Warren Buffett’s strategy as regards investments has earned him the popular nickname the “world’s greatest investor.”

The global investment community holds the 90-year-old man with so much high esteem when his successful investment strides is considered and the fact that he is now worth about $88.4 billion, and seats on the boards of so many blue-chip companies.

Buffet has long believed in the value-based investing model, as he only invests in companies that exhibit solid fundamentals such as strong earning power, the potential for continued growth, and most importantly, selecting those with low or no debt.

READ: Why Warren Buffett’s company is buying shares of a gold mining company

Consequently, Nairametrics has sought the opinions of selected financial market experts on what Nigerian stocks the world’s most powerful investor may likely consider, based on his unique principles.

Angela Aya, Head, Institutional Sales at Alonati in an exclusive interview with Nairametrics spoke on key insights Buffett usually looks out for when selecting stocks.

“Warren Buffet’s investment philosophy centers around traditional yet intricate qualities like company debt profile, profitability, historical performance, exposure to commodities, product offerings, and historical dividend payouts.

“He is considered a value investor focusing on high dividend-paying blue-chip companies that show robust earnings characterized by strong balance sheets holding investments over the long term,” Aya said.

READ: Why You Should Not Invest Like Warren Buffet

She elaborated on the impressive performance of the Nigerian Stock market in relation to the value they bring in the long haul by stating;

“Despite the Nigerian All Share Index outperforming the rest of the world in 2020, Nigerian stocks are relatively cheap from a purchasing power parity standpoint.

“Therefore, in a long-term strategic value investment play, bellwether stocks that offer stability, show profitability, and are resistant to systemic shocks will be the picks. They may not be trendy or might seem out-right boring, but they are reliable and proven to outperform given time. “

READ: Is Zenith Bank thriving on the strength of sound financial indices?

Adetayo Teluwo, a Portfolio Manager at one of Nigeria’s most valuable firms spoke on key metrics accustomed to Warren Buffet’s investment style;

Teluwo said, “I will focus on the long term, adopt a buy-and-hold mentality and prioritize blue-chip dividend-paying stocks that have proven their worth over decades.

Since I do not have bottomless pockets, I will make out time to shortlist based on ROE, D/E, and a blend of perceived ‘intrinsic value’

ROE = Net Income ÷ Shareholder’s Equity

Debt-to-Equity Ratio = Total Liabilities ÷ Shareholders’ Equity

READ: What Warren Buffet will do if he traded Nigerian stocks

Following Buffett’s investment principle, Adetayo went further by revealing the type of Nigerian stocks he would select. He said;

“According to Warren, if you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.

“If I had the conviction of Warren, these will be my top stock picks:

“Julius Berger, UBA, Zenith Bank, GTBank, Custodian, NAHCO, CHI Plc, NEM, Jaiz Bank, WAPIC, Unilever, GSK, MANSARD, Dangote Sugar, Afrinsure”

READ: Import substitution, devaluation spur revenue growth for Dangote Sugar

Silas Ozoya, President/CEO, SUBA Capital adds up to our remarkable respondents as he discloses that Nigeria’s stock market’s most liquid sector would be on Buffett’s top list, not forgetting his love for consumer staple stocks;

“Banking stocks for a start would be his first pick because he has a history of investing in financial institutions.

“So, he would go with stocks like Zenith Bank, GTBank, and FCMB because of profitability in the case of Zenith. Cutting edge technology in the case of GTBank, and versatile banking products in the case of FCMB.

“Warren Buffet is also big with daily consumables and beverages. So, he would go with the stocks of Nigerian Breweries Plc, Dangote Sugar, and Guinness Nigeria Plc.

“I’ve been following Warren Buffet’s investment strategy for a while and three things I’ve noticed are that he says the money would always exchange hands, financial institutions would always make money, and people would always consume daily consumables.”

READ: Why Warren Buffett is making less money now

Bottom line

• It’s key to highlight the rarity of Warren Buffet’s tenets in selecting stocks on the account that he has remained relatively consistent over many decades.
• Still, it remains critical for readers to understand that applying Buffet’s strategy takes a whole lot of discipline and patience.
• However, the few who have followed the founder of the world’s biggest conglomerate, (Berkshire Hathaway) on applying his analytical investment tools have had no regrets in the long term.

Nigerian owned businesses and businesses operating in Nigeria recorded over 106 corporate deals valued at over $4.3 billion (N1.63 trillion) in 2020. 

