UBA or Oceanic Bank Plc Offer: Which is your pick?

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:

1. 
   The Financial Summary for the last 5years। (Take particular note of the consistency in growth over the years stated.)
2. 
   Forecast Offer Statistics, taking note of the forecast earnings per share and forecast dividend per share at offer price.
   
3. 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
4. 
   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

NOSPETCO: Trumpeted on the aegis of Lack of electricity

• Present Electricity Generation
  
• Making Millionaires of the Industrial Generator and Diesel distributors
• NOSPECTO more than just a coincidence.
  
• Conclusion; NOSPETCO: To Gamble or To Invest

Get some info on what NOSPETCO is and read my comments on Dipo's highly controversial blog DIPO TEPEDE.POET

Present Electricity Generation

The nation’s power sector is a critical
infrastructure needed for the economic, industrial, technological and social
development. Electricity consumption has become one of the indices for measuring
the standard of living of a country.
Timothy Okwu Business Times

Facts:
In Nigeria, the power sector is presently being managed by the Power Holding Company of Nigeria with the assistance of 18 new companies created for the generation and distribution of efficient and stable power.

2. Prior to the change of name from National Electric Power Authority to PHCN the national electricity grid presently consists of 3 hydro and 6 thermal generating stations with a total installed generating capacity of 5906MW. Although the installed capacity of the existing power stations at that point in time was 5906MW, the maximum load ever recorded was 4000MW. Most of the generating units have broken down.

3. Problems facing PHCN: radial and overloaded transmission lines, obsolete switchgears, overloaded distribution transformers etc. These are besides the usual preposterous excuses of no rain/water, or a blown Escravos pipeline etc.

4. The present installed generating capacity in Nigeria is around 6000MW and PHCN has only been able to generate a maximum of 4000MW. Compare this with South Africa’s’ 40000MW generated to meet the electricity demands of 65million people.

5. Since inception of the President Obasanjo administration PHCN has received an annual average funding of about N200bn i.e. N1.6trillion ($12.6bn) and yet the abysmal performance of this power generating lame duck company gets only worse everyday.

Making Millionaires of the Industrial Generator and Diesel distributors

As a result of poor generation of electricity, which is one of the worst in the world judging by “developing nations” standard, investors in industrial generators and allied businesses such as Mikano, Leventis, and Zenon Petroleum are smiling to the bank. As a matter of fact, rumors (probably due to frustration) have being growing increasingly strong about the romance of some of these investors and the present government (especially after noting the presence of business tycoon and giant of diesel distribution Mr. Femi Otedola at one of the party rallies). The issue here is, owners of petrol stations (servicing personal/household generators), Generator distributors as mentioned above and even small generator distributors like those that trade the Tiger brand, diesel distributors and related businesses (servicing industrial generators) have found a gold mine in our penury. Hence, the increasing popularity of the mysterious company; NOSPETCO.


Nospetco: More than just a coincidence.

In view of all these i.e. the economic consequences of the present lack of adequate electricity and the political climate as of today, it does not come to me as a surprise the increasing popularity of the company, shrouded in secrecy and advertised by word of mouth, called NOSPETCO. The gambling spirit of Nigerians, the disease of financial blindness, the demon of quick riches, has come to dance in our midst again. But it is not the first. Look around you; it is one “promo/lotto” or the other. Have you considered Intercontinental Bank Plc’s Happy Savers Promo it is selling like sh-t. Or the BankPHB’s 2 for 1million promo, don’t forget the Coca Cola Lift Off and Win promo, neither should you leave out the UBA zero account opening “Draw”. Think deeply about the proliferation of National Lottery Kiosks then it will dawn on you that certain entrepreneurs have found a weakness in the Nigerian society; the quick riches spirit. This same spirit is responsible for the presence of the now ubiquitous “yahoo” boys. It is age old. Remember the days of the 419ers a.k.a. nineteen guys? Judging by the way NOSPETCO is being embraced, it is all too easy to recognize this spirit. An evil genius idea would be to set up a casino!

NOSPETCO: The Facts.

“The more you read financial statements, annual reports and Prospectuses,
the more your financial intelligence, or financial vision, increases...” Robert
Kiyosaki, Author, Guide to Investing.

The fact is that there are no facts. All we know about the company today is what has being fed to us by the gluttonous public, eating up every little chance of being rich with a greed underpinned by ignorance. A True Investor knows that there are several steps to take before investing in a company. Some of them include; gaining possession of the financial statements of a company for (at least) the last 3-5years, knowing the management team (this does not just involve knowing their names, it also means knowing their qualifications in order to weigh their competence), knowing the company’s transparency level, knowing the industry in which the business operates etc. A peep into the book Buffettology by Mary Buffett which chronicles some of the investment methods of (arguably) the greatest investor of all time and present 2nd richest man in the world Warren E. Buffett gives the following insights:
Some questions to determine what business to buy:
Is the company in an industry of good economics? i.e., not an industry competing on price points.
Does the company have a consumer monopoly or brand name that commands loyalty?
Can any company with an abundance of resources compete successfully with the company?
Are the earnings on an upward trend with good and consistent margins?
Does the company retain earnings for growth?
Does the company re-invest earnings in good business opportunities?
Does the Management have a good track record of profiting on these investments?
Is the company free to adjust prices for inflation?
Does the company have high and consistent Return on Total Capital?

A mere glance at these questions reveals that those putting their money in NOSPETCO are not financially intelligent people. You need a high level of research to be able to determine the answers to these questions. Up to the time of writing, this has been impossible (I don’t even know the CEO’s name not to mention the directors. In fact, are there any directors?)

Conclusion; Nospetco: To Gamble or To Invest

The first thing to realize is that NOSPETCO is not a viable investment vehicle. The fact that it has made some people some money does not make it a good investment. At least people make money in Las Vegas too. My advice to potential entrepreNoirs is simple: do not invest in NOSPETCO until they have made public generic business information. But you could gamble some free money if you have some, just don’t call it an investment. The odds seem in favour of NOSPETCO for now since a lasting solution to our electricity crisis is not in view. The odds are in your favour too if you put N450,000 in the National Lottery. I will leave you with a few facts:

“According to Dr. Ransome Owan, chairman/chief executive officer, Nigerian
Electricity Commission approval has been given to 26 private firms for
establishment of IPP in various locations in the country. For those that have
come on stream, they are expected to boost the nation’s power capacity to an
estimated 10,000MW.”

“Government had since directed the Nigerian
National Petroleum Corporation to develop the country’s biofuel potential with
cassava and sugarcane crops…”
More than 400,000 hectares of land is to
support high-yield sugarcane operations in the country. Sugarcane and cassava
are to be used in the first instance to create a 10percent biofuel – 90percent
fossil fuel blend.
MTN is said to be deploying biofuel as alternative energy
source to power the numerous base stations in Southern Nigeria…” Culled from
Business Times March 12 >> 18

Good expense tip: Do you know that Celtel has reviewed its call tariffs downwards? I got a text message today informing me that calls to all networks will now go for a flat rate of 33k/sec down from their initial rip-off of N46.20/min. I dumped Celtel at the time and picked up MTN. But with the present tariffs it is time to dump MTN and pick up Celtel. MTN’s N36/min and N27/min for other networks and MTN to MTN respectively, is no match for Celtel’s N19.80 flat rate to all networks. MTN step up!