Japaul, Fidelity Bank and International Breweries Public Offers - Dilemma?

It seems to be another mild season of raising additional investment capital out there now. With Fidelity Bank, Japaul Maritime, International Breweries Ilesa(IBI) engaging prospective investors with their public offers. Dangote Flour IPO just closed about this week, I hope you got yours, if not you can still parley your broker to slot you in as compilation is being done at the moment. They have like another 2 weeks to submit the various applications to the issuing houses party to the offer.

I wont classify any of these stocks (Fidelity, Japaul and IBI) as hot, so I understand the rather subdued tone with which they are all approaching the market right now. In fact they appear to be the least hyped public offers in the capital market as far as I can remember in the last 2-3 years. I suppose that's ok considering they are not raising capital up to the the size of Togo's GDP as various banks have attempted to in the past (just kidding!) . so the question then is: should they be ignored?

As much as I share the lack of enthusiasm surrounding these offers ( I particularly shilly-shally when it comes to IPOs or POs), I will not particularly be quick to wave them all off as complete no good! Agreed they are not the best "chicks" in town...but sometimes we need to realise that gold doesn't always come as yellow.

I have been beset by people I hold dearly to partake of Fidelity Bank shares and my immediate reaction was to tell them: "not interested". Don't get me wrong, its not a complete no-no, I just can't invest in every company listed on the exchange and in the immediate term Fidelity doesn't fit into my plans. I took the time to study the abridged prospectus of the bank today, the things I saw did not particularly sway me and most likely my initial position hasn't changed (unless of course my loved ones insists!).

The intended use of the proceeds and the gestation period for the possible impact of the funds and management's expectation makes me look elsewhere to realise my medium to long term objectives. While the forecast for the PAT, EPS and DPS over the next 3 years are quite mouth watering, reading through the prospectus I fail to see any key strategic plan to be put in place by the management that will help achieve these targets (I know they owe me no explanation, especially with 80% of the offer already underwritten by the issuing houses...full subscription is a definite!). What I found further intriguing is that 11% of the offer will be invested in subsidiaries which the prospectus describes their contribution to the PAT as "insignificant" (3.74% as at 2006). However I will not totally rule out the possibility of some sort of capital gains in the stock in the short to medium term, but this will not necessarily be attributed to "great" fundamentals...it wont be the first time things like that happen on the stock market!

On IBI, the truth be told, I have looked for the prospectus and just can't lay my hands on it. So I have no fundamental basis for placing a judgement on the stock, my basic instinct will say keep away. However, I will spare IBI just a little more thought...just a little thought. Some German investors bought into the company lately and committed some capital to turning the place around. I am also aware that the company holds significant market share (recently a report from the company claimed it cant meet the demand for its product...that is some healthy news!) in the Osun state region and its particularly adored in its area of operation. While all that is sentimental information and really shouldn't decide where you put your money, the clincher for me is the offer price. At less than N1 (not sure now, but I think N0.81k), you almost cant get it wrong. I think it holds some great prospect for growth in the medium to long term. In any case there hasn't been much growth prospect in the Brewery sector lately (largely an income sector growth dominated by dividend payments from Guiness Plc and Nigerian Breweries Plc), so it might not be bad to take a position with this "unknown" stock. My plan is to sell off some of my Nigerian Breweries stock which has become rather sluggish (and dividends quite pitiful!) in the past 12-18 months and take a "quick and dirty" ride with IBI.

Japaul, without gainsaying looks the most attractive of the current POs. The price looks right(at 50% discount to its current price on the stock exchange), almost a steal! Japaul strolls its terrain without much indigenous competition and the current government's local content initiative in the domestic oil and gas industry is bound to smear a favorable aroma on the operations of the company in the future. I consider the proposed utilisation of the offer as strategic in nature while judging the stated threats and weaknesses as largely surmountable. Japaul holds great potential as a growth stock...and I intend to take to take some stake in it.

One conclusion I have come to about these stocks is that they all hold strong potentials in the medium to long term, I will be visibly impressed if any of them provides any sensational short term excitement. The market has been tepid lately, and more and more investors are asking vital questions from custodians of their capital. We are definitely far from market sophistication and the potential for stupendous capital gains in the Nigerian stock exchange has been called to court lately, but the overall picture looks bright...the potential undeniable...the opportunities, still limitless.

Enjoy!