Customs Street Advisors

This week on Street Talking in NEXT, I share my reservations on the acclaimed merits of recent capital structure reconfigurations, especially share reconstructions and buy-backs by companies on the Nigerian Stock Exchange. In place of these unproven merits, I urge companies to focus, instead, on other less discussed, but surer benefits of such programs for shareholders.

Equity overhang is the new leprosy. On a single day last week, the papers carried reports about Investment & Allied Assurance’s share reconstruction plans and Custodian & Allied Assurance’s intention to buyback 5% of its outstanding shares through an open market repurchase program. Two months earlier, Goldlink Insurance had completed its own share reconstruction discipline. This week, one paper carried the headline ‘Low Share Prices - Firms Embrace Share Buy-backs’.’ Are we entering an enthusiastic era of aggressive buy-backs? Is stock-swamping an odious condition? Read More…

In announcements on strategic actions, companies often present the singular act as sufficient cause for a boost in shareholder value. This week in Street Talking on NEXT, I argue that that is not enough. To enjoy a higher valuation, companies need to improve the information environment to give investors a clearer view on the business. Simply focusing on other companies that have enjoyed higher trading multiples consequent to such transactions misses the subsequent actions they took in ensuring that the markets had a better understanding of their value creating actions.

This week marks the second anniversary since Apple, the maker of iconic products, announced its entry into the mobile handset space with the iPhone. On the same day Steve Jobs, its CEO, demoed the phone at the January 2007 MacWorld Conference, the company changed its name from Apple Computer to simply Apple, Inc. The Cupertino, California-based company’s decision to excise ‘computer’ from its name was intended to reflect its transition from solely designing and making personal computing products with cult status to a broader portfolio of consumer electronics goods and services, including on-line distribution of music, home entertainment systems, digital audio players, cellphones, software and of course, computers with wider appeal outside its core geek demographic. Read More…

This week in Street Talking on NEXT, I discuss the critical role company websites can play  in closing the mispricing gap between stock prices and the underlying value of companies on the Nigerian Stock Exchange.

I am appalled at the failure of most companies on the Nigerian Stock Exchange (NSE) to utilize the web for investor engagement. In fact, about half of the companies on the NSE do not have any web presence at all. Among those that do, only a small number leverage the channel for investor communications despite the fact that a growing number of investors make decisions to buy, hold or sell stocks based on information they find on the Internet. If it is axiomatic that information is the lifeblood of markets, then company websites ought to be the most credible and authoritative sources for relevant, reliable and timely information. Read More…

This week in Street Talking on NEXT, I share my views on the probable preoccupations of shareholders and boards in the coming year.

As the year draws to an end, it is tempting to make prognostications for the coming year. If I had to identify the main trends contending for top spots on the investment community agenda in the coming year, I would forecast a rise in shareholder interest in corporate governance and heightened monitoring of capital structure evolution as it impacts the stakes of antecedent shareholders. My outlook is that passive shareholder acquiescence will be replaced by active participation in strategic decision-making, particularly among holders of non-negligible blocs of stock.

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Five years is more than enough time for companies to answer the ‘to be or not to be’ question on the attractiveness of a strategic proposition and then conclude it. Five years after merger talks began between First Bank of Nigeria and Ecobank, both banks are yet to bring the deal to a cloture. This week on NEXT, I point out that the main obstacle to progress may lie in a fundamental disagreement on strategy for a future resulting entity.

Mergers and acquisitions (M&A) are not trivial events. Synergy evaluation, regulatory hurdles, valuation disputes, internal and external claimsholders’ buy-in, advisory fees, integration factors, cultural issues, competitor objections, unsolicited offers and ego management are just some of the mid-air sharp knives that task the juggling skills of those driving a transaction. Little wonder that veteran investment bankers love to decorate their offices with commemorative Lucite tombstones (‘deal toys’) of consummated deals as testimonies of battlefield scars. Nurturing a deal from the first date until the dotted lines are signed demands superior matchmaking skills. Read More…

In Nigeria, shareholder associations enjoy a disproportionate amount of space in most media coverage of comments on company actions and performance.  Frequently, the attributed statements of these associations’ officers are overwhelmingly positive, irrespective of the actions or performance. This can give a misleading view that the companies have the full support of shareholders. No dissent, no critique, no balance. This week in Street Talking on NEXT, I recommend three credible alternative sources of information that the press should include in its reporting on company results and plans.

