Though the year 2019 has come and gone, the financial service delivery industry witnessed a boom, as Financial Technology (FinTech) firms experienced improved growth with the help of technology. The operators have become some of the fastest-growing technology firms in Nigeria.
That is not all. The industry also attracted over $400 million as investment in 2019 alone, according to the Central Bank of Nigeria (CBN).
Why it matters: The apex bank’s Governor, Godwin Emefiele, explained that the investment attracted by the industry was part of initiatives to drive financial inclusion in the banking sector.
He said, “In an effort to build a more inclusive financial system and to improve the efficacy of monetary policy tools, we provided super-agent licenses, as well as Payment Service Bank licenses to telecommunications and fintech companies.
“These measures are aiding in the development of a robust payment infrastructure and an expansion of agent locations across the country. As a result of our policy measures, in 2019, over $400m have been invested in fintech companies focused on supporting improved payment services in Nigeria.”
With the entrance of new players into the payment services market and the strengthening of the financial networks, a growing number of underserved Nigerians had access to cost-effective banking services.
- On November 12, 2019, Interswitch, Africa-focused integrated digital payments, and Visa (NYSE: V), announced a strategic partnership that further advances the digital payments ecosystem across Africa.
- As part of the agreement, Visa will acquire a significant minority equity stake in Interswitch at a total company valuation of $1 billion. Visa is thought to be paying $200 million, valuing Interswitch at about $1 billion (N360 billion)
- Founded in 2002, Interswitch reportedly generates annual revenue of N30 billion, suggesting that the current value is about 10x its current revenues. Interswitch is also now valued higher than FBNH (N208 billion), UBA (N225 billion) and Access Bank (N327 billion). Zenith Bank still owns a 5% stake in Interswitch and is currently valued at N538.4 billion.
- In addition to its switching and processing services, Interswitch owns Verve, the largest domestic debit card scheme in Africa with more than 19 million cards activated on its network as at May 2019, and also operates Quickteller, a leading multichannel consumer payment platform, driving financial inclusion across Nigeria.
Transsion/OPay & Palmpay
In two separate rounds, Chinese investors put $220 million into OPay and PalmPay, two fledgeling startups with plans to scale in Nigeria and the broader continent.
- PalmPay, a consumer-oriented payments product, went live in November with a $40 million seed round led by Africa’s biggest mobile-phone seller, China’s Transsion.
- The startup was upfront about its ambitions, stating in a company release, its goals to become “Africa’s largest financial services platform.”
- To that end, PalmPay conveniently entered a strategic partnership with its lead investor. The startup’s payment app will come pre-installed on Transsion’s mobile device brands, such as Tecno in Africa, for an estimated reach of 20 million phones.
Nigerian Fintech startup, TeamApt also raised $5.5 million capital in a Series A round led by Quantum Capital Partners in February. The Lagos based firm is expected to use the funds to expand its white label digital finance products and pivot to consumer finance with the launch of its AptPay banking app.
Founded by Tosin Eniolorunda, TeamApt supplies financial and payment solutions to Nigeria’s largest commercial banks including Zenith Bank Plc, UBA Plc, and ALAT among others. For Eniolorunda, launching the fintech startup means competing with his former employer, Interswitch.
On performance, TeamApt claims 26 African bank clients and processes $160 million in monthly transactions, according to company data. Though it does not produce public financial results, it claimed revenue growth of 4,500 percent over a 3-year period.
Another Tech startup, Andela raised $100 million in Series D funding in January 2019. Generation Investment Management (Generation IM) led the current funding round.
Proceeds of the funds, according to Andela’s country director, Omowale David-Ashiru will be used for expansion.
“Due to our unwavering commitment to our mission throughout the last four years, Andela has grown into a thriving platform for hundreds of technologists in Nigeria. With this investment, Andela will accelerate the development of Africa’s best tech talent in Nigeria and beyond.”
Lilly Wollman, Co-Head of Growth Equity at Generation Investment Management stated that the private equity firm believes there is room for growth in Andela’s area of operations.
She said, “The global demand for software engineers far exceeds supply, and that gap is projected to widen. Andela’s leading technology enables firms to effectively build and manage distributed engineering teams. We are great admirers of the outstanding team, mission and culture Andela has built across two continents and five countries.”
Hurdles of the industry
Like other sectors, FinTech also has its challenges. From lack of appropriate regulation to access to credit, lack of established database, strategic partnership and corporate governance limitations among others, the industry still has a long way to go.
No wonder, FT Partners declared that the nation’s journey to becoming the Giant of Africa, especially in financial inclusiveness, is farther than it appears, as its payments market fell behind other African nations like Kenya, and South Africa.
In FT Partners’ FinTech Industry research, it found that 6% of the nation’s bankable population has mobile money accounts. The report, which was obtained by Nairametrics, rated the most populous black nation behind Kenya’s 73% and South Africa’s 19%.
Also, Nigeria’s Smartphone penetration (27%), accounts in financial institutions (39%) and debit/credit card ownership (35%) all fell behind Kenya’s 60%, 56%, 44%, and South Africa’s 64%, 67%, 43% respectively.
In all, while the firms are trying to keep their heads above water, Emefiele explained that as part of the bank’s priorities for 2020, it would also, sustain these efforts in 2020 as part of its plan to reduce financial exclusion rate to under 20% over the next year.
The CBN governor assured that the apex bank would also improve access to credit for stakeholders by deepening their intervention efforts.
He said the bank, in pushing to improve access to finance and credit would protect them from unfair banking and lending practices by maintaining oversight on the banks and other financial institutions.
