Cash Rules Everything
4 Customs Street: 3 May 2023
Good Afternoon 😃
How are you doing?
Welcome to this week’s edition of 4 Customs Street, our weekly newsletter on the stock market.
The newsletter is divided into two:
Green White Green—focused on the Nigerian stock market.
Star-Spangled Banner—focused on the US stock market.
Green White Green Last Week
Cash rules everything
The earnings are still rolling in and one common denominator across them is the negative effect the cash crunch had on their bottom lines.
MTN Nigeria had a faster growth in revenue and a slower growth in profit after tax in Q1 2023.
Revenue rose by 20.6% from N470 billion in 2022 to N568 billion in 2023.
Profit before tax rose by 8.5% from N143.5 billion in 2022 to N155.7 billion in 2023.
Profit after tax grew at a much slimmer rate, up by 4.6% from N96.8 billion in 2022 to N101.3 billion in 2023. The slower growth was due to smaller deferred tax credit and higher education tax.
In the earnings release, MTN Nigeria’s management stated that:
"The cash shortages experienced during the period impacted customers’ ability to recharge through physical vouchers. Fintech revenue was moderated by the impact of the cash shortages, which affected Xtratime (our airtime advance product. The cash shortages also impacted transactions on our OTC platform."
Dangote Cement’s Group revenue dipped by 1.6% from N413 billion in 2022 to N406 billion in 2023. Profit after tax went up by 3.4% from N105.8 billion in 2022 to N109.5 billion in 2023.
In its earnings release, Dangote Cement’s management stated that:
"In Nigeria, the cash crunch coupled with the uncertainty around the general elections led to a slowdown in key private and public infrastructure investments. Our Nigerian operations sold 3.6Mt of cement in the first quarter of 2023, down 24.6% from the 4.8Mt sold in Q1 2023. The decline in volume was due to cash crunch and negative sentiments around the elections. The cash unavailability impacted construction workers daily wages and retailers’ ability to pay for cement in cash."
The same factors also hampered Nigerian Breweries in Q1 2023 (in addition to a huge spike in finance expenses caused by higher foreign exchange losses and finance costs).
In an earnings release, management stated that:
"The operating environment during the period under review was very challenging for businesses. The impact of the cash crunch which led to a near collapse of payment channels as well as the security and safety uncertainties associated with the general elections, created disruptions in the economy. These were in addition to the continuing headwinds of inflationary pressure with its impact on purchasing power, input cost, and operating expenses. The total brewed product market suffered a double-digit (mid-twenties) volume decline versus the same period in 2022."
It isn't all gloom, though.
Fidelity Bank’s gross earnings rose by 34.4% from N250 billion in 2021 to N337 billion in 2022.
Profit after tax rose by 121% from N23.1 billion in 2021 to N46.7 billion in 2022.
The key driver behind the rise was higher interest income. Interest earned on loans and advances to customers accounted for about 68% of gross earnings.
Segmentally, operations are divided into 3: Retail/Corporate/Investment banking.
Retail banking accounts for the lion share of earnings and profit. It accounted for N162.9 billion or 48% of income and N23 billion or 49.4% of the profit after tax made in FY 2022.
Transnational Corporation of Nigeria (Transcorp) was in the news for most of April following news of Femi Otedola acquiring shares in the company and then selling.
Three weeks ago, Nairametrics reported that Femi Otedola had acquired 2.2 billion Transcorp shares from the Asset Management Company of Nigeria (AMCON). That gave him a 5.52% stake in the company. In essence, it made him a majority shareholder.
As of December 31, 2022, Tony Elumelu held less than 3% stake in the company.
A 0.67% stake of 273,104,041 shares and an indirect stake of 1.3% comprising 293,983,193 shares are held through HH Capital Limited and 273,545,722 shares held through Heirs Holdings Limited. Both firms are entities ultimately controlled by him.
The only shareholder that had over 5% ownership was UBA Nominees which held about 9.25% of the shares issued by the company as of December 2022. A nominee doesn't own the shares but is merely holding them in trust. Those shares are ultimately owned by a variety of investors.
On April 13, the firm released a statement in response to media reports that Femi Otedola had acquired a stake in the company.
"Transnational Corporation Plc (“Transcorp” or “the Company”) notes the recent media reference to the acquisition of shares in the Company. Whilst the Company has not yet received formal notification of any relevant interest in its shares, Transcorp, Nigeria’s largest listed conglomerate, known for its broad and diversified shareholder base, welcomes every new shareholder acquiring shares in the Company…"
On April 20, Transcorp sent in a notice notifying the stock exchange of Otedola’s purchase.
Media reports then began to buzz about a battle for majority shareholding between both billionaires.
On April 25, HH Capital acquired 9,991,173,177 Transcorp shares amounting to 25.58% of the Company’s total shares. HH Capital is a unit of Heirs Holdings ultimately controlled by Tony Elumelu.
In an interview with Arise TV on the same day, Elumelu denied reports of any battle stating that Otedola was his friend and he welcomed his investment in the company.
"Femi Otedola is my very good friend. He is a man I respect and admire. He is a friend. We call ourselves brothers. I welcome his investment in Transcorp. That is what we want. People get sentimental and emotional for no reasons…"
A few days later, Nairametrics reported that Otedola sold his entire stake in Transcorp to Elumelu, with a follow-up story providing details of the transaction.
"A total of 2,413.144,252 shares were sold as an off-market trade based on three deals. The official transaction price was N3.12."
The missing part of the puzzle is the price at which Otedola bought the shares previously held by AMCON. What can be reasonably inferred is that he exited at a profit.
On April 28, HH Capital acquired 1,999,784,173 shares. Following the purchase, HH Capital Limited now holds a total of 11,990,957,350 units, representing 29.5% of the company’s total shares.
So why stop at 29.5% and not 30%? Had Tony Elumelu decided to hit the 30% mark, he would have to make a tender offer to holders of the remaining 70% to buy their shares.
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