FBNH’s Equity In Airtel Nigeria Could Be Over N200 Billion

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FBN Holdings Plc, a major beneficiary of Airtel Africa’s buy-back of the unquoted shares of Airtel Nigeria, could rake in as much as over N200billion from the deal.
This amount constitutes the relative value of FBNH’s equity in Airtel Nigeria based on the bank’s EV/EBITDA multiple, a ratio that compares a company’s Enterprise Value (EV) to its Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA).

This estimate is predicated on Note 3.6 of FBNH’s Year 2020 audited annual report which states that “The Group holds several investments in unquoted securities with a market value of N227billion (2019: N193.37 billion) of which investments in Airtel Nigeria Limited and Africa Finance Corporation (AFC) are the significant holdings.”

Furthermore, Holdco in its audited annual report for the year 2020 explained in Note 3.6.1 that “a value of N88.29 billion is assigned to Airtel Nigeria, using a single valuation technique (an EV/EBITDA multiple, with a sensitivity of +/- 2.5% on either side of Fair Value)”.

Analysts at Lagos-based Coronation Assets Management Ltd noted that “these figures compare with a market capitalisation of FBNH of N269.21 billion about a month ago (close of business on 17 September) and a market capitalisation of N421.77 billion as of the close of business on Monday 18 October.”
In a report titled “FBN Price Rally Not Backed By Fundamentals”, the research analysts regarded the recent share price gain as a windfall rather than a change in the stock’s fundamental value and therefore urged investors to offload even at a target price of N7.80 per share.

Close observation of the stock shows the price of FBNH has risen by about 58 per cent over the past month closing at N12.10 per share on Thursday, October 21, and making it by far, the best performing stock over this period with trading volumes extraordinarily high consistently.

Although the price moderated slightly the same Thursday by -0.82 per cent, it was the most traded stock by volume at 51.92 million units while AIRTEL AFRICA was the most traded stock by value at N722.16 million.

Airtel Africa (AIRTELAFRI) had also on October 4 announced that it’s subsidiary Airtel Networks Limited (Airtel Nigeria) was tendering to buy out minority shareholders.

According to the disclosure filed to the Nigerian Exchange, “Airtel Africa, a leading provider of telecommunications and mobile money services, with a presence in 14 countries across Africa, today announces that its subsidiary Airtel Networks Limited (‘Airtel Nigeria’), a leading provider of telecommunications services in Nigeria, has initiated a process under which it seeks to buy back the 8.27 per cent minority shareholdings at an offer price of N55.81 per share.”

This development which was analysed in a market report entitled “Under The Radar Deals Driving FBN Shares” by InsideBusinessNG, the Online Newspaper highlighted some of the factors that could be driving northwards, the FBN share price and its high volume of trades.

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InsideBusinessNG in the report, among other factors, cited that investors are positioning in FBNH to reap from anticipated extraordinary income from the buyout of Airtel Nigeria of which FBN Holdings is a key shareholder.

Beyond this factor, however, is a more significant issue of the scramble for board room control involving key stakeholders, seeking the controlling stake of the Group.

It would be recalled that the Central Bank of Nigeria (CBN) had earlier in the year, issued a directive to the Group to liquidate its stakeholding in Honeywell Plc where its former chairman, Oba Otudeko, also sits as a major shareholder.

Thus, beyond the strategic interest to participate in the expected windfall from Airtel Nigeria buy-out, the scramble for FBNH’s shares could be a prelude to influencing the bank’s board.

Findings also show some sort of competition to amass shares, which is evidenced by an off-market cross-trade on October 7, for 473 million shares per cent of shares outstanding) at a price of N16, a 60 per cent premium over the day’s closing price.

An anonymous but competent source in the market confided in InsideBusinessNG that the board room strategic move may not be unconnected with major stakeholders in FBNH who want to extend controlling influence beyond the insurance industry.

Earlier this year, there were reports of a struggle for management control of FBN between various shareholders and the CBN, leading to the reinstatement of the Chief Executive Officer, who was earlier removed.

“It is reasonable to think, therefore, that struggle for influence may not be over and that the possibility of a one-off gain in Airtel Nigeria shares might provide an added incentive,” analysts at Coronation Assets Management noted.
– Parrot

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