Customs Street Advisors

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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The past year has not been kind to investors on the Nigerian Stock Exchange. From the euphoria of 2007, the market has plumbed previously unimaginable lows. Typical of such U-turns of fate, everyone has denied responsibility for the roles they played in the descent to hell. For companies and investors, claiming to the victim numbs the pain. This week in NEXT, I use the extreme metaphor of the drug addict to show how investors allowed themselves to be seduced by the market highs and why companies, who arranged these fixes, encouraged the habit.

If the three Rs, namely reading, writing and ‘rithmetic are the foundation of basic learning in elementary school, for investors on the Nigerian Stock Exchange (NSE), the apposite Rs would be rancor, recrimination and regret. For them, intemperate, even if misconstrued, statements by the Central Bank governor, whatever the genuine intent, have only rubbed insult to injury. Today, blame and bitterness are their trademark sentiments. This is a tragic tale of an acid trip gone awry. 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…

This week in Street Talking on NEXT, I review the attitude of companies on the Nigerian Stock Exchange to disclosure. I argue that cosmetic treatment of the subject are bound to be counter-productive because they will not address root causes. To avoid a repeat of ‘agent impunity’ that thrived at companies, transparency and access must become the new culture.

I distaste buzzwords. The ease with which they roll off the tongue obscures their gravity. All too soon, phrases that originally signaled critical leaps in innovation or timely responses to stakeholder expectations come to represent the very worst of a me-too catechismness. Read More…

This week in Street Talking on NEXT, I touch on social media usage, a subject which has risen in importance over the last two years. It is a truism to state that social media is redefining how many people communicate, both in their professional and personal lives.  This has implications for companies because as Clay Shirky, author of Here Comes Everybody: The power of Organizing without Organizations argues, group action just got easier. The ubiquity and facility of social media greatly amplifies the ability of individuals to find, share and publish information to reach a much wider audience effectively in ways that were previously exclusively reserved for only well endowed media organizations. In spite of its unmistakeable influence, public companies in Nigeria are unaware of how it will change the dynamics for corporate and investor communications.

Last week, the CEO of a public company told me that recent revelations in the banking sector have pushed investor trust in management to an all-time low. Shocking, yes, controversial, hardly. Read More…

With less than seventeen months to go to the Central Bank of Nigeria mandated deadline for the adoption of the International Financial Reporting Standards (IFRS) by Nigerian banks, and twenty-seven months to its obligatory adoption by all companies listed on the Nigerian Stock Exchange,  it is curious that no institution has made an effort to sensitize investors and analysts on the significance of the new accounting standards. Instead, those institutions that have adopted IFRS have presented the move as one of adherence to global best practices without seeding awareness about what the change means for the way they prepare financial statements. In fact, there seems to be a tendency to communicate the act of adoption as a commitment to the enhancement of shareholder value and corporate governance. While improved transparency, relevance, reliability and comprehensibility are among the anticipated goods of IFRS, it is a misnomer, or worse, misleading, to imply that an accounting standard  change can, by itself, create value. Value is created when firms increase their cash-generating ability, not when they change methods of reporting business performance. In this post, we discuss the importance of communicating the effects of IFRS adoption by companies on the Nigerian Stock Exchange. We use illustrative cases of companies in the EU which placed a priority on preparing the market for the new order.

On April Fool’s Day, First Bank, a foremost Nigerian bank, issued a press release stating that it had adopted the International Financial Reporting Standards (IFRS). Without prior notice, the bank stated that the change to IFRS would take immediate effect and will apply to the bank’s financial report for the year ended March 31, 2009.

