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Is the pension asset just another cookie jar?

Around 2013/2014, Nigeria’s pension fund asset was at about 4.21 trillion naira.

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How negative performance in the capital market affected PFAs in 2019

Around 2013/2014, Nigeria’s pension fund asset was about N4.21 trillion. There was so much talk about the country being so dumb to let such amount sit idle. Analysts talked so much about the potential impact of investing so much money. Private Equity (PE) firms wanted it. The government also wanted it.

While the PEs could only talk, the government either resisted the pressure or lacked the balls to dip their hands into the pension asset at the time.

But powerful interests continued to encircle it, and analysts continued to denounce having so many funds sitting idle while the country grappled with myriads of the infrastructural deficit.

Nine Funds that Joined the League of Mutual funds in 2019 One of the problems that is prevalent in Nigeria is that of paucity of data. Though that problem still bedevils the Nigerian mutual fund industry, the Security and Exchange Commission has been doing its best to publish, as often as it can, a compilation of the Net Asset Values of Nigerian mutual funds. One way to judge the health of an industry like the mutual fund industry, is to look at the trends of fund flows into and out of the industry. In one of my recent pieces, I pointed out that the state of the industry seemed to be strong, and judging by how much investors poured into the industry in 2019, the state of the industry seems to be even stronger. Another way to judge the health of the industry is to look at its growth in terms of the number of funds, especially number of new funds, launched within a review period or year. Due to lack of alternative facts, our analysis is based solely on the publications by the Security and Exchange Commission. Based on the SEC NAV Summary reports, we can comfortably say that Nine new funds were added to the list of active mutual funds in Nigeria in 2019. That is a slight improvement over the 8 new funds that were added in 2018, but nothing compared with the 16 new funds added in 2017. Be that as it may, the fact that the industry added more funds, with none going into extinction, is quite commendable and a mark of growth. Here are the newcomers in 2019. Vantage Dollar Fund and Vantage Equity Income Fund: Vantage Dollar fund is a Eurobond fund, being denominated in US Dollar. It is a product of InvestmentOne Fund management. Though the fund opened for issue on April 23 2018, closing on June 1, 2018, it did not get listed in the SEC report until sometime in 2019, making it a newcomer in 2019. Its current asset value is N1.8 billion and the fund generated about N78 million in gains in 2019. InvestmentOne also launched the Vantage Equity Income Fund. That brings to 6, the number of funds being managed by InvestmentOne Asset Management, giving it a total asset under management of N21.6 billion. (1)Another new comer in 2019 is the IBTC Shariah Fixed Income Fund. The Fund is an “open-ended unit trust scheme that invests in Shariah-Compliant fixed income securities and investment products that are permissible under Shariah principles.” A product of Stanbic IBTC Asset Management, the fund was valued at N1.5 billion by the end of 2019 and generated an estimated N54.6 million in gains also in 2019. With that, the number of funds under the management of Stanbic IBTC Asset Management company now comes to 14, with total asset undermanagement of N478.2 billion as at the end of 2019. (2) PACAM Eurobond fund and PACAM Equity Fund also made it to the list of newcomers in 2019. Though PACAM Eurobond fund is said to be Eurobond fund, at least by nomenclature, the fund manager’s website says that the fund invests in “Fixed Income instruments such as FGN Bonds, Sub National Bonds, Corporate Bonds and other investment grade Fixed income instruments giving investor’s opportunity to invest in secure and high yielding Bonds offered by Federal and State Governments of Nigeria and large Corporates.” The launch of the two funds brings to 5, the number of funds being managed by PACAM Asset Management company, bringing its asset under management, AUM, to N1.56 billion. (3) Lead Balanced fund also got enlisted in the SEC NAV Summary Report for the first time in 2019. A product of Lead Asset Management, the fund is an Open-Ended Fund authorized and registered in Nigeria as a Unit Trust Scheme. Aimed at achieving capital appreciation by holding long-term positions in different asset classes and provide regular income streams for unit holders, Lead Balanced fund was valued at N475 million at the end of 2019, after making about N10.57 million in gains. Lead Asset management now manages 2 funds with combined AUM of N566 million (4) Legacy Money Market: Not wanting to be undone by other asset managers, First City Asset Management launched its Legacy Money Market fund, to bring the funds under its management to 4, and total asset under its management to N20.5 billion. (5) Growth & Development Asset Management Limited also debuted in the Nigerian mutual fund industry with its GDL Money market fund, an open-ended mutual fund that invests in a broadly diversified portfolio of short-term, high quality money market securities such as Treasury Bills, Commercial Papers, Bankers Acceptances and Certificate of Deposits issued by rated banks in Nigeria. With that, Growth & Development Asset Management Limited, GDL, gets set to make its mark in the industry with its current AUM of N896 million. (6) FSDH Treasury Bill Fund: 2019 saw what could be known as Nigeria’s first and only Treasury Bill fund, with the launch of FSDH Treasury Bill Fund by FSDH Asset Management. Though a money market fund by its characteristics, the FSDH Treasury Bill Fund “provides investors with the opportunity to invest in a range of Treasury Bills across different tenors” in Nigeria. That brings the number of funds being managed by FSDH Asset Management to 4 and its total asset under management stood at N44 billion as at the end of 2019. Conclusion: There is no doubt that the Nigerian mutual fund environment is still evolving and a fertile ground for innovation and product development. A lot of progress has been made, and a lot more needs to be made. One area that is yearning for attention is the area of fund of funds. We are watching to see who launches the first fund of funds in Nigeria.