This is according to data compiled by Nairalytics the research arm of Nairametrics between January and December 2020 all at different stages of completion.  

Nigeria’s investment climate was precarious in 2020 as the global economy spluttered due to the Covid-19 pandemic. Nigeria’s GDP contracted by 3.62% (year-on-year) in real terms in the third quarter of 2020 after enduring a 6.1% contraction in the previous quarter, a development that was also attributed to the sustained shocks emanated from the continued spread of the virus as well as weak global oil prices.  

Thus, foreign investor sentiments towards investing in Nigeria remained dampened due to the economic downturn stifling foreign portfolio inflows into the country. Data from the National Bureau of Statistics (NBS) shows that capital inflow into Nigeria was estimated at $8.61 billion between January and September 2020, compared to $20.19 billion recorded in the corresponding period, falling by 57% year on year.  

In addition, data obtained from the Nigerian Stock Exchange (NSE) reveals that about N226.13 billion was recorded from Foreign Portfolio Investors between January and November 2020 as domestic investors drove market turnover for the most part of the year.

Despite the economic downturn, the economy witnessed several corporate deals consummated or under different stages of completion for the period ended December 2020.

Corporate Deals Soar 

Corporates ranging from Startups to more matured businesses announced the closure or intent to secure funding through debt or equity-related deals amidst covid-19 and the lockdown. From Silicon Valley to South Africa the deals flowed in from all over the world boosting the capital structure of most Nigerian firms.

• A total of 106 deals were captured in 2020 valued at $4.3 billion or N1.6 trillion occurred during the year with transactions ranging from raising equity, debt issuances, outright acquisitions, and divestments.
• While the tech community dominated most of the equity-related deals, more established companies focussed on public offerings and debt securities such as commercial papers to raise money.
• It is no surprise that the largest deal captured in 2020 was the International Breweries rights issue valued at about N165 billion or $457 million.
• Dangote Cement was next to a bond issuance of about N150 billion, one of the largest private-sector debt-related deals for the year. BUA Cement followed suit with its own debt issuance of about N100 billion.
• In terms of commercial papers, MTN raised N100 billion, the largest commercial paper issuance raised during the year.
• In the tech community, the $200 million acquisition of Paystack by Stripe was by far the largest deal directly affecting a Nigerian based tech-related company.
• Bolt, the cab-hailing tech firm operating across Nigeria and some African countries also got a significant funding boost raising about $100 million.

Why this matters

While the Nigerian economy suffered one of the biggest drops in portfolio investments in 2020 there was a flurry of mega deals that boosted the capital structure of most firms operating in the country.

• Nairametrics research believes a large chunk of this funding will be spent in Nigeria as the country picks up from the economic ruin that was 2020.
• The funds will flow into marketing budgets, capital expenditures, hiring of talents and executives, software acquisitions, etc.
• Nairametrics also expect a significant rise in corporate deals on the Nigerian Stock Exchange as more companies take advantage of low-interest rates to either raise cheaper debts or replace expensive debts with equity.
• Nigeria has a thriving Deals market that provides a significant source of revenue to law firms, financial advisory firms, auditors, fund sourcing firms, and investors.
• Nigerian regulators also earn significantly from fees and taxes collected as the deals are consummated.

 A comprehensive report on all 106 deals will be published by Nairametircs next Monday. Kindly send in your email address here to get a copy.

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The Federal Government of Nigeria has spent N29.3 trillion in the last 10 years on (non-debt) recurrent expenditure. The government has earned N33.2 trillion as revenue in this period.

This is according to data compiled from the budget implementation report of the federal government compiled and published by the Budget Office of Nigeria.

High on non-debt recurrent expenditure

Nigeria’s recurrent expenditure includes spending on personnel expenses, pensions, and gratuities, service-wide votes, and overheads. It has consumed about 50.6% of total budget expenditure and 88.5% of revenue in the last decade.

• Nigeria is amid an economic crisis brought upon by the fall in oil prices and more recently the covid-19 pandemic.
• The federal government currently relies on about 33% of its actualized revenue since 2015 when oil prices started their sustained fall. It was about 55% between 2013 and 2015.
• With oil revenues falling, the impact of a continuous increase in recurrent expenditure has widened Nigeria’s fiscal deficits closing at N6.1 trillion in 2020, the highest since we started tracking records in 2009.
• Economic analysts have for years pointed to Nigeria’s high spending on recurrent expenditure compared to capital expenditure as a phenomenon that is inimical to economic growth.

