market cap of N242.2 million.
Greif Nigeria Plc
Greif Nigeria Plc, a Lagos-based company, was incorporated in 1940. It has existed for over 78 years, manufacturing steel and plastic drums for industrial packaging. But a lot has changed about the company since its inception. First, its initial name (Metal Containers of West Africa Limited) was changed to Van Leer Containers Nigeria Limited in 1969 prior to it becoming Grief Nigeria Plc in 2004.
Meanwhile, the company struggled financially, so much so that in February 2019, it decided that it was going to shut down operations in the country. In his address accompanying the company’s 2018 full-year financial results, Adebayo Olowoniyi (the Chairman), said the following:
“Greif Nigeria has been operating well below operating costs, even below direct material costs, and sees no signs of improved market conditions. Therefore, we have decided to stop operations with immediate effect. The coming months we will investigate on if and/or how we can continue with Greif Nigeria.”
In the meantime, the company has not delisted from the Nigerian Stock Exchange. As a matter of fact, it has continued to release its financial statements, including that of the period ended July 31st 2019 which shows a 78% decline in revenue to N89.5 million compared to N405.4 million during the comparable period in 2018. It also recorded a loss after tax of N106.5 for the period. The company has a share price of N9.1 and a market cap of N388 million.
Please note that Grief Nigeria Plc is a subsidiary of Greif International Holding B.V, a company which has been operating in the global product packaging industry for over 140 years. The company’s website also carries information about the Nigerian subsidiary because Grief Nigeria Plc does not have any website of its own.
Nigerian Enamelware Plc
Going by information obtained from the company’s financial report, it was incorporated in May 1960 as a limited liability company, then it went public in December 1979. It was listed on the Nigerian Stock Exchange around the same time. Hong Kong-based I. Feng Limited holds 60% equity stake in the company which engages in the manufacturing and marketing of enamelware, plastic products and galvanised buckets.
The company has a share price of N22.1 and a market capitalisation of N1.6 billion. For the three month period ended July 31st 2019, the company made a revenue of N170.7 million and a loss after tax of N2.8 million.
Roads Nigeria Plc
The aptly-named Roads Nigeria Plc is a Nigerian civil engineering firm whose business model encompasses the construction of roads, bridges, dams, airfields, and even real estate. The company is headquartered in the Northern Nigerian city of Sokoto and has been operating since 1974 when it was incorporated.
The company has a market capitalisation of N165 million with total outstanding shares of 25 million. Note that share price has remained mostly unchanged at N6.60 for many months.
Roads Nigeria Plc’s corporate compliance record is rather unimpressive, at least judging by its consistent non-compliance to the listing rules of the Nigerian Stock Exchange. Nairametrics reported recently that its stock was suspended from trading on the NSE over account filing deficiency. The company is currently in the process of delisting.
Studio Press Nigeria Plc
The company was incorporated in 1965 as a limited liability company and transformed into a public limited company in 1979. It has a share price of N1.9 and a market cap of N1.1 billion. Information obtained from its full-year 2018 results says that it engages in the printing and manufacturing of light packaging materials and labels, including Commercial Lithographic Printing.
Smart Products Nigeria Plc
The company was initially incorporated in 1966 as Associated Press Limited and later changed its name to Smurfit Print Nigeria Limited in 1987. In 1991, it transformed into a public limited company and by September 2005, it changed its name to its current one. Information available in its full-year 2018 financial results said, “the company continued to let out the warehouse and rely on its rental income during the year under review.” It has a share price of N0.29 and a market cap of N13 million.
It can be seen from the foregoing that there are various reasons why these companies do not have websites. Some of them are undergoing restructuring, others are struggling financially, while some are even considering closing down. While these are unfortunate circumstances, it should be noted that in 2019, it has become imperative that any company that wishes to succeed must build a befitting website. Therefore, these companies need to quickly figure out solutions to their problems, including their lack of websites.
Why Insurance firms are selling off their PFAs
It has not been uncommon over the years to have insurance companies with pension subsidiaries.
