FCMB, Courteville: Profit warnings and more underway

PREVIOUS week’s corporate disclosures, a measure of corporate discipline and integrity resonated with profit warning from FCMB Plc, a major player in Nigeria’s banking sector. A week later another quoted company, Courteville Business Solutions, the technology company running the popular Autoreg, issued their’s.

As usual their stocks tumbled maximumly, and coming on the heat of massive stock routing, this came without much noise.

But our investigations have indicated that more profit warnings are underway as both nine-months and full year 2015 corporate performance results begin to roll-in.

Stockbrokers and investment analysts are all jittery at the fate of the market which had shed so much weight and literally gasping for breath since beginning of this year. The negative trend was coming at a time fiscal and monetary policies were rather inclement and unfriendly to stock market.

Investors’ expectations

This is not the first time profit warnings were used to manage investors’ expectations. In 2012 there were profit warnings from many quoted companies. Then many stockbrokers were not happy with the trading outcomes as bear run hit the investments.

But the situation now appeared different. Then it was only the banking sector that was affected with Central Bank of Nigeria’s directive to write-off bad debts. Also   the stock market was not facing an all-round turbulence.

In the current situation most quoted companies across almost all sectors of the market are under the pressure arising from general macroeconomic downturn.

Moreover, the bear run on the market is far longer and rather than signs of buttoming out most analysts are seeing more reds following last week’s uninspiring outcome from the first 2016 Monetary Policy Committee, MPC, of the CBN.

Many company results in 2015 point to harsh operating environment that have forced almost all blue chip companies into declines in financial results, the most recent being PZ Cussons.

Peter Obaseki, Managing Director of FCMB Group had stated that the nine-month poor results were due to two factors: a spike in impairments particularly in the energy sector and the significant reduction in trade finance-related revenues due to foreign exchange illiquidity.

The bank had subsequently announced over 84 per cent drop in profit, and this was immediately followed by further crash in the stock price, hitting over 50 per cent year-to-date.

FCMB is already used to this shock as a similar scenario played out nearly four years ago. In March 2012 the bank sent out a profit warning that it expected to report a net loss for 2011 of up to N9.0 billion.

Underwriting of several share issues

It had then attributed the loss to some investment and underwriting of several share issues dated back to 2009 and some non-performing loans sold to Assets Management Company of Nigeria, AMCON.

Immediately the shares went down by 5.0 percent with further declines in subsequent days before bottoming out.

Many other banks also had to toe same line. For instance in the same early 2012 management of UBA issued a Profit Warning. The Bank said the loss for full year 2011 would be driven principally by one off write-offs against earnings including write-offs from disposal of loans to AMCON with one oil company’s write-off of N15 billion being the largest.

Our investigations show that the oil sector bad loans are currently heavy across all the banks indicating that a similar circumstance may be playing out in the banking industry.

Regardless of the discomfort the bad news of profit warning may bring withholding such information can only create unfair advantage to a few insiders to the detriment of the majority of investors.

Investment analysts say profit declines are going to be prevalent in the days ahead as more full year and nine-months 2015 results come out and investors deserve to have equal access to the information.

Stock market observers were also quick to point out that such warnings should be timely for it to be useful.

But a good step is for the Nigerian Stock Exchange to encourage more companies, especially those with significant market capitalisation, to adopt this disclosure action. It should become a market norm.

Some observers last week raised concern that while PZ adopted this measure in 2012 no other blue chip did so and worse still PZ appeared to have abandoned the practice as it failed to announce a warning ahead of its huge profit decline for full year 2015 announced last week.

Profit warning is normal in all developed financial markets. That is investor democracy, or better put as democratisation of investment information.

Courteville, a relatively smaller cap company, has shown that profit warning should be a universal norm in the stock market. The company has not only shown maturity at tender age but also pointed the way forward by indicating what it’s future holds amidst the expected bad results (they have only issued warning last week, and yet to announce the result).

The company said the future is looking good. The group managing director, Mr Adebola Akindele said Courteville is getting on other ways of helping government and private sector to collect more revenue thereby increasing the company’s volume of business; “ rather than be asking for depths or heights in our commission, we ask for width, get more services on board; not just for public sector alone; but include the private sector. We have identified a few areas in 2016.

“Courteville is about diversification and that is the future. Shareholders would say are they going to smile? But they have been smiling; we hope that the smile going forward would hopefully turn into a lot of laughter and Courteville is a company that pay dividend regularly. We would resume that and we have not failed in a year yet to put something down in a calendar year, let them appreciate it”.

In it’s outlook, FCMB added to its courage in profit warning, indicating that the challenges in the corporate banking business is being taken care of while an impressive performance in retail banking is compensating for the downsides in corporate banking.

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