Dangote Cement and Access Bank; are investors buying their story?

Dear Readers;
                       I will make this quick.  Companies must present a true state of affairs of their businesses.  While I cannot force them to do so, I will call them out.  Luckily, investors are actually getting a bit more cautious in their usual exuberant reaction to results that appear impressive on first take.  

Dangote Cement:

Dangote's Cement is not selling.  This has been a perennial issue.  The company is producing but, is selling way below its production.  The company is now competing on the level of Zenith Bank for interest income witha figure of N43.82B.  Finance income earned in 2016 by a cement company is approximately 90% of the interest earned on bonds by Zenith Bank for the whole of 2016 - $48.73B.  This is ridiculously deceitful.  This line item was pretty much used to negate finance expense of N45.4B.  Operating Profit for the group actually declined 16% from FY 2015 - 2016.  Outside of Nigeria, where the company is embarking on an expansion frenzy across Africa, the company achieved an operating loss of N1.93B in 2016 as against an operating profit of N13.3B in 2015.  

Tax waivers are supposed to be for companies not for production lines.  Let us play along nonetheless.  Dangote Cement has not been granted a tax waiver but, has gone ahead to report its audited earnings based on the belief that it will be granted a tax waiver.  How do you produce an audited result which reflects past events and use a future wish (tax waiver that generated a tax credit) to boost your net income in the interim?  I know he is powerful in Nigeria and can pull strings better than a violin player, but this is surreal.  

This stock deserves to be punished to a price below N100 naira; this process started last week, ramped up today and hopefully will continue.   Management of companies need to realize that their stock prices will get pummeled if the published financials are meant to mislead rather than inform investors.  

Access Bank:

Management says its derivatives are held for day-to-day cash management rather than for trading purposes and are held at fair value .  All derivative contracts are considered to be valued with reference data from FMDQ.  The co-owner of Access Bank - Aigboje Aig-Imoukhuede was the former Chairman of the Board of FMDQ.  

Despite the above statement its derivatives are not for trading, but, for hedging purposes, Access Bank went ahead to book on its income statement, a net gain on derivatives of N50.1B.  The bank's net income for FY 2016 is N71.4B.  You can do a search for my commentary on Access bank's H1 2014 result on this blog for more detail about this paper profit boosting maneuver in play by Access Bank.  The bank's auditor also expressed concerns while leaving enough room to earn its paycheck. 

Additional:

On a side note, Zenith Bank made about N46B from foreign exchange trading and foreign currency realized revaluation gains.  This is more than a third of the bank's net income for FY 2016.  The benefit of having your former CEO heading the Central Bank is clearly reflected here.  Ever heard of first dibs?    

Zenith could have gone ahead and bought back about 3.7B shares of its bloated outstanding shares of 31.4B using the N56B it is paying out for its declared final dividend of N1.77.  This would have also sent a signal that the bank believes its shares are undervalued.  Zenith now has more debt on its books than equity.  Management still believed that paying out dividends yielding 12% is better than paying down its astronomical debt.  This stock was punished last week. 

Nestle is getting a boost in its share price with a resilient performance despite a 67% decline in net income from 2015 - 2016.  

 Investors may just be catching on; they want the TRUTH from companies and are ready to vote with their funds to send a message.  I stand with you.  BUY Nestle for coming to the table with clean hands, SELL Dangote Cement and Access Bank for coming to the table with dirty hands masked as clean.    

Zenith Bank management did not act in a shrewd manner; you have to decide if this is a deal breaker for you or not.  The bank is "going for broke" and its either it wins big or loses without mercy.  

   Tell others to tell others about this blog; the financial TRUTH is here without fear or favor


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