UNITY BANK RECONSTRUCTION PROPOSAL, A WELL THOUGHT OUT PLAN YET WITH A BUT!!!

UNITY BANK RECONSTRUCTION PROPOSAL, A WELL THOUGHT OUT PLAN YET WITH A BUT!!!

After reading the news about UNITY BANK intention to do a share reconstruction process, I personally felt it’s a welcome idea which is even long overdue.

The banks in the banking sector of the Nigeria capital market has a characteristic feature which lies in their over-bloated outstanding shares. Considering the first ten companies with the highest outstanding share in the Nigeria stock exchange shows the banks occupying seven out of the ten slots.

                               

SN	COMPANY	OUTSTANDING SHARES(MILL)
1	Transcorp	38720
2	UnityBank	38446
3	UBA	32981
4	FirstBank	32632
5	ZenithBank	31936
6	GTBank	29431
7	FidelityBank	28974
8	AccessBank	22882
9	Afrinsure	20585
10	Roads	20000

Focusing on the banks alone also shows Unity Bank with the highest outstanding shares in the entire banking sector.

The most intriguing fact about UNITY BANK is that while banks with lower OS in comparison to Unity Bank are generating higher Earnings and PAT to mitigate whatever negative effect that might arise from their blossom outstanding shares, Unity bank is not. The graph below show Nigerian banks as they stand according to their 3^rd quarter results.

NB- FBNH 2^nd quarter result was used here.

It therefore makes it imperative to note that no other bank needs a share reconstruction than Unity Bank. What will be the benefits of a share reconstruction to this bank?

                   REDUCED OUTSTANDING SHARES

Should the reconstruction be carried out, the outstanding share of Unity bank will drastically reduce from the current 38446mil to 9612mill automatically making it the bank with the lowest outstanding shares in the banking sector of the Nigeria stock exchange.

INCREASE IN EPS VALUE

Apart from the above, should Unity bank successfully reconstructs it shares, the action will project its earnings per share (EPS) from the current meager EPS value.

  CHANGE IN QUOTED PRICE

Unity bank as at 24/12/13 is selling at .50k should there be a successful share reconstruction in the future this will change the current price to N2.00

·        

PRE-RECONSTRUCTION						POST-RECONSTRUCTION
	OS	Q3/13 EARNINGS	Q3/13 PAT	CURRENT PRICE	QE/13 EPS	OS	Q3/13 EPS	PROSPECTIVE PRICE
UNITY	38446Mill	45395mill	1153Mill	.50k	0.03k	9611mill	0.12k	N2.00

What could however be the possible pitfalls in UNITY BANK potential re-construction process?

         o   QUOTED PRICE FALLING POST-RECONSTRUCTION

Without trying to be a prophet of doom, I have this sympathetic feeling that Shareholders of unity bank will be the end loser in this reconstruction proposal, am afraid because I have been asking myself if UNITY bank has what it takes to go beyond N2 in the short and medium term should the bank successfully reconstruct its shares, to be more candid, does Unity bank has what it takes in terms of current earnings to stay at N2.00 without plummeting back to pre-construction price?

o   INTENTION TO RAISE MORE CAPITAL

No doubt about Unity Bank dire need to shore up its capital in order to compete effectively in the industry but raising authorized share capital, reconstructing of shares and at the same time trying to raise more capital makes the entire process a questionable flip-flop which I think shareholders will be the end loser of the game plan. it is thus disturbing that it is the same shareholders gave their approval to all of the above in UNITY BANK recent EGM recently held in Lagos. The entire scenario gives me no choice than to wish Unity Bank and its shareholder best of luck in the prospective effort to make Unity Bank a bank to reckon with in the banking industry.

Questions, advice and Comments will be positively received.

owolabiafeez@hotmail.com

Follow me on twitter - @1himself

     

OANDO AGAIN?!!!

OANDO AGAIN?!!!

Oando should enter the Guinness book of world record as the most “CAPITAL SEEKING FIRM” in the world! The company’s penchant to always raise capital either from the capital or money market is quite alarming. It vividly shows how management of Oando lacks foresight. A company that pays dividends to its investors today will tomorrow be seeking for fresh cash from the same investors!

A brief history of Oando capital raising exercise from the capital market alone is given below-

In 2004, Oando raised N15bill from the Nigeria capital market through a right issue which was offered at N95 Naira per share and a public offer which was sold at N97.50 per share.

In 2010, Oando sought for fresh funds again and investors turned up by over-subscribing the right offer. In 2010 the company raised N21.1bill by issuing 301,694,876 units of share at N70 through rights issue.

Again in January 2013 Oando wooed its shareholders again and was able to raise almost N55bill by issuing 4.548bill units of shares at N12 per unit.

And now, still in the same 2013 the company is trying to raise additional N30.7bill through special placement!

The above excludes the money the company has raised from the money market, all this endless capital raising give rise to a question “Is Oando a fund management firm?

All questions, advice and comments will be positively received.

owolabiafeez@hotmail.com

Twitter- @1himself

The NESTLE of my GENERATION

I must confess my mixed feelings some weeks ago when Nestle jolted the market with its juicy dividend, those were moment you feel elated for having even 100 units of NESTLE, also moment you have excruciating feelings for not having Nestle in your portfolio. Am still young in the market though, I must however confess that I experienced Nestle at N300, I wish I had bought then but there was no way I could,with little knowledge and meagre cash in my possession.

However, After a while of moody feelings I pulled myself up consoling myself with the conclusion that Nestle is a stock of the older generations, a crop of investors that were young in the 70s 80s 90s and early 2000.

What then could be the NESTLE of my own generation? Instead of feeling worse about what I could not change I put the energy into the quest for the next NESTLE. It was hectic I must confess, making it more tedious is the fact that i neither have light nor good network where I am doing my NYSC but I was determined to look for the next NESTLE.. The NESTLE of my own generation.

After cursory research I arrived at OKOMU..okomu? YES OKOMU oil palm PLC!!!

From q3,12 of OKOMU the following can be deduced:

PATmargin 37%

EPS 6.34 ForwardEPS 8.5

PE 8.3. ForwardPE 6.16

ROE 30.2%. RONA 78%

RVS 16.71

HIGHLIGHTS

* The firm has a huge working capital which suggest strong liquidity.

* The buisness of the firm is a money spinning one,the firm generate much money from its operation than its entire profit after tax.

*The firm generate a revenue that its almost as equal as its Fixed asset.

The contradiction in the Revenue per share and Return on asset implies that the company is even yet to reach its climax of revenue generation,this can be supported with the reduction in the inventory of the company which shows quick conversion and sales of product.

My wonderful generation, I believe this is our own Nestle.

Take a look at all the stocks on NSE that sell at above N50 compare their EPS and PEs with OKOMU and you will me marvelled.

Recently Nestle gave out N18, NB gave out N3 yet all amounts to nothing in terms of dividend yield. Okomu dividend yeild will surely surpass all the aforementioned.

If Dangcem with almost the same EPS as OKOMU, with higher PE than okomu and with lower ROE to okomu can sell at above 100 then that implies that Okomu is seriously undervalued.

If NB or Guiness which has none of its fundamentals been able to match up with okomu can sell at above 100 then there is huge potential in this OKOMU.

My wonderful generation. I believe this is our own Nestle and am BUYING.

All question and suggestion will be welcome through:

Twitter: @1himself

1himself is currently doing his NYSC, he his also currently the Pioneer champion and brand ambassador of www.investment-one.com\feds

He was also the 2nd runner up of 2012 www.easykobo.com stock trial.