Reading news stories about company results and public offerings I often wonder if they are all written by the same writer. The titles all share an uncanny familiarity. ‘Investors tickled by Company A’s FY Results.’ ‘Company C tantalizes shareholders with x kobo dividend.’ ‘Shareholders overwhelmingly laud Company E’s planned bond sales.’ Read More…

At the best of times, most companies on the Nigerian Stock Exchange  put up a dismal performance at communicating with the investment community. The reverse in economic fortunes has exponentially amplified those failures. This week in Street Talking on NEXT I make a few recommendations for issuers on what they need to be telling investors at this time.

Bruce Wasserstein, the late chairman of Lazard, the storied investment bank and dealmaker extraordinaire, used to say that it was the lot of the corporate advisors to offer a lot of advice to companies for free, which can be a thankless task. The double facts that the counsel was valuable and free did not mean that the companies would take it. Companies are hard-wired to discount pro bono recommendations. Bearing the odds in mind, here are some suggestions to companies on the Nigerian Stock Exchange on keeping investors engaged through the recession. Actually, investors might also find them useful in judging companies. Read More…

At a time when investors need its protection the most, the Securities and Exchange Commission (SEC) seems to have gone AWOL.  This week in Street Talking on NEXT, I point out the contradiction in the government’s attempt to rescue the market, albeit sincere, which has put investors at extreme risk of  losing their investment completely. Until now, only the value of their shares were eroded. But with the Central Bank of Nigeria marshaled rescue, investors are now likely to lose the vote which their ownership entitles them to in determining the future of the companies. To stay relevant, the SEC needs to rediscover its primary mission and stand up for investors.

The Securities and Exchange Commission (SEC) has been in the spotlight a lot this year. It has not all been for glowing reasons. Justly or otherwise, the SEC, like other market regulatory agencies across the globe, has received a good dose of blame for what initially began as an economic problem, but has snowballed into a chorus of indictment over inadequate regulatory oversight. The metaphor ‘asleep at the switch,’ has been used by more than one commentator. Read More…

In the past year, there have been calls from several quarters for the Nigerian Securities and Exchange Commission (SEC) to carry out an overhaul of the regulations guiding the country’s securities market. In June 2009, the SEC, as part of its response to the challenges of regulating participant relationships on the Nigerian Stock Exchange released a set of proposed draft rules and amendments. Among these, draft rule B4(3) would require securities issuers to provide  investors with earnings guidance. Oddly, there has been little public debate on the draft proposals, while comments, inputs and submissions on the proposals were limited to less than three weeks from the date of publication. This contrasts sharply with the lively exchanges in developed country markets over the utility and costs of earnings guidance. The SEC’s draft proposal is a curious one considering that even in the United States, securities law does not require companies to provide earnings guidance. In this post, we briefly examine the key arguments of both sides of the debate, and proffer suggestions and safeguards Nigerian companies can adopt to limit the risks and meet the demands of makings these types of anticipatory business performance statements.

In his 2000 annual letter to Berkshire Hathaway shareholders, Warren Buffett came down hard on the practice of providing earnings guidance. In his view, the expectations that these projections created were clearly unsustainable, at best, and viciously misleading, at its worst. In addition, it created a perverse incentive for CEOs to manage earnings so that they could always beat the Street.

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As the Nigerian stock market convulsed in the past year analysts  have come to be regarded as shamans with the powers to conjure or calm the animal spirits at will. One day reassuring investors that the patient is making a full recovery and the next minute pouring the oil for Extreme Unction. Under circumstances of fear and loathing that have characterized investor sentiment over severe losses suffered, the pronouncements and prescriptions of analysts can and do have  significant effects on the share price of companies. In some cases, the very sustainability of the firm has been called into question. With this kind of power one only wonders how soon it will be before abuses start to appear. As history teaches with countless examples, power corrupts and absolute power corrupts even the best of men absolutely. Those responsible for good order in the market need not wait till then. In this post we discuss the vital role that analysts play in the market and why such influence as they have so clearly enjoyed in recent times is critical to their investment filtering function as well as the efficiency of markets. Next we discuss with a number of marquee  examples, cases where such powers have been applied to perverted ends. Recent allegations of purported analyst research used as a cover to de-market sector competitors accentuates the relevance of the subject.  Finally, we examine ways to ensure that such power is not misused for ends contrary to those for which they were originally intended.

Speaking in an November 2007 interview with the Times of London just a few days after downgrading Citigroup from Strongly Perform (SP) to Strongly Underperform (SU), Meredith Whitney, former executive director of equity research at CIBC World Markets, stated without mincing words: ‘People are scared to be negative, especially when a company has such a wide holding. Clients are not pleased with my call and I have had several death threats. But it was the most straightforward call I’ve made in my career and I am surprised my peer analysts have been resistant. It’s so straightforward, it’s indisputable.’ Read More…