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.



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.



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.

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