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Guinness Nigeria finding it hard to refinance its loans due to dollar scarcity

Just recently the brewery giant reported an annual pretax loss of 17.07 billion naira

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Why we experienced profit declines- Guinness Nigeria

Guinness Nigeria Plc, a leading Nigerian ber maker, is struggling with managing its $23 million debt. This is due to the lack of foreign exchange liquidity in the local FX market that has made it difficult for the company to refinance the loans.

Guinness’s Finance and Strategy Director, Stanley Njoroge, disclosed this during an investor call in Lagos.

READ: Nigeria’s worsening current account deficit piles pressure on exchange rate

“We want to refinance it but there is currently no foreign currency in the market.” Mr Njoroge said.

Guinness, Nigeria’s second-largest brewer by market share, saw its outstanding debt climb by 16% to N23.2 billion in June 2020, compared to a year ago. Meanwhile, finance costs also rose by 74% to N4.5 billion.

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As Njoroge rightly admitted, “Foreign exchange is a big concern for us”. Nigerian companies are struggling to access the greenback after a slump in oil prices led to a decline in export earnings, thereby piling pressure on the CBN’s capacity to meet dollar obligations to investors and businesses.

READ: Analysis: A better way to price Guinness shares

On Friday,  the brewery giant reported an annual pre-tax loss of N17.07 billion ($45 million), hurt by write-downs and COVID-19 induced disruptions. It also reported a loss per share of N5.74.

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READ MORE: Facebook share price is worth over $300, reaching an all-time high

Its share price fell by almost 9% at the close of the week’s trading session, Friday, 28th of August. At the time of this report, the N31 billion market capitalized company was trading around N14.15 per share on the Nigerian Stock Exchange (NSE) recording a 9.29% drop from its previous closing price of 15.60 NGN. This is within touching distance to its 52-week low value of N12.85

In terms of its fundamentals,  its current dividend yield is about 10.74% while its price to book ratio is 0.3559. This suggests the stock could be undervalued.

Olumide Adesina is a French-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment Trading. Member of the Chartered Financial Analyst Society. Behavioral Finance, Duke University. You can follow Olumide on twitter @tokunboadesina or email [email protected]

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Companies

Dangote Cement to extend clinker export to other African countries 

Dangote is on course to sell more clinker across West Africa and commence shipment to Central Africa in H2 2020. 

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Dangote Cement Plc. appoints Ms. Berlina Moroole as non-Executive Director

The Management of Africa’s largest cement producer, Dangote Cement Plc (DCP), disclosed during a virtual event yesterday, that the cement producer is set to commence clinker export to other African countries within the next few weeks. 

The Acting Group CFO, Guillaume Moyen, made this known in his presentation at the joint virtual event with NSE, tagged “Facts Behind the Figures and Sustainability report’’ on Wednesday24th September, 2020. 

Backstory: In its half-year report, the Management of Dangote disclosed that on 12 June 2020, the maiden shipment of 27.8Kt of clinker from Nigeria to Senegal left the Apapa Export Terminal. 

READ: Dangote Cement’s N100 billion CP admitted on FMDQ Securities Exchange

The Management reiterated that the company is on course to sell more clinker across West Africa, and commence shipment to Central Africa in H2 2020. As it is in line with the Group’s vision of making West and Central Africa, cement and clinker independent, with Nigeria the main export hub. 

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The absence of limestone in much of West Africa, especially those in the coastal states, forces those countries to import bulk cement and clinker from Asia and Europe, and this is quite expensive. 

READ: BUA Cement Plc posts impressive unaudited H1, 2020 financial results

However, Dangote Cement plans an exporttoimport strategypositioning Nigeria as the main export hub of the continent, in a bid to serve West and Central Africa countries from Nigerian factories, making the region cement and clinker independent. 

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This is consistent with the Group’s vision of cementing Africa’s economic independence, as this would lead to lower clinker cost for pan-African operations, due to the proximity of Nigeria to these countries, as clinker landing cost will be cheaper. 

READ: Nigerian billionaires lose billions amid COVID-19 pandemic

The Management emphasized that this is possible, as Nigeria can serve a potential market of 15 countries, with over 350 million people, given the county’s relative abundance of quality limestone, especially in key Southern regions. 

It is important to note that DCP’s clinker volume, according to figures contained in its H1 2020 results, has increased to 60Kt from 12kt in H1 2019, which translates to 400% increase. 

The benefits of DCP’s export strategy 

It is noteworthy that the innovative strategy of Dangote Cement Plc is expected to; 

  • Cement Africa’s economic independence, and contribute to the improvement of continental, regional, and intra-regional trade, as the company seeks to make regional and continental free trade agreement a reality. 
  • Ensure that the increase in production due to exports, leads to increase in capacity utilization in the Nigerian operation, and in turn, reduces fixed cost per tonnes 
  • Increase foreign revenue exchange for the Nigerian operation, and offset foreign exchange risks. 
  • Reduce clinker landing cost, by leveraging on the proximity of Nigeria to other African countries. 

