Just passing through the Nigerian Market today...

Dear Viewers:
                       Long time!  The current prices of popularly traded stocks on the Nigerian Stock Exchange in 2016 will appear alien to all except the regular.  What can I say?  The low price of some stocks has not been seen ever in some cases and this got me writing again on this blog for the first time in almost 5 months.  Here are two of the companies that I was taken aback by their stock prices  moving in opposite directions for varied reasons. 

1. Forte Oil trading at N342.00 per share.  This is pretty much double what the stock was trading at about a year ago. The company's pre-tax income rose by 17% from FY 2014 - 2015 and its share price has pretty much doubled over the past twelve months after rising 133% from December 31st 2013 - 2014.  This movement is definitely not market driven given that the Nigerian market index has been on a downward spiral in 2015 and this has continued into 2016 unabated with the market down almost 15%.  So is the price surge in Forte Oil purely due to the natural market forces of supply and demand or is it unnatural?  

The company has a P/E ratio of 83X as at February 22nd, 2016.  This is the most expensive stock (based on P/E ratio only)  among all blue-chip stocks on the Nigerian Stock Exchange.  Management booked interest received on its income statement to the tune of N3.3B ($16.6m) for delay in receiving petroleum subsidy payments.  Management also applied the indirect method (instead of direct) of cash flow presentation which lends itself better to opaqueness rather than transparency.  

Forte's outstanding debt situation is about 2.5X more than the equity attributable to shareholders. 

218,438,211 shares should have been added to the company's outstanding shares and distributed to shareholders during the 2015 calendar year.  Management did not do so despite receiving shareholder approval and this has invariably boosted its earnings per share by 20%.  The Nigerian market apparently believes the company is worth 83X its current earnings for the 2015 fiscal year.  What is your vote?  Normal or abnormal price movement?  Moving on...


2. FCMB.  I confess I did a triple look at the price-list in front of me as I could not believe my eyes that FCMB is now trading at N0.85.  Wema Bank is now worth more than FCMB on a price per share basis.  Who would have ever envisaged that?  

Naira for naira, interest expense rose in excess of interest income from September 30th 2014 to September 30th, 2015.  Trust me when I say this is a rare occurrence.  Loan loss expenses approximately quadrupled to N15.3B over twelve months!  Pre-tax income declined by 85% year-on-year. Barely four years ago, FCMB reported a full-year loss for similar reasons of loan write-downs. Four years later, is history about to repeat itself so soon?  I do know what word shareholders of the bank will be using to describe the bank's business decisions given the published performance as at September 30th, 2015. 

A little homework for shareholders.  Dig up a letter written by the bank 8.5 years ago describing an analyst and you may come across a word that fits how you feel about the bank, its business decision making and the resultant performance thus far.  You need a little help?  The word starts with R.  

No one can ever fight dissemination of the Truth and win!  You may flatter yourself for awhile but, you will ultimately and eventually suffer a heavy loss in the long-run.  Let us call this a lesson of life.  

Regards,

Dialectic Africa Analyst

        

Comments

Post a Comment

Popular posts from this blog

Earnings Quality among African companies: Recurring restatements are not welcome

Dear Africa interested professionals:                                                            When I ponder on earnings quality, it goes beyond the financial performance of the companies as provided to us by their directors.  Are the numbers provided to us possess the qualities of transparency, authenticity and longevity?  Are this year's numbers going to be adjusted (restated) next year with the reality of this already known today?  Do restatements suddenly become an annual recurring act for some companies, just the way financial reports are audited annually? Public companies that continually restate their books, change key figures significantly without any clear, detailed explanation are guilty of poor earnings quality as their audited financials are not as reliable as they should be.   I have randomly selected visible companies across different industries in Africa and reviewed their two most recent annual reports (covering three fiscal years) for restatements an
Read more

GUINNESS NIGERIA & EAST AFRICAN BREWERIES - Same Ownership - Differing Loyalties

Dear Africa interested professionals: A throwback to a thematic analysis I did looking at Diageo's subsidiaries in Kenya and Nigeria in 2015 can be found below the dotted lines.  Five years later, nothing has significantly changed for the better.  Guinness Nigeria has sold its conscience to the Nigerian environment (opaqueness and self-serving decisions take center stage) while East African Breweries still tries to hold on to transparency and proper business management and this has reflected in its performance over the years.   Guinness Nigeria's better days are behind it and current actions do not bode well for the future.  When transparency goes out the door, there is nothing left behind worth admiring.  I will pick on two simple things to reflect on. 1 . Both companies made earnings expectation announcements to their respective stock exchanges for the fiscal year ended June 30, 2020 of a significantly negative performance relative to a year earlier.   East African Breweries
Read more

The clamor for continued devaluation of African currencies reeks more and more of selfish interests

Dear Africa Interested Individuals:                                                         The clamor continues for commodities export dependent (especially oil) economies to further devalue their currencies.  I keep asking myself "when is enough finally enough?"  The clamor is largely driven by global economists across the spectrum loyal to economic theory and the countries they are domiciled in, portfolio managers and large commercial banks in the countries of focus with net positive (more dollar inflows expected than dollar outflows) dollar exposures.   What does devaluation do to the people in the countries that have devalued their currencies multiple times (or one devaluation of 20% or more) over a short period? 1. Inflation rises quickly and is driven by those directly and indirectly impacted which is everybody .   2. Chances are high that the Central Bank (Fed in the USA) will have to raise interest rates to stem inflationary pressures in the economy. T
Read more