Public Offer II

I came across this article written by the Proshare team on the recent Public Offers in the capital market. I would like to state here, that this is not an approval of the various stocks in the market but an opportunity for discerning investors to make up their mind based on other factors beyond the promising figures.

 

In a season of offers and more (including repeat) offers by quoted companies, especially firms in the banking sector of the Nigerian Stock Exchange, it is important for investors to seek to look beyond the rhetoric, commentaries and celebrated endorsements by leading lights in the market, economy, politics and society at large.

 

An investor therefore needs to be able to narrow down the list of stocks that is in front of him/her and research same.

 

Nowadays, there are a ton of great resources available out there for researching stocks, and fortunately most of them are free. Online research is becoming more and more popular because of its convenience and ease of use. The NSE exchange site allows you to see the stock performance over a period, the Proshare website gives you analyst commentaries on stock, annual accounts, equity research notes and fund managers report while the online editions of newspapers and other websites shares news and analysis on quoted stocks to allow you to make intelligent decisions.

 

Once you’ve gathered the facts, you should then perform the analysis. Different investors use different methods for determining what stocks to buy. Most investors prefer fundamental analysis, although there are also a large number who focus on technical analysis. Whatever one you decide to use, here are a few final considerations to keep in mind:

 

* Focus on the market cap, not the per-share price. The market cap is the per-share price times the number of shares outstanding. In essence, this is how much you would have to pay to buy the whole company. Every company has a different number of shares outstanding, making per-share price comparisons meaningless. For this reason, a stock which is trading at N40 per share might actually be cheaper than a stock trading at N5 per share. This doesn’t mean that price per share is completely unimportant; some technical analysts believe it can provide clues to where the stock will go next but for fundamental analysis it’s really not important.

 

* There is no perfect stock screen, because every investor is looking for something different. Some are looking for growth, others for value, still others for dividend income. The screens you apply should be done with your unique goals in mind.

 

To help you understand how this works, lets us review a current offer – Afribank Nigeria Plc.

 

THE COMPANY

From humble beginning with one branch in 1960, Afribank has grown to over 221 branches in major and sub-urban locations across the country. Afribank has also recently obtained CBN approval to open 48 additional branches in strategic locations in Nigeria. The Afribank Group comprise subsidiaries, affiliates and associated companies which include: Afribank Capital Markets Limited (100%), Afribank Registrars Limited(50%), AIL Securities Limited(61%), Afribank Insurance Broker Company Limited(100%), Afribank Estate Company Limited(100%), Afribank Trustees & Investment Limited(100%) and ANP Int’l Finance Company Limited, Dublin(100%). In addition Afribank has made investments in the following affiliate companies: Consolidated Discount House Limited (24.5%), Electricity Meter Company of Nigeria, Zaira (17%), Niger Insurance Plc. (10%), Unique Ventures Limited (40%) and Trustfund (Pension Fund Administrators) (15%). The development of this financial superstructure has made it possible for the Bank to leverage as a one–stop shop for the delivery of a wide range of financial services.

 

INVESTMENT ANALYSIS

Analysis of the investment ratio between 2003 and 2007 shows that Afribank’s earnings per share increased from N0.45k to N1.02k translating to a CAGR of 22.59%. Dividend per share increased from N0.15k in 2003 to N0.30k in 2007 translating to a CAGR of 18.92%.

 

The bank did not pay dividends both in 2005 and 2006 as a result of the restructuring costs which it had to undertake in 2005 to position it to efficiency and the goodwill in the account of the bank in 2006.

 

Earnings yield increased from 6.45% in 2003 to 8.84% in 2007 while the dividend yield also increased marginally to 2.61% from 2.15% during the same period. In a similar development, dividend cover improved marginally to 3.39x from 3.00x. The average P/E ratio for the financial year ended 2006 and 2007 is 13.52x while the average dividend pay-out for the period between 2003 and 2007 is 30.78%.

 

The share price appreciated by 64.90% from N6.98 to N11.51 translating to a CAGR of 13.32% while the net asset per share increased from N3.34 to N6.13 which is a CAGR of 16.37%. Meanwhile, the shares being offered will qualify for any dividend or bonus that may be declared for the year ending 31st March, 2008.

 

Investment in Afribank shares in the last seven years has proven to be profitable in terms of capital appreciation, dividend and bonuses earned.