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The recommendations of the Dotun Suleiman Committee for the Review of Capital Market Structures and Processes have received a lot of attention in the press. As a result of public concerns over certain perceived abuses and improprieties on the Nigerian Stock Exchange, those  recommendations which  touch on the oversight functions of the Securities and Exchange Commission (SEC) over the exchange have been in the spotlight. However, one recommendation, so far adopted, that has received far less attention, is the introduction of book-building method in securities sales transactions. Known as Rule 78(c) it will have significant long-term impact on the Nigerian capital market through its potential to fundamentally change the content of public offering communications, structure of ownership of companies, surveillance of corporate governance, review of corporate performance and the quality of issuer-investor relations. In this post, we examine the trends that have led to the rise of institutional investors in Nigeria and why issuers may actually prefer them at first countenance. Then we discuss the likely implications of their established dominance on share registers and its implications for  companies planning to raise capital.

In a recent critical essay on the dereliction of duty by US money managers in the supervision of public companies  whose securities they buy and hold on behalf of private citizens, John Bogle, founder of the Vanguard Group, the giant fund manager, underlines the risks to the financial system as markets have gradually but surely transformed from owner-governed to agent-dominated systems. However, beyond his criticism of the ineluctable trend to greater ownership of corporations by fiduciaries, Bogle identifies their central role in contemporary capital markets, not simply as conduits of capital, but as watchmen of corporate governance and performance. Read More…

In this excellent presentation, Catherine Crofton of Q4 Web Systems shares best practice ideas for investor relations websites. The presentation can be watched here.

The publication of alleged evidence on the manipulation of African Petroleum’s share price against Alhaji Aliko Dangote by the board of the petroleum marketing company has brought two burning issues to the fore. First, the inability of the stock exchange to identify the actions; second, the basis for the valuation and high multiples of AP’s shares. Since the AP board’s release of Alhaji Dangote’s clearing house transaction details to support its claims, several news articles have been written, while regulators have launched investigations into the matter. The case which is shaping to be a protracted one, already has some commentators declaring African Petroleum, and specifically, Femi Otedola, its chairman, as the victor of the first round. The Securities and Exchange Commission has placed a one year suspension on Nova Finance and Securities, stock brokers to Alhaji Dangote, while Eugene Anenih, its CEO, has been banned from working in the securities industry for five years. Further, a number of shareholder associations and individual investors have condemned Alhaji Dangote in strong terms, including calling for his removal as the first vice-president of the Exchange. In the heat of the debate, particularly on such a sensitive issue, a number of opportunities are being missed by African Petroleum. If winning public opinion is the single goal of AP, that much, so far, seems a secured objective. However, by its failure to follow up with an intensive investor relations program, African Petroleum may be allowing whatever victory it has won in the court of public opinion to slip out of its hands. In this post, we argue that for companies like AP whose share prices are under assault, but whose management is convinced that the sustained and widening gap between the economic value of the firm and the market price of its shares are driven by ‘ex-analytical’ factors, it is their duty to proactively communicate the performance results and cash-generating potential of the firm. In fact, we hypothesize that failure to do so allows room for ‘bystander’ investors, not initially involved in the sell-off, to join the bandwagon, taking the silence of the firm as a signal that the current downward trending market price is the true reflection of the state of the business. We then go on to list a number of areas that AP needs to elaborate on in its investor communications. We conclude by  arguing that for well run companies with solid prospects, distortions in market valuation are self-correcting, but that this process can be made quicker with a responsive, credible and robust investor relations program.

It is arguable that the decision of the board of African Petroleum to publish the trading records of Alhaji Aliko Dangote in the March 23 edition of ThisDay newspaper as supporting evidence in its claims that he was behind the aggressive crossing of its shares, without a beneficial change in ownership, over an eight week period, marks the entry into unfamiliar territory by the board of a Nigerian issuer which believes that its share price has been manipulated. According to the company, the pseudo-transactions created an appearance of active trading in its shares, when in reality there was none. Less than two weeks later, Day Spring Law Office, filed a petition on behalf of Femi Otedola, the CEO and chairman of African Petroleum, Zenon Petroleum Oil & Gas Limited and Luzon Oil & Gas Limited, seeking damages of N117,188,517,953 being the cumulative losses suffered by the petitioners for the drop in its share price from N293 on August 21, 2008 to what the petition describes as ‘a miserable N66.50 on March 26, 2008.’

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