The idea of mitigating risks and curtailing losses at the bare minimum begins from the insurance industry and only crosses into the pension space with the need for retirement planning. For this reason, it has not been uncommon over the years to have insurance companies with pension subsidiaries. However, controlling the wealth of people is no easy feat – and crossover companies are beginning to think it might not be worth it competing with the big guns; that is, the pension fund administrators (PFAs) that already cater to the majority of Nigerians.
A few months ago, AXA Mansard Insurance Plc announced that its shareholders have approved the company’s plan to sell its pension management subsidiary, AXA Mansard Pensions Ltd, as well as a few undisclosed real estate investments. It did not provide any reason for the divestment. More recently, AIICO Insurance Plc also let go of majority ownership in its pension arm, AIICO Pension Managers Ltd. FCMB Pensions Ltd announced its plans to acquire 70% stakes in the pension company, while also acquiring an additional 26% stake held by other shareholders, ultimately bringing the proposed acquisition to a 96% stake in AIICO Pension. The reason for the sell-off by AIICO does not also appear to be attributed to poor performance as the group’s profit in 2019 had soared by 88% driven by growth across all lines of business within the group.
So why are they selling them off?
Pension Fund Administration is, no doubt, a competitive landscape. Asides the wealth of the over N10 trillion industry, there is also the overarching advantage that pension contributors do not change PFAs regularly. Therefore, making it hard to compete against the big names and industry leaders that have been in the game for decades – the kinds of Stanbic IBTC, ARM, Premium Pension, Sigma, and FCMB. Of course, the fact that PFAs also make their money through fees means the bigger the size, the more money you make. With pressure to capitalize mounting, insurance firms will most likely spin off as they just don’t have the right focus, skills, and talents to compete.
The recent occurrence of PENCOM giving contributors the opportunity to switch from one PFA to another might have seemed like the perfect opportunity for the smaller pension companies to increase their market shares by offering better returns. More so, with the introduction of more aggrieved portfolios in the multi-fund structure comprising of RSA funds 1, 2, & 3, PFAs can invest in riskier securities and enhance their returns. However, the reality of things is that the smaller PFAs don’t have what it takes to effectively market to that effect. With the gains being made from the sector not particularly extraordinary, it is easier for them to employ their available resources into expanding their core business. There is also the fact that their focus now rests on meeting the new capital requirements laced by NAICOM. Like Monopoly, the next smart move is to sell underperforming assets just to keep their head above water.
Olasiji Omotayo, Head of Risk in a leading pension fund administrator, explained that “Most insurance businesses selling their pension subsidiaries may be doing so to raise funds. Recapitalization is a major challenge now for the insurance sector and the Nigerian Capital Market may not welcome any public offer at the moment. Consequently, selling their pension business may be their lifeline at the moment. Also, some may be selling for strategic reasons as it’s a business of scale. You have a lot of fixed costs due to regulatory requirements and you need a good size to be profitable. If you can’t scale up, you can also sell if you get a good offer.”
What the future holds
With the smaller PFAs spinning off, the Pension industry is about to witness the birth of an oligopoly like the Tier 1 players in the Banking sector. Interestingly, the same will also happen with Insurance. The only real issue is that we will now have limited choices. In truth, we don’t necessarily need many of them as long all firms remain competitive. But there is the risk that the companies just get comfortable with their population growth-induced expansion while simply focusing on low-yielding investments. The existence of the pandemic as well as the really low rates in the fixed-income market is, however, expected to propel companies to seek out creative ways to at least keep up with the constantly rising rate of inflation.
Nigerian Banks expected to write off 12% of its loans in 2020
The Nigerian banking system has been through two major asset quality crisis.
The Nigerian Banking Sector has witnessed a number of asset management challenges owing largely to macroeconomic shocks and, sometimes, its operational inefficiencies in how loans are disbursed. Rising default rates over time have led to periodic spikes in the non-performing loans (NPLs) of these institutions and it is in an attempt to curtail these challenges that changes have been made in the acceptable Loan to Deposit (LDR) ratios, amongst others, by the apex regulatory body, CBN.