You Need To Know This

The advent of mobile and Internet banking within Nigeria has opened the door for Internet scams and fraud often perpetuated by criminal elements and banking officials. Recently, Interswitch placed an advert on the T.V and radio informing the general public about a faceless and unknown scam organization asking for personal information from ATM cardholders about their pin codes. It has become mandatory to be more knowledgeable and smarter when conducting your online banking transactions.  If you’re at your wit ends, then this you can do;

• Don’t write down your password on your phones, on the ATM, your notebook or debit card itself, or anywhere else in your wallet.
• Don’t use your ATM card at the mall, restaurant or fast food outlets because the waiter or staff can record your information on a magnetic stripe.
• Use normal Bic pens to write cheques, as the ink cannot be easily dissolved.
• Inject some variety by using different passwords and IDs at different financial institutions. Don’t also make the mistake of using your mother’s maiden name as your security answer.
• Don’t use a public computer for your online financial transactions, as there are temporary Internet files that store all your activities on the computer.
• Monitor and check your bank accounts religiously to prevent unauthorized transactions on your account.
• Don’t click or download scam emails or download attachments from unknown sources. If you receive an urgent mail from your financial institution, use the phone number printed on your bank statement to respond.
• Never sign a cheque in the presence of a stranger or anybody. You never know if you’re opening yourself up to someone who could forge your signature. I know a lot of people are guilty of this.
• Learn to delete the history tab on your personal computers. I often save my passwords and IDs on my personal computer. However, once I’m through with my online transactions, I click on Internet options and delete history, cookies and all temporary files.

Buying is an Habit…Not Buying is also an Habit

I got this memorable quote while watching MBI today. Ironically it was a program tagged “Telemart” a program aimed at informing viewers on the best place to get good bargains on various products and services during the festive season. It got me thinking about our penchant to buy and buy without ceasing.

 We’re daily badgered by billboards, TV adverts, radio jingles and other forms of advertising which places a lot of moral suasion on consumer behaviour, which invariably affects our attitude towards money. Think about this quote for a second and let it sink deep into your soul. Also meditate upon it and you’ll discover how crazy it is to base our personal happiness upon material gains. In our unending race to catch up with the Joneses, the best car, wine, dresses, house is not enough unless it out matches that of the Joneses.

How materialistic can we get? We need to get our priorities right and determine if the Naira earned today is better off being spent on material things rather than saving it towards investment for the future. Every time you reach for the next item on your must have list, think and weigh the opportunity cost of having this item vs. your long-term financial goals.  

I’ve discovered that we really do not give a deep thought on how we spend our money. We’re a nation of emotional spenders rather than rational spenders. We hide our inability to say “No” behind such reasons, as “God owns the universe and the earth, who am I not to spend what he has blessed me with? ”. Develop and cultivate the habit of not spending and you will notice the difference in your networth at the end of the day.

Ladies and Jewelry

I am not crazy about gold jewelry neither am I a great fan of loud and outrageous fashion sense. I’ve always believed that “less is more” and this is often reflected in the way I dress. The few valuable accessories I own are a pair of diamond and pearl studs (I wear this on a daily basis): a Rolex and a Cartier wristwatch, two gold pendants and a thin gold chain, which I wear occasionally if I remember.

Sometime ago I had gone to visit a friend at home. While rummaging through her jewelry case, I was amazed at the huge stash of gold jewelry she had on her. I remember asking why she was buying so much gold instead of investing the money on either the capital or money market? She gave me various answers but the one I’ll never forget is “Gold is a form of investment, you can always sell it a higher rate than the purchase price”.  

I don’t know about you but I know this for sure, I’m yet to meet someone who bought gold at the prevailing market rate and sold it some few months later at a higher rate than the prevailing market rate. I’ve always wondered why a lot of Nigerian ladies spend a lot of money in acquiring gold jewelry.

While I’m not averse to owning a set for the occasional Owanbe party, I also cringe at the thought of owning several pieces just for the purpose of showing off or other reasons that make ladies acquire gold. While on vacation recently, I was opportune to visit the gold market in a particular country and the owner of the shop took great pains to give me an insight into the international gold market and what determines the value of gold at any point in time. It was an eye opening experience.  From experience, most ladies who acquire gold jewelry only sell when they’re in financial straits and need cash urgently. At these times, gold is highly undervalued because you’re desperate to sell it at any reasonable amount, which could be lower or a bit higher than the price at which you purchased it.