Analysis: Total Nigeria needs a financial overhaul
Total Nigeria’s Q1’20 results are a testament that some might have it worse than others as it recorded a revenue drop of 9.3% to N70.2 billion
The Oil Industry has had a particularly tough year, owing primarily to the novel pandemic. The International Energy Agency (IEA) predicts that the global oil demand is expected to further decline this year as Covid-19 spreads around the world, constraining travel as well as other economic activities.
Organizations like Total depending on international trade will be forced to scale down operations until restrictions ease off. However, Total Nigeria’s Q1’20 results are a testament that some might have it worse than others.
The period recorded a revenue drop of 9.3% to N70.2 billion in the first quarter of this year compared to Q1 2019. Total earns its revenue from three main sectors namely: Networks, General Trade, and Aviation. Revenue from Aviation fell by 39.5%. The decline in Networks is attributed to the reduced demand as a result of the enforced lockdown and restriction on travel across the nation.
Yet, it is clear that the company had its own challenges pre-COVID-19. In the quarter, it attained a loss after tax of N163 million which was 65.6% better than the loss after tax of the comparative quarter; it is overwhelmed by a myriad of distinct issues.
First off, its revenue has experienced a steady fall over the years; reasons for this is tied largely to its lack of importation of petroleum products.
It is also burdened by inefficiencies in its operations evident in its high operational and direct expenses, as well as its high debt over the past years. The company has carried on huge loans and borrowings in its books: N40.6 billion in 2019 and only a marginal reduction of N2.2 billion in the current year.
Even higher are its expenses after an 8.38% reduction in the just-released results, it arrived at N69.7 billion for Q1 2020. Amongst its high operational expenses is the high and increasing technical fees it pays to its parent company. From N251 million in the first quarter of last year, it incurred around N700m in the year under review. It also has cash flow issues with about N22b in negative cash and cash equivalents. In its 2019 report, it revealed that the year had been tough with its cost of doing business rising exponentially as evident in its interest expense, 395% higher than the previous year as a result of repayment for products and a high level of borrowing.
The company, in its last full year annual report, noted that to make significant savings to both operational and capital expenditure costs, a series of initiatives relating to cost efficiency, process optimization, and significant reduction of working capital requirement and finance costs, were put in place and are in motion for this year.
As Dr. Fatih Birol, IEA’s Executive Director put it “The coronavirus crisis is affecting a wide range of energy markets – including coal, gas, and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand transport fuels.”
However, Total’s position goes beyond the impact of the pandemic. Its rebound rests on its ability to carry on with cost control and lower debt commitments, together with the speed of the containment of the virus. That said, the company might need to raise capital soon while also coming up with formidable strategies to strengthen its business model.
Merger, Tax incentive boosts BUA Cement FY 2019 result
BUA Cement Plc recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.
One of the industries set to experience the downsides of the Covid-19 pandemic is the construction industry. Given the slowdown in construction activities as a result of the lockdowns and constrained economic activities, the reasons are not farfetched.
Prior to the outbreak of the pandemic, Globe Newswire had predicted an accelerated growth pace of the global construction industry from 2.6% in 2019 to 3.1% in 2020. This growth has now been revised to 0.5%. What is even more daunting is that the revised growth rate is based on the assumption that the outbreak will be contained across all major markets by the end of the second quarter of 2020.
It is only after that (including freedom of movement in H2 2020) that events could facilitate reverting to the normal course of activities to foster businesses in the industry like BUA Cement or those that depend on it to restart activities.
Nigeria’s third-largest cement company, BUA Cement Plc, however, still has its 2019 victories in order. Involved in the manufacturing and sales of cement, BUA Cement has 3 major subsidiaries and plants in Northern and Southern Nigeria.
With a market capitalisation of N1.18 trillion ($3.3 billion), BUA is the third most capitalised company on the NSE. Its recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.
The company’s profits also increased by 69.1% from N39.17 billion in 2018 to N66.24 billion in 2019. Core operating performance was strong, and this was supported by strong cement sales in the domestic market, impairment writes back, and other income.
The main reason for the company’s increased earnings is from the cost synergy and increased revenue as a result of the merger that took place between CCNN Plc and Obu Cement Company Limited.
There was also a striking jump in its income statement on its tax for the year. For FY 2019, it incurred a tax expense of N5.6 billion, in comparison to the N24.9 billion tax credit it received in FY 2018.
This was as a result of a reversal of previous tax provision made on Obu Line 1; it received approvals for an extension of the company’s pioneer status on Obu line-1 and Kalambaina line-2 in February 2020, to leave effective tax rate at just over 8% in 2019. The pioneer status will help the company save funds that will otherwise have been spent on higher taxes.
(READ MORE:Dangote Cement to access more debt funding)
BUA reported an impressive FY’19 result. Its performance shows the growing strength of the company and its increasing market share. On the back of the strong performance, management declared an N1.75 dividend per share that translates to a dividend yield of 5.5% on current prices.
Cash flow position was also robust with a strong closing cash balance – from N2.8 billion in 2018 to N15.6 billion as at year ended 2019. The company’s growth, as well as the impact of its merger, present a great buy opportunity of the highly capitalized, low-cost stock. As of today when the market closed (21st May) its share price stood at N35.60 from a 52-week range of N27.6 and N41.
What we see is a great growth stock further heightened by the population expansion and increased urbanization. However, we expect the impact of the Covid-19 pandemic to be felt from the Q1 results of the company.
The industry could slow down for the year as the level of commercial construction also slows down. Yet the best part of holding stocks like this is that even with stalled operations for a period, a resurgence will always emerge.
Analysis: Airtel Nigeria is winning where it matters
Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.
Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.
Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.
Performance Overview: Airtel Africa
Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.
Full Report here.
Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”
Behind The Numbers – Nigeria
Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.
Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.
On cash flows…
The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.
“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”
To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.
Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.
It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.