Mallam Nasir El-Rufai

So, many knew it was only a matter of time before someone had the guts to lay hands on the retirement savings of Nigerians. That came in December 2019, when the National Economic Council announced that it would be borrowing from the pension asset. The reactions that trailed it were not unexpected. A part of those reactions included a poll by a civic organisation, BudgIT where people literally shouted at the government to stay away from their retirement savings.

But of course, that would not be, as the council met again last week and decided that the plan to borrow N2 trillion from the pension asset had been perfected. According to Kaduna State Governor, Mallam Nasir El Rufai, who announced this to newsmen, the money would be invested in the construction and maintenance of road infrastructure, rail, and power.

El Rufai further argued that there is no cause for alarm in the borrowing of the pension fund as a significant portion of the fund belongs to workers in their 30s, who wouldn’t be needing the money in the next decade or two. He cited such sovereign nations that had used its pension assets to bolster its infrastructure to include South Africa and Russia, saying Nigeria could do the same.

These seem like a fair argument but the challenge this government faces, like the ones before it, is that the people do not trust it. For a government that has demonstrated its ingenuity in the mismanagement of resources and continues to borrow and borrow, many do not seem to understand how it would be able to manage this differently and payback promptly. The fear that the borrowed fund will be pilfered, turned into just another cookie jar, is not also unfounded as the government is neither reputed for its accountability.

[READ MORE: Nigeria’s Pension Asset increased by N228 billion in October)

Meanwhile, those who argue that whatever the government decides to do with the borrowed fund would be better than letting it sit idle should be reminded that trillions of naira of the pension asset are already in government debt, as part of investments into government securities. This approach has been considered the safest as opposed to direct deduction from the fund.

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More so, Governor El Rufai should be reminded that the demographics he referenced have made only a little contribution to the pension asset. A huge percentage of young Nigerians in their early 30s have not had their first job, post-graduation, at least in the formal sector where pension contribution is mandatory. So, those who argue that the pension fund belongs to young people should have a rethink.

Another sad part is that there is no guarantee that the government will not come for more of the pension fund once it is able to lay hands on this successfully. That would automatically trigger a tale of how Nigeria’s pension asset was ballooning and running smoothly until the government decided to borrow from it. No Nigerian deserves such a story in his old age.

The truth that this government has refused to admit, is that it has a worsening revenue crisis.

Now, Nigeria’s revenue crisis is worsened by growing recurrent expenditure, debt service of 70% of revenue and growing revenue shortfalls. And with debt up to its throat within a short period, tinkering with the citizens’ retirement savings won’t offer much relief either. Instead, it could resolve this crisis by a conscious effort to shrink the size of the government to reduce its staggering overheads, while letting in more participation of the government.

One will wonder if this move replaces the controversial plan to borrow $29.9 billion which the government is seeking approval from the senate. If it is not, then Nigerians should brace up for a heavily debt-laden and unpalatable future.

President Buhari may sign 2020 Budget tomorrow, President Buhari approves N37 billion for National Assembly renovation, President Buhari appoints Sarki Auwalu to head DPR , Economy: Reviewing FG’s 2019 revenue performance, Nigeria, and other African markets top destination for investments in 2020

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However, one would also argue that if the government has decided that the pension fund should be invested outside the safe havens of bonds and treasury bills, it should do well to extend a portion of the fund to Venture Capital firms to invest in Nigeria’s bourgeoning technology space.

[READ ALSO: Pension asset increases to N9.33 trillion – PenCom)

The technology ecosystem in Nigeria attracted approximately $663.24 million, and about N239 billion-naira investment in 2019. The analysis shows that more than 80% of this capital is foreign. This means that the country is building a generation of enterprises that could dominate the economy in the next decade on foreign capital. The government can use this opportunity to tap into the industry by creating an investment vehicle using a portion of the pension fund (they could start with N500 billion naira), allowing VCs in Nigeria to invest in several viable technology start-ups across Africa. Imagine the impact that could have.

Beyond initiatives such as this, borrowing money from the pension fund equals to treating it as just another cookie jar. Nigerians don’t deserve that.

 

Jonah Nwokpoku is a financial journalist and the publisher of an online newspaper, Nigeria Today News.

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform. To get your articles on Nairametrics, kindly send an email to info@nairametrics.com and we will publish it within 24 hours of approval by our editorial team.

2 Comments

2 Comments

  1. Ose

    January 30, 2020 at 10:45 am

    There is no reason that justifies direct borrowing of pension funds by the federal government. For sake of emphasis, the bulk of pension fund is being invested in government securities. This is an indirect borrowing and utilization of pension funds by the government. It amounts to oppression of the masses to dip into funds contributed by hardworking individuals without their consent.