Coupled with the security situation in the country, it really does not make a lot of sense flashing and keeping gold jewelry around the house. A better and safer alternative would be costume jewelry or beads. If it got stolen, you would not lose too much sleep over it and it’s more affordable than the real thing.

The Naija Artiste

I was at a clients’ office today, and I stumbled on an interview on one of the most entertaining artiste in Nigeria. I’m talking about P-Square. I read about their loss of privacy and their musical achievements since attaining stardom. It got me thinking about all the various financial challenges they must have faced on their journey towards musical success. For the performing artiste in Nigeria, how do they get by especially in an environment that does not encourage and reward artistic endeavors? Piracy within our country is a financial drain considering the brain work involved in writing, arranging, composing, sourcing for funds to record your demo cd at the studio, dropping your demo at the various radio stations and praying earnestly that once your work garners substantial airplay, invitations for live performances will start pouring in and a recording studio hopefully, will sign you on. Did I also talk about the unending war between artistes and the recording studios that sign them on? That’s another topic for someday.

 

Personally, I’ve never given a deep thought on how the struggling Nigerian artiste out there survives financially. In my ignorance, I thought sales proceeds from the musical works; royalties and live performances were enough till I heard about the ugly tales within the Nigerian music industry. Most of these issues range from poor management to financial rip offs as a result of the inability to read in between the lines when signing a contract and several other issues, which I will not be discussing today. For some few minutes, I’m putting on the shoes of a struggling artiste out there, trying to determine my financial priorities on the road towards stardom. I imagine myself living on a shoestring budget that will take care of my basic necessities such as food, transport and personal hygiene. At this point in time, I’ll be fooling myself by considering renting an apartment. Definitely, I’ll be squatting at a friend’s place or living in a one room apartment where there’s a loss in privacy. Transportation will take the bulk of my monthly budget since I’ll be going to the studios daily to work on my hit single and scout for the average shows to showcase my musical ability.

 

So if you’re a struggling artiste out there, I empathize with you and encourage you to do the following on your musical journey:

• Try as much as possible to save very kobo and naira you can when and if the opportunities arise. This will serve as your emergency fund.
• If you’re lucky enough and get paid handsomely for a live performance, don’t even think about spending it on something frivolous. Stash it aside for short and medium term investment purposes.
• Also think of offering your services to outlets that offer a wide selection live band performances for their audience at an agreed sum.

Quitting The 9a.m to 5p.m Rat Race Successfully

Lately, I’ve been jotting down the various business ideas running through my mind based on my daily observations of what the Nigerian market place needs. I intend to start off next year by test running this idea with family, friends and colleagues alongside my daytime job. While I realize that the gestation period may be longer for the business to fully take off, I’ve got the whole of 2008 to fine tune and work out the modalities involved for my intended business.

 While the transition to successful entrepreneurship may take longer than you expect, without adequate and proper financial planning, you may be left in the lurch especially if you decide to resign from your daytime job prematurely. Here are some tips if you’re considering a side business:

·        Get some experience: you may think you know it all to get your business running smoothly but some few years down the line, you may regret your decision to quit your job. This may not be true for everyone. So you need to justify whatever decision you arrive at. While you’re working, conduct an extensive research on your intended business, speak with experts and mentors who will guide and give you all the necessary support and networking opportunities.

·        Create a budget: you probably know that securing soft loans for a start-up is easier said than done. So, this is the time to open a separate savings account dedicated towards your intended business idea. Once you have a large sum stashed away, it’s advisable to invest this amount. Remember a portion of this fund will serve as your living and running expenses when you eventually resign. So get your numbers right.

·        Cut down on your expenses: you need to be realistic about how much you’d need on a monthly basis to take care of your family without going broke. You also need to know that you’ll be financially responsible for health and other related benefits previously provided for by your employer.

·        Run your trial business during the weekend: use your free time such as the weekend and annual vacations to kick start your business idea. Encourage honest feedbacks from your family and friends and also listen to constructive criticisms that may help you define your idea.

Public Offers

Of late, we’ve been deluged with a number of public offers from the banking and other sectors. Quite a number of these organizations and institutions have painted a bright picture of their business performance. They’ve also gone ahead to give brilliant future forecasts.

My concern however is not with the number of public offers in the market, but how to separate the wheat from the chaff to determine the really good ones to invest in. My word of advice during this public offer bumper season is “Please really consult the advice of your stockbroker or your finanical analyst”. If you fail to do so, you may just find yourself incurring losses with equity investment.

