Overcoming the Macro Headwinds

Proshare

Monday, October 31, 2016/9.36am /FBNQuest Research

A highlight of our investor conference in Lagos on Thursday was a panel discussion with managing directors of four successful Nigerian companies.

The session was entitled “Capitalising on disruptions to the status quo” and provided colour on the way the businesses had responded to the well-documented macro headwinds.

The panellists broadly supported the thrust of FGN policy, and one estimated that as much as 75% of manufacturing’s raw materials could be locally sourced.

SecureID is Africa’s leading smart card manufacturing and personalisation company. Its managing director and founder acknowledged that reduced government budgets had had an impact and that naira invoicing had become prevalent.

Unified Payments is a payments service provider founded in 1997 by a consortium of Nigerian banks. It moved into contactless payments in 2015.   It has managed annual sales growth of about 25% over the last five years, and is confident that it can maintain the rate of expansion. The company prides itself on its success in educating the public on alternatives to ATMs.

Chi Limited is best known for its fruit juices and is the principal asset of TGI Nigeria. It serves two million customers each day. The company’s strengths, in the words of the managing director of TGI Nigeria, are its spending on R&D and its offering of products for all wallets. In January Coca-Cola acquired a 40% stake in Chi and hopes to buy the balance within three years.

Chi is expanding on the basis of backward integration. It has recently opened a plant for the manufacture of concentrates for juice production. A rice mill with an annual capacity of 125,000 tonnes per year (t/y) is due to be commissioned in February, at which point work will commence on a second.

GZ Industries manufactures cans for the drinks industry, and is the best known holding of Verod Capital Management. It produces 1.8 billion cans per year from three plants, two of which are located in Nigeria. Imported aluminium coil accounts for 70% of its cost of sales so the devaluation in June has been painful. Its concern, however, is more the availability than the cost of fx.  Its sales growth in naira terms is running below budget.

To GZI’s advantage is the opportunity to boost its market share. An estimated 90% of drinks are not served in cans.

Portfolio investors will have noticed that these four companies are unlisted. The four, however, have strong growth potential, and one (Chi) is in a segment particularly favoured by the FGN (agro-processing).  

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Capitalizing on disruptions to the status quo 

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