The 5 Habits Of Highly Effective Advertisers

Daren Poole
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The 5 Habits Of Highly Effective Advertisers

Kantar’s Creative Effectiveness Awards reveals the world’s most effective ads of 2020, and what makes them great.

The 5 Habits Of Highly Effective Advertisers

At Kantar, we love great creative content, and we love it, even more, when that creativity is harnessed to deliver against brand and marketing objectives. Each year we test over 10,000 ads for our clients around the world with Link, an independently validated solution. Each year we learn more about winning ads and the ingredients for success.

Kantar’s Creative Effectiveness Awards recognise the best TV and digital ads from around the world – as judged by consumers. They celebrate great advertising that drives sales in the short term and equity in the long term. While we recognise that not all ads seek to do both, our approach provides a framework for assessment and recognises the power of creative to build brands, not just activate sales.

An exceptional year

2020 was a year like no other, and our work showed that people wanted advertising to continue, as it provided a sense of normality at a time of 24-hour COVID-19 news cycles.  For the most part, consumers were processing content in the same way during the pandemic as they did before. Advertisers that held their resolve and invested in their brand during the downturn saw their bravery rewarded. 

Revealed: the most creative and effective ads of 2020

This year we saw some amazing ads that are both creative and effective. Our winners come from a diverse range of brands, categories and countries, and use many different tactics in their creativity. What they share in common is a commitment to creative excellence and a focus on ensuring their work performs exactly as intended.

Consumers rated Heineken’s ‘Cheers to all’, the world’s most creatively effective ad for 2020. In this ad, Heineken addresses gender-related drinks stereotypes in a way that is light-hearted rather than preachy or self-righteous and for that reason is loved by viewers.

Have a look at the great ads that consumers ranked in our top 20 from around the world in 2020. Congratulations to all our winners.

Brand

Country

Ad

Agency
1 Heineken USA Cheers to all Publicis
2 Bosch Germany Atino C3 Creative Code and Content (Stuttgart )
3 Burger King France Consignes 2 Sécurity – The Retour Buzzman
4 SheaMoisture USA It Comes Naturally BBDO New York and JOY Collective
5 Samsung USA Make their year, with Galaxy Buds Live R/GA
6 Milka France And a lot of Milka DAVID Madrid
7 Google USA Find your Scene Google Brand Studio
8 TENA UK TENA Silhouette Washable Underwear (I will wear what I want) AMV BBDO, London
9 TD Canada Keeping your business moving forward Leo Burnett
10 Adrenaline Rush Russia More KAPIBARA
11 YouTube Kids USA YouTube Kids Brand Anthem Film Droga5
12 Avocados from Mexico USA Avocados From Mexico Shopping Network* Energy BBDO Chicago
13 Gatorade Chile Gatorade GOAT CAMP TBWA / Chiat de Los Ángeles
14 Toyota Corolla Canada Vente Étiquettes Rouges The Showroom
15 Kozel Slovakia Pimp my goat Armada
16 Nissan Sentra USA Joy Ride NissanUnited
17 Panadol Actifast Malaysia Delivery Rider Malaysia Grey Group Singapore
18 EBay Australia Australia The Fast and the Furious Che Proximity Australia
19 Siemens Home Appliances Turkey Ankastre MullenLowe Istanbul
20 Hershey’s Kisses USA Bells to Blossoms mcgarrybowen

* Not currently available online

The 5 habits of highly effective advertisers

While there is no one size fits all solution to creative and effective advertising – we observed five habits from our winners that ensure their advertising will deliver for their brand – in both the short and long term. These can act as guidelines for all advertisers.

  1. Be distinctive

Create the ability to be noticed and remembered in a world where there’s a profusion of ads. Your ad is not just competing in its category. It is competing for attention against the world. Stand out from the category as a minimum, and ideally from any other advertising. 

  1. Brand intrinsically

Make sure that the attention won by the ad is in the service of the brand. Ensure the brand is at the heart of your creative or get your branding cues right. A surprising number of brands forget this.