Projections by EFG Hermes in a recent research report reveal that as a result of the current economic challenges as well as what it calls “CBN’s erratic and unorthodox policies over the past five years,” banks are expected to write off around 12.3% of their loan books in constant currency terms between 2020 and 2022, the highest of all the previous NPL crisis faced by financial institutions within the nation.
Note that Access Bank, FBN Holdings, Guaranty Trust Bank, Stanbic IBTC, United Bank for Africa and Zenith Bank were used to form the universe of Nigerian banks by EFG Hermes.
Over the past twelve years, the Nigerian banking system has been through two major asset quality crisis. The first is the 2009 to 2012 margin loan crisis and the other is the 2014 to 2018 oil price crash crisis.
The 2008-2012 margin loan crisis was born out of the lending institutions giving out cheap and readily-available credit for investments, focusing on probable compensation incentives over prudent credit underwriting strategies and stern risk management systems. The result had been a spike in NPL ratio from 6.3% in 2008 to 27.6% in 2009. The same crash in NPL ratio was witnessed in 2014 as well as a result of the oil price crash of the period which had crashed the Naira and sent investors packing. The oil price crash had resulted in the NPL ratio spiking from 2.3% in 2014 to 14.0% in 2016.
Using its universe of banks, the NPL ratio spiked from an average of 6.1% in 2008 to 10.8% in 2009 and from 2.6% in 2014 to 9.1% in 2016. During both cycles, EFG Hermes estimated that the banks wrote-off between 10-12% of their loan book in constant currency terms.
The current situation
Given the potential macro-economic shock with real GDP expected to contract by 4%, the Naira-Dollar exchange rate expected to devalue to a range of 420-450, oil export revenue expected to drop by as much as 50% in 2020 and the weak balance sheet positions of the regulator and AMCON, the risk of another significant NPL cycle is high. In order to effectively assess the impact of these on financial institutions, EFG Hermes modelled three different asset-quality scenarios for the banks all of which have their different implications for banks’ capital adequacy, growth rates and profitability. These cases are the base case, lower case, and upper case.
Base Case: The company’s base case scenario, which they assigned a 55% probability, the average NPL ratio and cost of risk was projected to increase from an average of 6.4% and 1.0% in 2019 to 7.6% and 5.3% in 2020 and 6.4% and 4.7% in 20201, before declining to 4.9% and 1.0% in 2024, respectively. Based on its assumptions, they expect banks to write-off around 12.3% of their loan books in constant currency terms between 2020 and 2022, a rate that is marginally higher than the average of 11.3% written-off during the previous two NPL cycles. Under this scenario, estimated ROE is expected to plunge from an average of 21.8% in 2019 to 7.9% in 2020 and 7.7% in 2021 before recovering to 18.1% in 2024.
Lower or Pessimistic Case: In its pessimistic scenario which has a 40% chance of occurrence, the company projects that the average NPL ratio will rise from 6.4% in 2019 to 11.8% in 2020 and 10.0% in 2021 before moderating to 4.9% by 2024. It also estimates that the average cost of risk for its banks will peak at 10% in 2020 and 2021, fall to 5.0% in 2022, before moderating from 2023 onwards. Under this scenario, banks are expected to write off around as much as 26.6% of their loan books in constant currency terms over the next three years. Average ROE of the banks here is expected to drop to -8.8% in 2020, -21.4% in 2021 and -2.9% in 2022, before increasing to 19.7% in 2024.
Upper or optimistic case: In a situation where the pandemic ebbs away and macro-economic activity rebounds quickly, the optimistic or upper case will hold. This, however, has just a 5% chance of occurrence. In this scenario, the company assumes that the average NPL ratio of the banks would increase from 6.4% in 2019 to 6.8% in 2020 and moderate to 4.8% by 2024. Average cost of risk will also spike to 4.2% in 2020 before easing to 2.4% in 2021 and average 0.9% thereafter through the rest of our forecast period. Finally, average ROE will drop to 11.6% in 2020 before recovering to 14.4% in 2021 and 19.0% in 2024.
