Dialectic Africa Analyst

Dear Africa Interested Individuals:                                                         I just stumbled upon Dangote Cement's H1 2015 result.  My sensibilities that were at ease suddenly stood at attention.  This is not a drill.  Find below my most astonishing observations from the company's H1 2015 result that I deem to bee "out of sorts and out of wack."  Management stated in the financials that the total cash in the bank as at June 30th, 2015 was $258m ; this is an increase of about $155m from six months prior.  Management stated that it made finance income of $153.5m during the first six months of 2015.  Despite my awareness that balance sheet positions are at a point in time, management is implying on average that it was paid a rate of 60% on its fallow cash at the bank.  This is even a better story than audited fiscal year 2014 where management said it earned finance income of $150m on cash at the bank of  $100m .  I guess repentance is gradually bui

Dear Africa Interested Individuals:                                                          Ecobank (also known as ETI) has released its H1 2015 earnings to the public.  Find below my summarized findings of the bank's performance .  I will start with the "bigger picture" and then take a look at the clusters.   Ecobank has over the first six months of 2015 been making internal sacrifices (management calls them efficiency gains) for a better tomorrow.  Management has also worked hard to take minimal hits and resiliently move forward while going through the "hail storm" of the current business operating environment that pervades the African continent.  Over the review period, Ecobank as a group faced declining client activity, adverse foreign-exchange rates, declining asset quality and lower loan balances.  These headwinds were curtailed by sacrifices made through a reduction in headcount, lower judgment calls on credit impairment losses, reduction in prop

Dear Africa interested individuals:                                                         FCMB released its H1 2015 earnings on July 29th, 2015.  These are our summarized findings: FCMB has applied caution over the past six months in its business dealings.  Management preferred to avoid potential big losses than pursue potential big gains.   Transactional business climate at the bank has slowed down (reduced customer activity) and even the transactions carried out came with a heftier price tag.   Deposits increased by $260m; despite this, net loans decreased by $197m.  Viable lending opportunities that the bank is comfortable given its present challenges were scarce.   As a lending institution, the bank is finding it more expensive to source funds and service its own debt in relation to generating interest (cash) income on loans disbursed.  It is therefore, very plausible and logical why the bank slowed down lending.  The bank's core business of lending became more expe

Dear Africa interested individuals:                                                         I will start this off by saying that I am impressed with the honesty & transparency of PZ Cussons Nigeria and Ghana while taking a just below the surface level look at their audited financials .  The figures I examined, checked out and explanations were provided where necessary.  PZ Cussons Ghana did reveal more information than their Nigerian counterpart.  This is unlike the audited financials of Heineken in Africa that I recently wrote an article on.  Like I said once earlier, " If you do the right thing I will massage your head and if you do the wrong thing, I will pull your ears."  Now for the PZ Cussons story starting off with the bigger picture.   The Africa region (comprises of Ghana, Nigeria & Kenya) recorded growth in revenue of 3.5% and net income growth of 1.6% for the fiscal year ended May 31st, 2015 .  The Europe region had revenue growth of less than 1% a

Dear Africa interested individuals:                                                         This is the third multinational I will take a look at its operations in Africa.  I will start off with similarities between the performance of both companies: Nigerian Breweries (NB) and Bralirwa Rwanda.   Both subsidiaries experienced a decline in performance and a difficult year relative to FY 2013 with Bralirwa coming out worse off.     Both subsidiaries have negative operational working capital (they do not have any funds available at all for working capital for operational purposes.)  Nigerian Breweries is -$287m and Bralirwa is -$4.14m.   Both subsidiaries piled on debt from FY 2013 - 2014.   Both subsidiaries achieved a return on assets of 14.6% on average over two fiscal years.   Both subsidiaries paid actual interest less than the required amount as stated on their income statements.  Bralirwa paid 46% and NB 59% of the actual total amount expected.  I deem this a dishonest a