  1. Be meaningfully different

To grow market share or defend premium pricing you need to show how your brand fulfils consumers’ functional, emotional and social needs in the category AND illustrates your uniqueness compared to the competition.

  1. Trigger an emotional response

Making the viewer feel something wins engagement for the ad, bypassing the natural tendency to screen out advertising. It also has positive effects on the brand’s emotional associations.

  1. Talk with your consumers

Successful marketers know they can get ‘too close to their brand and lose perspective, so they listen to viewer feedback throughout the creative development process and refine their ads accordingly. 

Get your recipe right

As well as great habits, we noted many creative devices, or ingredients used effectively by our 2020 winners. Some of our winning ads tackle diversity or challenge gender stereotypes (and we know progressive ads drive greater ROI), others use celebrity creatively, some nailed humour during challenging times – and much more.

The 5 Habits Of Highly Effective Advertisers

Find out more about the winning ads, and download our booklet, ‘The 5 habits of highly effective advertisers’, to discover more about the winning tactics and habits.

Daren-Poole Brandspurng Five Habits To Learn From The World’s Most Creative And Effective Ads
Daren Poole, Global Head of Creative, Kantar | Brand Spur Nigeria

Author: Daren Poole, Global Head of Creative, Kantar

5 Habits To Learn From The World’s Most Creative And Effective Ads

Kantar
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5 Habits To Learn From The World’s Most Creative And Effective Ads

Consumers rate Heineken’s ‘Cheers to all’, the world’s most creatively effective ad for 2020

Throughout 2020, Kantar, the world’s leading data-driven insights and consulting company, tested more than 10,000 adverts for clients around the world. Today, Kantar reveals the adverts that performed most effectively. What makes the Kantar Creative Effectiveness Awards different from other creativity awards is that consumers are the jury.

Five Habits To Learn From The World’s Most Creative And Effective Ads Brandspurng

Kantar’s COVID-19 Barometer research showed people wanted advertising to continue during the pandemic, as it provided a sense of normality at a time of 24-hour COVID news cycles.  Further research showed that, for the most part, consumers were processing content in the same way as they did before. Those advertisers that held their resolve and invested in their brand during the creative investment downturn saw their bravery rewarded.

Daren-Poole Brandspurng Five Habits To Learn From The World’s Most Creative And Effective Ads
Daren Poole, Global Head of Creative, Kantar | Brand Spur Nigeria

The most creative and effective ads of 2020 were:

Brand Country Spot Agency
1 Heineken USA Cheers to all Publicis
2 Bosch

 

 Germany Atino

 

 C3 Creative Code and Content (Stuttgart )
3 Burger King France Consignes 2 Sécurity – The Retour Buzzman
4 SheaMoisture

 

 USA It Comes Naturally

 

 BBDO New York and JOY Collective
5 Samsung

 

 USA Make their year, with Galaxy Buds Live R/GA

 
6 Milka France And a lot of Milka DAVID Madrid
7 Google

 

 USA Find your Scene Google Brand Studio
8 TENA UK TENA Silhouette Washable Underwear (I will wear what I want) AMV BBDO, London
9 TD Canada Keeping your business moving forward Leo Burnett
10 Adrenaline Rush Russia More KAPIBARA
11 YouTube Kids USA YouTube Kids Brand Anthem Film Droga5
12 Avocados from Mexico USA Avocados From Mexico Shopping Network* Energy BBDO Chicago

 
13 Gatorade

 

 Chile Gatorade GOAT CAMP

 

 TBWA / Chiat de Los Ángeles
14 Toyota Corolla

 

 Canada Vente Étiquettes Rouges The Showroom

 
15 Kozel Slovakia Pimp my goat Armada
16 Nissan Sentra USA Joy Ride NissanUnited
17 Panadol Actifast Malaysia Delivery Rider Malaysia Grey Group Singapore
18 EBay Australia Australia The Fast and the Furious Che Proximity Australia
19 Siemens Home Appliances Turkey Ankastre MullenLowe Istanbul
20 Hershey’s Kisses USA Bells to Blossoms mcgarrybowen

* Not currently available online

Across the year, and the 10,000+ adverts analysed using Link, Kantar’s validated ad testing solution, five habits from the most effective advertisers were identified.

