History always
provides us with lessons for the future. We at TFHZPC draw our strength from
our ability to use numbers to decode historical trends that can provide an
indication that supports our ‘gut feel’ on how the strategic tendencies of
premier companies will be shaped.
We take you back
with our insight into the financials of CEC in our review of their 2015 performance.
We walked you through “destruction of value on Nigerian soil due to explosive
Naira”. The 11 November 2016 SENS Announcement from LUSE on them disclosed a
strategic move by the group to demerge from the investment vehicle they had
created in 2013 whose purpose was allow the group to explore the power sector
across Sub-Saharan Africa (backed by $100m in their piggy bank). Enter Naira
land and Diamonds of Sierra Leone.
We followed the
macro developments on these investments and of note was the paradox of tumbling
naira which possessed a credible threat to creation of value in President
Buhuri’s “backyard”.
Enter SENS announcement
from LUSE on 29 November 2016, CEC Plc decides to divest from diamond land. Although they argue that
the country remains an attractive investment destination, we decode that the
move is purely to protect shareholder value. Rightly so we might add. The rule
of every finance manager is to accept all projects with a positive net present
value. However, circumstances in the macro environment may lead to the NPV
moving target hence an astute management team will take the decision to change
course to protect value.
However,
strategic decisions are not without consequences. In the case of nairaland, verbatim
from the SENS report read:
“The Board has, therefore, determined an impairment of USD99,999,999
which implies that the carrying value of CEC Africa in CEC Plc books reduces
from USD100 million to USD1;”
The
aforementioned will certainly appear in next years published financials which
we will be digesting at publication. We are still firm believers of accepting
all positive NPV projects however, we also know that when the project is not a
success, the numbers in the financials will show.
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