Nigeria has recorded a budget deficit every year since 2009 averaging about N1.1 trillion in the 5 years before the Buhari Administration came into power in 2015. However, since 2015, budget deficits have averaged N3.3 trillion.

The government budget deficits have meant increased borrowing, exacerbating the situation. Last year, Nigeria borrowed N2.8 trillion from the central bank via the Ways and Means provisions. To service this borrowing about N3.2 trillion was spent in 2020, once again the highest on record.

Recurrent expenditure vs Capital expenditure

A cursory review of the data shows that at N29.3 trillion, recurrent non-debt expenditure is about 3x more than the N10 trillion spent on capital expenditure in the last 10 years.

• The Buhari Government has often compared itself with prior PDP led governments claiming it has spent more on capital expenditure. In 2020, the government spent N1.7 trillion on capital expenditure, the highest on record.
• They have also spent between N1.4 trillion and N1.7 trillion between 2017 and 2020.

Whilst, their numbers have been impressive, spending on Capex as a percentage of total government expenditure is far lower than any other year in the last 10 years.

Here are some stark numbers

• Nigeria spends on average 21% of the total budget on capital expenditure. The highest percentage was 29.8% in 2017.
• It was 20.9% in 2020.
• In contrast, recurrent expenditure as a percentage of total expenditure is as high as 115% on average in the last 10 years. It was 86% in 2020.
• While capital expenditure has risen to N1.7 trillion in 2020 compared to just N958 billion in 2017, it is far lower in dollar terms at $4.6 billion compared to $5.8 billion respectively.

In the recently approved budget for 2021, Nigeria plans to spend N13.5 trillion in budgetary expenditure out of which N4.3 trillion is for capital expenditure and another N5.64 trillion on recurrent(non-debt) expenditure.

If this plan pans out the government would have succeeded in increasing its capital expenditure as a percentage of total expenditure to 32% in line with 30% included in the ERGP.

If history is to be relied upon as a basis for projecting, the government is more assured of hitting its recurrent non-debt expenditure spend than capital expenditure.

Nigeria’s Capital Expenditure challenges

According to a world bank report, capital expenditure involves spending on transport, information technology, power and utilities, defense, etc.

• A recent Moody’s report indicates Nigeria needs to spend about $3.3 trillion in capital expenditure over the next 30 years or $1.1 trillion a decade to close its infrastructure deficit.
• This amounts to $100 billion (N40 trillion) per annum or 28% of Nigeria’s GDP of N144 trillion, a tall task considering where the country is at the moment.
• Nigeria is far from this goal and may not meet this target if it continues to spend more on recurrent expenditure compared to capital expenditure.

Also, the government will also need to explore new revenue sources other than oil to boost its revenues while relying less on budget deficits.

• Doing this will require massive tax reforms that target the informal sector, block leakages and reduce wasteful incentives.
• Unfortunately, the covid-19 pandemic has pushed back any immediate plans to aggressively tax revenue.
• For example, in its 2021 budget, the government is projecting a tax revenue of N1.4 trillion down from N1.6 trillion a year earlier.

The Private Sector way

Another possible area of increasing achieving Nigeria’s infrastructure goals is via the private sector. But to do this, Nigeria will need to improve its capital formation policies that enable the private sector to invest in public infrastructure while delivering a legal path to recovering its investments and profits.

• There is also the public-private partnership initiative pursued by the federal government towards funding infrastructure development in the country.
• Just recently, the president approved the setting up of a $39.4 billion Infrastructure Company, wholly focused on critical infrastructural investments in Nigeria.

According to the president, “this Infrastructure company will raise funding from Central bank of Nigeria, Nigeria Sovereign Investment Authority, Pension funds, and local and foreign private sector development financiers.”

Upshots: Nigeria plans to spend N5.6 trillion on recurrent non-debt expenditure in 2021. The increase is coming from the following;

• Personal cost for MDA’s rising from N2.8 billion (as per 2020 budget) to N3 billion in 2021 budget.
• Personal cost for government-owned enterprises (GOEs) will more than triple from N218 billion to N701 billion.
• Overheads also increased considerably during the year.
• In addition, debt servicing for 2021 is budgeted at N3.1 trillion up from N2.6 trillion in 2020.