  • Be distinctive: Create the ability to be noticed and remembered in a world where there’s a profusion of ads. Your ad is not just competing in its category. It is competing for attention against the world. Stand out from the category as a minimum, and ideally from any other advertising.
  • Brand intrinsically: Make sure that the attention won by the ad is at the service of the brand. Get your branding cues right. A surprising number of companies forget this basic rule.
  • Be meaningfully different: To grow market share or defend premium pricing you need to fulfil consumers’ functional, emotional and social needs in the category AND illustrate your uniqueness compared to the competition.
  • Trigger an emotional response: Making the viewer feel something wins engagement for the ad, bypassing the natural tendency to screen out advertising. It also has positive effects on the brand’s emotional associations.
  • Talk with your consumer: Successful marketers know they can get ‘too close’ to their creative journey and lose perspective, so they listen to viewer feedback during creative development.

Commenting on this year’s winners and the five habits of creative effectiveness, Daren Poole, Global leader of Kantar’s Creative Domain offered

“At Kantar, we love great creative content, and we love it, even more, when that creativity is harnessed to deliver against brand and marketing objectives. Our winners today are from a diverse range of products and categories, and, as our report shows, use many different tactics in their creativity. The commonality they share is a commitment to creative excellence and a focus on ensuring their work performs exactly as intended.” 

Kantar’s Link solution is the world’s most trusted ad testing solution, having been used over 215,000 times. It offers predictive and diagnostic measures to guide ad optimisation to maximise that ROI. With Link Now available on Kantar Marketplace ads can be tested with confidence in as few as 6 hours.

The Link measures that underpin our awards are the ‘Short-term Sales Likelihood’ and ‘Power’. STSL is the probability that an ad will drive a short-term sales response. Power is a measure of an ad’s potential to contribute to a brand’s longer-term equity. Both headline measures are validated against real-life outcomes to ensure we are getting a read of both creative excellence and brand outcomes.

SKLD Launches New Campaign to Reward Retail & Wholesale Customers

Esan Bolaji
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0
SKLD Launches New Campaign to Reward Retail & Wholesale Customers

  • More than N1m to be won at skit stores & online platform

  • Over N5m worth of early bird discount on School Uniforms

The SKLD Reward Promo seeks to reward 6 back-to-school shoppers every Friday for 5 weeks with N30,000 SKIT shopping vouchers. A draw will be held every Friday in-store and online (skit.ng) to select the 6 lucky winners.

SKLD Launches New Campaign to Reward Retail & Wholesale Customers Brandspurng

The 1st draw will hold on Friday, April 23. The winners would be announced on the store’s social media platform. Customers also stand a chance to win several gift items at the store locations – Ikeja, Lekki, Ikota, Lagos as well as Wuse II, Abuja. In addition, primary and secondary school owners will be rewarded up to a 20% discount on school uniforms in the Marcel Hughes early bird campaign.

Speaking on the initiative, General Manager Commercials, SKLD Integrated Services, Seun Ogunjimi, reiterated the Company’s value proposition to customers.

SKLD Launches New Campaign to Reward Retail & Wholesale Customers Brandspurng

She said: “Over and above our determination to build value for all of our stakeholders, such as ensuring that our consumers have one less thing to think about when it comes to their children’s education, we are currently aware of their difficulties, especially as a result of the pandemic, and we want to help alleviate them.

The SKLD Reward Promo was created as a result of this. For 5 weeks during the promo, we will be rewarding 30 skit customers with over N1 million naira in discount, vouchers and gift items. We also0 identify with the challenges of running a business in this environment, as such, we are rewarding school owners 20% discount on school uniform purchase in our Marcel Hughes early bird campaign.”

