If there was a Nigerian company that had everything it took to become a unicorn, then that would be CWG. In its 16 plus years, the company has dominated the IT hardware and software services space, boasting of top clients such as commercial banks and telcos.
The company helped Nigerian banks install the ubiquitous Finacle Banking software application relied upon by nearly all the banks in the country. It also makes money from deploying IT infrastructure and managed support services.
However, over the last 5 years, the company has struggled to grow revenues amidst rising direct cost and operational expenses; suffering major losses in 2017 and 2018 respectively. The losses and low margins wiped out its retained earnings, leading to an accumulated loss of N2.4 billion in 2020. The company has not been able to declare dividends in 4 years.
Things seem to have improved in recent years, especially in 2020 where revenues hit N11 billion, the highest in over 5 years, and profits of N443 million. It has sustained the same positive results this year reporting a pre-tax profit of N367 million in the first 9 months of the year. EBITDA is also strong at N637 million, even though it fell slightly from N703 million reported in the same period in 2020. It has also generated significant cash to pay off loans and even invested about N154 million this year on asset acquisition.
Business is, by all means, picking up despite a very harsh economic environment.
The restructuring at the company, which started in 2018 with the appointment of Adewale Adeyipo as MD/CEO in 2019 appears to be working, albeit slowly. It appears one of his major targets is to return the company to the arena of dividend payouts culminating in a share reconstruction exercise recently approved by its shareholders.
The company is relying on a proven method of setting off share premium against negative retained earnings, cleaning up its books for a possible dividend, a lifeline shareholders badly need. This will placate them in the short term and could even trigger a bump in its share price currently trading at 1.13 on a multiple of 7x.
But… what happens after it crosses this hurdle is what should be its focus.
The financial sector which it relies heavily on is changing as banks face new challenges and look to revamp their business models. The rise of FinTechs provide a new challenge and also an opportunity for the company to realign its service offering to a new and rising competition.
Cryptocurrency and the opportunities provided by blockchain will inevitably go mainstream allowing those who position themselves early on to win the future.
It’s no surprise that the company’s revenues have flattened over the last 5 years. Growth in its major sectors are hard to come by although its foray into new business segments such as ATM as a service and its Platform business could provide a tailwind that propels growth in the short to medium term.
Nevertheless, proprietary innovation that meets the demand of a rapidly changing local technological landscape is where its future probably lies.