Follow up To Retirement

I rarely visit the banking halls nowadays. Most of my banking transactions are conducted via the Internet and through the ATM machines at my local branch. I have not been to the banking hall for more than six months. If its’ imperative that I must go, it’s either I’m depositing money or probably making one or two enquiries. This has made life easier for me and also for a lot of Nigerians who conduct their banking transactions online. This has also led to multiple passwords and pin codes for the various cards that I carry in my wallet.

 After posting my article on retirement, I thought of what happens when a loved one passes on and his/her relatives do not have access to the passwords and pin codes to the bank accounts; what happens in such a situation? So, I ask myself if we’re creating more technological mess for our heirs when we die. I worked briefly in the banking industry and observed that 80% of the dormant accounts were a result of heirs or family members who are not aware of the various accounts the deceased had before his/her untimely death. Getting access to your financial accounts is imperative for your family members if you die, become incapacitated or you’re involved in a ghastly road accident that leaves you and your spouse either dead or paralyzed. Imagine what happens in the event of such a crisis where you find family members running helter skelter to raise funds and thereby incurring a huge amount of debt. For most families in Nigeria, the world virtually comes to a standstill when the breadwinner dies. Imagine what could happen; school fees will be left unpaid, neglected investment accounts could suffer losses, burial expenses will be incurred, financial accounts may never be claimed and the list is endless.Here are some of the things you can do to avert such a crisis:

·        Appoint an executor for your financial estate: this could be your brother, sister, parents or even your eldest child so long as he/she is 21years (this is the legal age in Nigeria). Your executor should have your current login password to your online accounts and computer, so that in the event of any sad occurrence, financial decisions can be made on your behalf. You should also make a list of all your assets, debts, mortgages (if any) and pin codes for any cards you may currently hold on an excel spreadsheet. Remember to password this particular file and leave the password in a place your executor can have easy access to.

·        Keep your financial documents safe: this includes your account numbers, online IDs and passwords, birth and marriage certificates, email IDs and passwords, pin codes, life insurance papers, will, trust deeds, certificate of occupation in a safe envelope and go down to your local bank branch and keep it in a safe deposit box. Also include answers to secret questions such as mother’s maiden name, your city of birth and your pet’s first name. The banks usually charge an annual fee for such a service. First Bank offers such a service. Also make extra certified copies of all documents relating to your financial estate and keep it in the your executor’s custody. Inform your executor where these documents are kept and of course, write a letter of authority to the bank or lawyer authorizing your executor to act on your behalf in the event of any mishap.

·        Keep your executor and children prepared: stash an emergency fund for such an event by making your eldest child or executor a joint signatory to the account, to keep things running smoothly till the details of your financial estate are sorted out.

Is Your Career at a Standstill?

I’ve been conducting a career evaluation for my present job role, mapping out the things I need to do before year-end to arrive at my next destination point. Though it gets cloudy a times, however I’m learning to sift the chaff from the wheat to determine if I should be on the search for a new job role. While it’s been fun these past few years, it’s time to move on.

 If you’re in my situation, here are some few tips to keep your career performing well.

·        Conduct an assessment: there’s no better time to conduct a career assessment than now. It gives you an idea of where you are and where you want to be in your career. For example, are you at a point where you’re bored or are there other areas in your life that need more attention?

·        Determine your career path: if your career goal is to be the marketing director of your organization, find out what skills and accomplishments you need and set out to acquire them. If it means leaving your current employer be prepared to launch a full-scale job search.·       

Change your job: sometimes, this may involve changing your career to something entirely different from what you do currently.

·        Watch out for skill upgrades: is there an emerging trend in your industry? Perhaps a new way of marketing or placing sales calls to prospective clients? You need to become an expert in these areas. It will place you above your contemporaries within the marketplace.

·        Don’t fall behind technology: some fields require particular software applications. This is the best time to acquire this knowledge.

·        Review your current resume: when was the last time you reviewed your CV? Was it a year or ten years ago? You cannot afford the luxury of having an outdated CV in your files. Enlist the aid of job and career web sites to get you an updated CV relevant to your area of interest.

·        Masters or MBAs: if your next step involves enrolling for a masters or MBA program, do not hesitate to do so. Leaving it for later may not help your career. I recently lost the opportunity to apply for an exciting job role because I did not possess the required MBA.

·        Keep your contacts: one of the best ways I learn about new job opportunities is through former employees and colleagues who have left for other organizations. If you’re in the habit of losing contact with people, dust up your diary and get your networking skills in order.