    Also, if government need funds, they should cut down on the cost of running the government. A 50% reduction in legislators’ allowances across the federal and state level will free-up tangible funds to be used for other developmental projects.

  2. Trouble

    February 4, 2020 at 8:37 am

    Government has no moral grounds for borrowing from pension funds when pensioners are not paid their entitlements. Many pensioners die without collecting a kobo from their pension funds because of flimsy excuses from the pension fund administrators . Nobody is looking into the plight of pensioners. Please leave the pensioners funds alone. Those who want to borrow from the funds did not contribute to it.

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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.

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BUA Cement gives succour to host communities in Edo

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.

(READ MORE:Update: BUA Cement Plc lists N1.18 trillion shares on NSE)

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.

Kalambaina Cement Line 2, BUA Group, Kalambaina Cement, CCNN, Merger, Tax Incentive Boost BUA Cement FY 2019 Results

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.

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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.

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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.

READ ALSO: COVID-19: Best and worst case scenarios for the Nigerian economy

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.

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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.

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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.  

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Analysis: Airtel Nigeria is winning where it matters.

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.”

(READ MORE: NCDC and NNPC-IPPG reinforce #TakeResponsibility theme with multi-lingual campaign)

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%.

Regulation forces Airtel Africa to initiate shares listing in Malawi , Analysis: Airtel Nigeria is winning where it matters.

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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.

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“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%.

(READ MORE: COVID-19: MTN says it has put strict measures in place to preserve resources)

Buying opportunity

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.

 

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Analysis: Nestlé strong but exposed.

Being a market leader is great, but in times of economic despair, it can quickly turn you into prey.

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Why Nestle Nigeria’s return remains strong - EFG Hermes, Nestle Nigeria Plc appoints new Director, Nestle Plc: FY 2019 Revenue beats estimate; but profit underperforms

With about six decades of being the choice companion for families within Nigeria and the diaspora, Nestlé Nigeria Plc has positioned itself as one of the largest food and beverage companies on the continent. Owing to the expansive growth of Nigeria’s population – one projected to reach 300 million by the year 2030, as well as the growing middle class, the FMCG sector has a very positive outlook.

Consequently, Nestle’s leadership in the industry and its huge market size expectedly gives it a huge advantage. However, with the global economy barely racing against the impact of the Covid-19 pandemic, even the brimming FMCG sector will experience its own level of disruption.

Nestle’s recently released Q1 2020 financials reveal a revenue decline of 0.9%, as it dropped to a marginal ₦70.33 billion from the ₦70.97 billion turnover it garnered in Q1 2019. The profit before tax also experienced an 8.7% drop while the profit after tax had a 12.84% drop, both yielding ₦17.5 billion and ₦11.2 billion respectively, for the first quarter of this year. This is predominantly owing to its increased losses from its overseas activities.

READ ALSO: Italy to invest in Nigeria’s agric sector

The company procures all of its raw materials on a commercial basis from overseas and local suppliers; consequently, the percentage of its supplies dependent on international suppliers had a negative impact on its Q1 2020 financials. Its profits were plagued by a foreign exchange loss of ₦154.7 million from ₦18.9 million, an even higher loss of 720.6%. While the company did not disclose the value of its export revenue, we believe it too might have suffered from reduced exportation in the latter part of the quarter.

The group has since been taking on expansionary projects, such as its launch of a second beverage production plant in Ogun State in February of 2018. The company, on a continuous basis, explores the use of local raw materials in its production processes, contributing its own quota to the Nigerian economy.

READ MORE: Polaris Bank’s profit rises to N26.2 billion from N2.8 billion

Just last week, Nestlé’s stocks went up 2.56% to close at ₦1000, a price it still currently holds today after markets closed. Its price to earnings ratio is 18 and its earnings per share (EPS) of 55.54, signal an investor sentiment of confidence. However, its high price to book ratio of 13.9865 reveals that the company is slightly overvalued and its price of ₦1000 makes it attractive primarily to institutional investors that can afford to purchase large volumes of the stock enough to benefit from its steady growth in value. The company had proposed a dividend payout of ₦45 per share. This also comes after paying ₦25 per share interim dividends earlier. Its dividend yield at the time of writing this is 7%, further heightening the possibilities for the income investor.

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While the company has strong fundamentals governed predominantly by its position as a market leader, its years of experience, and its existence in the FMCG sector, it too might not have a smooth sail in the coming quarter. Its overseas business from both the supply and the demand sides are expected to experience a further decline, ultimately resulting in an even lower relative turnover and lower earnings.

READ MORE: Cadbury Nigeria reports N638.9 million profit for Q1 2020

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We also expect the decline in average disposable income of Nigerians from loss of jobs and an overall wariness of the economic impact of the pandemic, to further drive down turnover; however, sound operational efficiencies and cost control/ profit strategies by the group could ease the burden. The company fundamentals remain strong but its exposure to consumer disposable income remains a major concern. There is always a cheaper alternative and when your pocket empties your choice for cheaper substitutes swells.

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