CEC's quest for Naira destroying value in the medium term

Copperbelt Energy Group's 2014 and 2015 results show a company gradually making strides to create more shareholder value by seeking foreign markets. According to its CEO, the exportation of energy to the DRC was key in ensuring a consistently improved revenue stream. However, liquidity shortages on the back on the global financial crisis and below cost tariffs had an impact on the company coupled with environmental factors impacting hydro electric generation in the region .  

The group's pursuits in Nigeria however, have come at a cost of destruction of value for the group from its investment in AED Plc. Its clear that group's weak EBITDA was highly attributed to challenges in a macro environment experienced in the Nigerien market. However, the CEO has indicated that there have been energy policy improvements signaling improved stakeholder management that could potentially unleash the groups desired value creation. The groups other investments in internet services are coming into maturity although one of them continues to recapitalize its operations in a highly competitive market segment.   

The group's cocktail of companies has seen it not fully exploit its non current fixed assets over the last 2 financial years. The group has been aggressive in the debt market with gearing jumping from 47% in 2014 to 76% in 2015. This is a signal of a company intent on boasting its fixed asset portfolio as required by the industry they operate in. However, its internet subsidiaries face a highly competitive environment as new players enter their markets.  

In the interim, investors in the group will see a low return on capital employed with return on investments in the range of  4 to 5%. Exploitation of fixed assets, stakeholder management in foreign  markets, beating competitive rivalry remain key in the overall groups strategy for success. Furthermore, investors may want to keep a close eye on Nigeria's current economic transformation. The currency devaluation on the back of falling oil prices could be problematic for the groups investments in the region in the FY 2016.