Dear Africa interested individuals:                                                         I am taking a look at Unilever in Africa today with a focus on its subsidiaries in Ghana and Nigeria.  I will briefly mention that Unilever Cote D' Ivoire is also struggling and made a loss as at half-year 2014.  The stock price has declined on the BRVM (regional stock market for french-speaking West African countries) by 27.7%   as at July 24th, 2015.  Now, let me return back to the two markets this article will dwell on: Ghana and Nigeria and focus on their similarities.  Unilever Ghana and Nigeria both have Ghanaian CEOs.  The Ghana CEO is a female (she was formerly the Marketing Director overseeing 10 African countries for Unilever while based in Ghana) and the Nigeria CEO is a male.  The former came on board in May 2013 and the latter in January 2014.  Both subsidiaries had a decline in operating profit margin from FY 2013 - 2014 by approximately 5%.  Additionally, pre-tax income m

Dear Africa Interested Individuals:                                                         This is the beginning of a series where I will be looking at multinationals and how their subsidiaries are performing in different countries within Africa.  I kick of with Lafarge with its multifaceted Nigerian operation and Lafarge Kenya which comprises Kenyan and Ugandan operations.  I picked eight ratios and variables to do my assessment for the purposes of this article.  I utilized the 2014 audited financials of both companies to extract my figures.    Lafarge Nigeria Gross Profit Margin (2-yr average): 33% Fixed Asset Turnover (2-yr average):  97.5% (less than 1X) Cost of Revenue (2-yr average):  68.6% 5-yr CAGR of Revenue:  47.2% 5-yr CAGR of attributable net income: 60.6% Pre-tax Income Margin (2-yr average): 25.6% Inventory Turnover: 5.99X Cash Flow/Assets (2-yr average):  16.1%   Lafarge Kenya (Bamburi Cement) Gross Profit Margin (2-yr average): 25.5% Fixed Asset

Dear Africa interested individuals:                                                              Dollar demand continues to rise in Nigeria where Naira is the official currency.  How can Nigeria suppress the demand for dollar and quickly?  It should be clear by now to all that the Naira has limited use because most of the things Nigerians desire must be manufactured outside Nigeria for the product to be considered real and worthy of purchase by consumers in Africa's most populated country. This widely held purchasing character of the Nigerian consumer, has led to a continuous and ever increasing demand for the dollar by manufacturers, to purchase raw materials and finished goods for an ever increasing population.  This leads me into the probable solutions necessary to reduce dollar demand by Nigerians. 1. The Naira has to be made more attractive as a currency to hold.  This will encourage those who are hoarding dollars for speculative and legitimate reasons to sell t

Dear Africa interested individuals:                                                                After completing the credit impairment assessment of thirty (30) African banks, I decided to think of a way to look at which banks are generating value-added on their loans.  This is not about how much interest a bank is able to charge on loans disbursed.  This is about which bank can generate a positive return on its loan assets after deducting the cost of non-performing assets (non-earnings assets do not factor into this.)  I will provide a play-by-play of the process I created on this occasion and give a quick summary of findings. I decided to compute a return on loan assets (RoLA) and I started off by dividing net income into loans as stated on the balance sheet and multiplying this answer by the ratio of loans-to-assets on the balance sheet.  This generated what I call RoLA.  I then divided non-performing loans (NPLs) as determined by each bank into total assets of the bank. 

Dear Africa interested individuals:                                                         Banks are typically highly sensitive to subtractive line items on their income statements.  Whatever loophole that can be applied to reduce the figures for these subtractive line items is always welcome.  A few of the key subtractive line items on the income statement that banks continually try to reduce as much as feasibly possible from an operational and financial performance standpoint are: interest expense, credit impairment loan loss and income tax expense.  When the quarter ends and the operational performance does not meet the management and board's expectation, the published financial performance becomes the final outlet to make an unpalatable situation palatable.  Perception has taken on a lot more importance today than reality; reality is what people say it is.  Freedom of expression has run amok.   It is one thing to have a bad performance because one or more subtractive l