Interviewer: At what price is the business a
bargain?
Warren E Buffett: When it provides a higher rate of compounded
return relative to other available investment opportunities.
Taking Advantage of Our Lack of Financial Literacy
I was tired and worn out. I had just made several trips around the Ikeja metropolis and I was now standing in front of the third Oceanic bank I was visiting in my quest to lay my hands on the prospectus of their present offer. I quietly hoped this branch (Adeniyi Jones) would have the one.
After a trip to my stock broker at the Motorways building tollgate junction, I had walked into an Oceanic Bank branch close by to request for the prospectus, they had none. But something worrisome happened instead; they offer me the form, just the form. I turned it down subtly and iterated my desire to have the prospectus. I walked out of that branch and stopped over at another Oceanic Bank branch opposite the Alausa offices of the Lagos state seat of government. The customer service officer informed me about the unavailability of the prospectus and again offered me the form, just the form. I turned it down and instead requested for another Oceanic bank branch. This led me to the Adeniyi Jones branch where I was presently joining the queue in.
Approaching the customer service officer was now routine, unfortunately so was the answer; “no prospectus”। And even more unfortunate was the offering of the form, just the form. Frustrated, I turned it down and educated him on my growing discomfort as a result of the unavailability of the prospectus. Then came the insult, a soft chide overfed with sarcasm yet insulated with a wide smile; "If I give you the prospectus would you read it?" I was infuriated but there was no use. He was right. Possibly 99 in 100 of the people he had come across where interested in just the form. A habit has been formed; I am here to redress it.
The Wisdom in Reading the Prospectus
…”How can you say investing is not risky when most people say investing is
risky?”
“Easy,” said rich dad. “I can read financial statements and most
people cannot…” Guide to Investing, by Robert Kiyosaki
Though, both UBA and Oceanic Bank offers have been given the pass mark by various investment analysts (like Hope Eno, Success Digest Extra, Tuesday March 20, 2007 back page, Public Offer Market Set for Another Boom! Three Mega Banks on Investor Wealth List), it is still advisable or even necessary to read the prospectuses to increase your financial intelligence। It hits me as wiser to know why these experts think these investments are noteworthy. Some of the things to look out for are given below:
The Financial Summary for the last 5years। (Take particular note of the consistency in growth over the years stated.)
Forecast Offer Statistics, taking note of the forecast earnings per share and forecast dividend per share at offer price.- Utilization of proceeds and “Claims and Litigations”. These gives you a clue as to what your money would be used for and an idea of the Bank’s liability in the event of resolution of all suits that might be leveled against it. The question you should ask is “will it have an adverse effect on the bank?” Of cause, an adverse effect on the bank means an adverse effect on your money
The presence and quality of subsidiaries, International and Domestic alliances and future plans of the company. All these gives you an idea of whether the bank can meet up to its forecast thus giving you a semi-concrete control over where your investment in going. Etc.
It is best to read the whole prospectus, taking time to look up words you cannot comprehend. This contributes to your overall financial intelligence. Be careful though; learn to differentiate between fact and self recommendation.
As to which of the two offers is the better pick? Different investors have different investment aims so if you have to make a choice between the two offers the following news paper articles could help you make that decision:
Oceanic Bank International Plc in the news
- The Meristem Securities Limited weekly market report of March 18, 2007 in the Sunday Punch treated the Oceanic bank offer under the caption; “Company Watch: Oceanic Bank International Plc”. This report is a must read for those who intend to invest in this bank’s offer. The article gives in depth analysis on the risk profile, financial profitability, asset quality, liquidity, capital adequacy and valuation of the कंपनी
- Also a foremost rating agency in Nigeria, Agusto & co, has rated Oceanic Bank International Plc the best in the industry based on basis of pre-tax return on equity. A more thorough look at that story can be read in The Punch Monday March 26, 2007, pg 28
UBA Plc in the news
“We hope to make this strategic partnership with IFC a success story, which should also translate to increased shareholder value for our investors. This support by IFC is a very good signal to current and future investors in UBA” – Tony Elumelu, CEO UBA Plc
The front page Financial Standard news on UBA under the caption: “IFC invests N127bn in Nigerian’s economy”, is a powerful plus for this company. The International Finance Corporation, the private sector arm of the World Bank group, recently announced the acquisition of a 2.0 percent stake in United Bank for Africa Plc, Nigeria’s largest pan-African bank. This followed the signing of a $50million convertible debenture agreement which will eventually be converted to equity. Details are on the front page of Financial Standard, Monday, March 26, 2007. (An analysis of the IFC’s investment in Nigeria under the caption: Access to funds and national development, in the same paper (pg4), is a good read).
Business Times (Monday, March 26, 2007) treats the story on pg7 under the caption: “IFC, UBA to strengthen strategic partnership”- There is also an article in The Punch March 26, 2007; IFC’s Deal Boosts UBA Hybrid Share Offer. Pg26
- Stanley Oronsaye’s report titled, UBA: Building the African Dream which tells of UBA being unarguably the largest bank in terms of balance sheet size in Nigeria today and looks at the emergence of the bank as a big player in Nigeria and its quest to dominate the African banking scene. This is also a good read towards making a decision
It is vital to note that the IFC deal with UBA would have been a vital fundamental reason for investors to enter the stock even if there was no public offer.
The apparent lack of the Oceanic bank public offer prospectus on that day, has led me to leave a link on this blog where it can be downloaded. Consequently, I will always have a link to the prospectus of any public offer with its prospectus in electronic form on this blog. Conclusively do not buy any of the offers if you have not read the prospectuses, how else can you tell which your pick is?
UBA Plc Offer Prospectus
Oceanic Bank International Plc Offer Prospectus
Websites to visit:
Financial Standard
Business Times