With the highest probabilities ascribed to both the base case and the pessimistic scenario, the company has gone ahead to downgrade the rating of the entire sector to ‘Neutral’ with a probability-weighted average ROE (market cap-weighted) of 13.7% 2020 and 2024. The implication of the reduced earnings and the new losses from written-off loans could impact the short to medium term growth or value of banking stocks. However, in the long term, the sector will revert to the norm as they always do.
Even with a 939% jump in H1 Profit, Neimeth still needs to build consistency
Neimeth has been one of the better performers in the stock market in the last one year.
Neimeth’s profit after tax for H1 2020 might have jumped by 939% from H1 2019, but there’s still so much the company needs to do to remain in the game.
For the first time in years, Pharmaceutical companies across the globe are in the spotlight for a good reason. As the COVID-19 pandemic rages on, the world waits patiently for this industry to produce a vaccine that can once again lead us back to the lives we all missed. Nigeria is also not an exception, it seems. One of Nigeria’s oldest pharmaceutical companies, Neimeth, has been one of the better performers in the stock market in the last one year. However, there is still so much the company needs to do to earn profits consistently.
Neimeth’s recently released H1 2020 results show a jump of 19.4% in revenue from ₦976 million earned in H1 2019 to ₦1.165 billion in H1 2020. While this is impressive, its comparative Q2 results (Jan-March ‘ 20) show a drop in revenue of 25.4% from ₦748.8 million earned in Q2 2019, to the ₦568.7 million revenue in Q2 2020. In similar vein, while its profit-after-tax soared by 939% from ₦5.447 million in H1 2019 to ₦56.596 million in H1 2020, its quarter-by-quarter results show a drop of 118%. While there is a truth that some months are better performers than others, Neimeth’s extreme profit jump in the half-year results juxtaposed with the more-than-100% drop in the first quarter of this year, reveal wide-gap volatility in its earning potential. Its revenue breakdown attributes the quarter-by-quarter drop in revenue to a comparative drop in its ‘Animal Health’ product line by a whopping 897.42%. The ‘Pharmaceuticals’ line also only experienced a marginal jump of 2.57%.
Full report here.
Current & Post-Covid-19 Opportunities
A 2017 PWC report had revealed that by 2020 the pharmaceutical market is expected to “more than double to $1.3 trillion. Mckinsey had also predicted that come 2026, Nigeria’s pharma market could reach $4 billion. The positive outlook of the industry is even more so, following the disclosure by the CBN to support critical sectors of the economy with ₦1.1 trillion intervention fund.
The CBN governor, Godwin Emefiele, had stated that about ₦1trillion of the fund would be used to support the local manufacturing sector while also boosting import substitution while the balance of ₦100 billion would be used to support the health authorities towards ensuring that laboratories, researchers and innovators are provided with the resources required to patent and produce vaccines and test kits in Nigeria.
While manufacturing a vaccine for the Covid-19 pandemic might be nothing short of wishful, the pandemic presents a global challenge that businesses in the healthcare industry could leverage. Through strategic R&D, it could uncover a range of solutions, particularly those that involve the infusion of locally-sourced raw materials.
In order for the company to attain sustainable growth, it needs to come up with structures and systems that are dependable, while also tightening loose ends. One of such loose ends is its exposure to credit risk. It’s Q2 2020 reports reveal value for lost trade receivables of N693.6 million carried forward from 2019. To this end, it notes that while its operations expose it to a number of financial risks, it has put in place a risk management programme to protect the company against the potential adverse effects of these financial risks.
At the company’s last annual general meeting (AGM), the managing director, Matthew Azoji, had also spoken on the company’s efforts to gain a larger market share through its initiation of bold and gradual expansion strategies.
The total revenue growth and profitability of the half-year period undoubtedly signals a potential in the company. However, we might have to wait for the company’s strategies to crystalize and attain a level of consistency for an extended period before reassessing the long-term lucrativeness of its stock or otherwise. That said, it certainly should be on your watchlist.