Please Advise Bosun…
Bosun is a 1990 graduate of Business Administration from the University of Lagos. He was born into a family of investors. His father is a retired Professor of Economics from UNILAG, and his mother a retired stockbroker and fund manager at the pioneer investment bank in Nigeria, NAL Merchant Bank. Both have over forty years’ experience in the Nigerian capital market.
He joined Nigerian Breweries in 1992 a management trainee; he is now a 43 year old middle level management staff in the Procurement department of Nigerian Breweries. Bosun was smart enough to have used the car loan given to him in 1993 to buy shares; he was loyal and patriotic to NB by investing the sum in Nigerian Breweries shares.
Due to bonuses received over the years and reinvestment of his dividends, he now has a little over a million units of Nigerian Breweries shares. His investment in Nigerian Breweries now constitutes 80% of his total net worth.
1. With the current state of the Nigerian financial market, what advice will you give to Bosun.
2. As at 31st December 2012 what was the net asset per share, price earning ratio, price growth rate of Nigerian Breweries share.
3. If Bosun’s investment in Nigerian Breweries represents 80% of his net-worth, what is the net worth of Bosun?
4. What lessons can we learn from Bosun?
Food for thought
N350,000 will buy a new Honda in 1993, that same money will buy about 100,000 units of First bank shares.
Twenty years down the line, the Honda car may be sold for N250,000, while the investment in First bank shares would have grown to over 5.7 million units valued at about N97 million, generating dividends that can buy a new car.
Dates Bonus Units
Apr 1994 1 for 1 200,000
Apr 1995 1 for 4 250,000
Apr 1996 1 for 4 312,500
May 1997 1 for 5 375,000
Jul 1998 1 for 4 468,700
Jul 2000 1 for 4 585,800
Jul 2001 1 for 4 732,200
Jul 2002 1 for 5 878,600
Jul 2003 1 for 6 1,024,900
Nov 2004 1 for 8 1,153,000
Nov 2005 1 for 4 1,441,200
Jan 2006 1 for 25 1,498,800 Shares in FBN Merchant Bank
Aug 2006 1 for 1 2,997,600
Aug 2007 1 for 6 3,497,000
Aug 2008 1 for 4 4,371,200
Aug 2009 1 for 6 5,099,400
Aug 2010 1 for 8 5,736,800
An investment of N350,000, that is 100,000 units of first bank in 1993 , would have grown to 5,736,800 units with a market value of about N97 million as at August 2013.
The does not include the total dividend of N9.3 million received as dividend in the last 2 years.
Note that when FBN Merchant Bank merged with First Bank during the consolidation in 2006, a special bonus of 1 for 25 was given to the shareholders of First Bank.
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According to the data obtained from http://www.proshareng.com. NB closed at N147 on 31st December 2012.
The company made a profit of N38 billion, from an outstanding shares of 7,562,562,340.
This will give an Earning Per share of N5.02.
The price/earning ratio based on the closing price of NB on 31st December 2012 is 147 divided by 5.02, which will give us 29.3.
The earning growth rate of NB between financial years of 2011 and 2012 was almost flat. The earning lost 0.02%. Based on the half year result that was released in July 2013, the company was able to grew her earning by just 6.6%.
The current price of NB shares as at 12th August 2013 is N174, which may give a forward PE of about 32.5 at the end of 2013 financial year.
I may be wrong but with the current earnings of NB, and the earning growth rate of the company, I am of the opinion that the price of NB is overpriced at N174.
I do not know if the finance guru in the house agree with me, but I know there are good stocks that are currently selling at discounts.
The net asset of NB as at 31st December 2012 was N166.8 billion, if this is divided by the outstanding shares of 7,562,562,340.
NB will have a net asset per share of about N22.00
Since Bosun has a little over 1 million units of NB shares, and his shares in NB represents 80% of his net-worth.
I million units of NB shares is about N175 million Naira.
Bosun’s net-worth is the reciprocal of 0.8 multiplied by N175 million. which is;
1.25 x N175 million = N218 million.
Peter Lynch a highly successful investor and fund manager on Wall Street, and the author of two practical investment books ie ” beating the street” and ” one up on Wall street”. Will sell this stock based on her current earnings, price and earning growth potentials.
1 million units of NB gave Bosun a dividend of just N3 million, after removing the withholding tax of 10%, Bosun net dividend was N2.7 million. This is not too good for a stock valued at N175 million.
Net dividend yield will be a paltry 1.54%.