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Companies

Fidelity Bank to raise N50 billion in bonds in Q4 to refinance existing debts

The new issue will be made to redeem the existing N30 billion bond which was issued at 16.48%.

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Fidelity Bank Plc ,CEO Nnamdi Okonkwo, Fidelity Bank Plc growth plan, SMEs funding

One of Nigeria’s second-tier commercial banks, Fidelity Bank Plc, has concluded plans to issue up to N50 billion ($131.3 million) in local bonds by the fourth quarter of 2020, in order to refinance existing debts as the yields drop.

The disclosure was made by the Chief Operations and Information Officer, Gbolahan Joshua, during an analyst call on Tuesday, September 8, 2020.

The crash of crude oil price globally, which was triggered by the novel coronavirus pandemic, has led to a decline in bond yields on the local debt market. This has made foreign investors to dump their local assets, leaving excess liquidity in the money market. This has also put a lot of pressure on the foreign exchange market as they look for dollars to repatriate their funds.

READ: Guinness Nigeria finding it hard to refinance its loans due to dollar scarcity

The Fidelity Bank top executive disclosed that the new issue will be made to redeem the existing N30 billion bond which was issued at 16.48%.

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The global economic situation has seen yields in the debt market drop from as high as 18% about 3 years ago to less than 5% for the one-year treasury bill.

READ: GTBank, Zenith Bank, UBA record losses, investors down by N12.2 billion

Fidelity Bank had revealed that it expected to see a 15% drop in profit this year when compared to 2019 result due to the coronavirus pandemic. Its profit after tax increased by 21.9% to N12 billion for the half-year 2020.

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The second-tier bank also disclosed that its income declined in the second quarter due to a downward review of lending rates on loans as a result of the economic downturn.

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Companies

Heineken buys more units of Nigerian Breweries Plc

The Dutch firm has invested N276 million in NB since August, to increase its stake in the Brewer by 0.10%.

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Heineken scoops more Nigerian Breweries shares in insider disclosure

The major shareholder of the largest brewer in Nigeria, Heineken Brouwerijen B.V, has increased its stake in Nigerian Breweries, with the purchase of 233,110 additional units of Nigerian Breweries shares. This was disclosed by the company in a notification sent to the Nigerian Stock Exchange, which was seen by Nairametrics.

According to the notification, which was signed by the Company’s Secretary, Uaboi G. Agbebaku, the purchase was made on the bourse over two transactions on the 2nd and 3rd of September.

This disclosure is a regulatory requirement that must be reported to the Nigerian Stock Exchange, especially when a major shareholder or director of a publicly quoted company purchases shares in the company they own.

READ: GTBank revenue for H1, 2020 rises to N225.14 billion

The analysis of these transactions indicates that the purchase consideration for the 233,110 additional units of Nigeria Breweries shares at an average price of N39.94 is put at N9.3 million.

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This purchase and previous purchases further cement Heineken Brouwerijen B.V’s status as a major shareholder; the company has accumulated a total of 7,720,236 since 30th June.

READ: Vitafoam’s 2020 oncourse to make light–work of 2019

As of June 30th, when Nigerian Breweries released its Half-year financial results and reviewed its shareholding pattern, the company had exactly 7,996,902,051 outstanding shares, with Heineken Brouwerijen B.V being the majority shareholder with 3,019,363,804 units, which amount to 37.76% of the total shares of the company outstanding. 

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Hence, with the current purchase of 233,110 additional units, and previous purchases in August and September 1, which amount to 7,487,126 units, Heineken’s ownership percentage of Nigeria Breweries is now put at 37.85%.

Insider transactions, both sales and purchases, are often an indication of how shareholders perceive a company’s valuation. It could also mean a possible capital raise or that the majority shareholders are strengthening their existing holdings.

READ: Heineken scoops more Nigerian Breweries shares in insider disclosure

In like manners, the purchase of the shares of Nigerian Breweries by Heineken and other majority shareholder has mopped up stray volumes on the bourse, and pushed the stock price higher by 29% or N9, from N31 it closed at on the 3rd of August to its current value of N40 with 38.2x earnings.

About the company

Nigerian breweries is the largest brewing company in Nigeria. It engages in the brewing and marketing of lager beer, stout and non-alcoholic malt drinks, and the bottling of the Schweppes range of soft drinks and Crush Orange. Its brands include Star, Gulder, Legend, Heineken, Maltina, Amstel Malta, Fayrouz, Climax, Goldberg, Malta Gold, and Life. These products are mainly sold in Nigeria and other neighbouring countries.

READ: Flour Mills and its diverse challenges

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Key takes on NB’s financials

Nigerian Breweries was affected by the disruption in the global and domestic demand and supply chain, as profit after tax of the largest brewer dropped by as much as 58%, at the back of the adverse impact of the sharp contraction in economic activities.

The knock-on effect of the COVID-19 lockdown, which affected the trade segment of the business, affected the company sales and this triggered the 11% drop in revenue in the first half of the year.

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