Brands and Marketing Manager, SKLD Integrated Services, Wale Disu also stated that the SKLD Reward Promo represents one of the organization’s core values – ‘customer focused’.

“At the core of our operations is our dedication to our customers, be it wholesale or retail. Regardless of the economic challenges, we will remain committed to being customer-focused by ensuring that we are a seamless one-stop solution for our customers’ needs. We also understand the challenges our customers face, particularly in these times, for this reason, we will reward 30 lucky customers with N30,000 shopping vouchers for 3rd term back-to-school shopping. Also, reward schools with discounts worth over N5 million on school uniform orders as they plan for the new academic session” he said.

To qualify for the N30,000 voucher draw, customers are expected to make a minimum spend of N40,000 at the store in Ikeja, Lekki, Ikota. Wuse II, or online at skit.ng on back-to-school items such as bags, school uniforms & shoes, stationeries, food flask, calculators, books, art supplies, etc.

SKLD Integrated Services for over 20 years has provided educational, office, and lifestyle supplies, branded product distribution, technology, garment manufacturing and humanitarian aid procurement services through contracts, wholesale, retail and online channels.

SKLD is an integrated corporate entity providing educational and office supplies, branded product distribution, technology, Garment manufacturing and Humanitarian procurement services through contracts, wholesale, retail and online channels through its brands’ Skit, Marcel Hughes, SKLD Relief, and Weaveworx, as well as sole distributorship of Casio products and Qualatex balloons.

WHO And the IOF Sign MoU to Strengthen Access to Health in Francophone Countries

Esan Bolaji
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0
WHO And the IOF Sign MoU to Strengthen Access to Health in Francophone Countries

Promoting COVID-19 vaccine equity, fighting malaria and advancing universal health coverage are key elements of the memorandum

The World Health Organization (WHO) and the International Organisation of the Francophonie (IOF) today signed a memorandum of understanding to scale up collaboration and boost access to health services in Francophone countries.

WHO global pulse survey,World Health Organization (WHO)

The agreement, finalized at a ceremony held at the WHO Headquarters in Geneva, focuses on advancing universal health coverage, fighting malaria and collaborating on the development of the WHO Academy, which aims to train millions of health workers worldwide. It will also support COVID-19 response efforts, including promoting equitable access to vaccines.

“Our actions, supported by this memorandum of understanding, must contribute to the development of social protection and universal access to public health services in the French-speaking countries,” said Ms. Louise Mushikiwabo, IOF Secretary-General.

“This is a fundamental right for individuals and an essential condition for the socio-economic progress of our countries.”

Ms Mushikiwabo added: “This memorandum of understanding aims to bring IOF political and diplomatic support to some of WHO’s priorities.”

WHO Director-General Dr Tedros Adhanom Ghebreyesus said the MoU signing further bolstered an already strong partnership with IOF, and would play a vital role in promoting and protecting people’s health, including in the response to COVID-19.

“Strengthening the relationship between WHO and the IOF comes at a crucial time, when the world needs even closer collaboration to fight COVID-19 and address existing health challenges, from malaria to inequitable access to health services,” said Dr Tedros.

“Expanding universal health coverage and equipping current and future health systems with highly trained health workers are essential steps that WHO and IOF will continue working on together.”

Under the MoU, the IOF will work through advocacy actions, to promote and protect people’s access to the fundamental human right to health, in doing so supporting WHO’s work with national, regional and global authorities to advance access to universal health coverage.

The MoU will, in particular, promote multilingualism, including the use of the French language, in health promotion and training materials. Another key focus is promoting health education for young women and girls, including sexual and reproductive health.

With 88 Member States and governments, the International Organization of the Francophonie (IOF) counts among its missions the promotion and protection of fundamental rights, among which the Right to Health.

Several Resolutions on this subject were adopted at the Francophonie by its governing bodies, the latest of which was approved by the Francophonie Ministerial Conference in November 2020, on “Living together during the COVID-19 pandemic and in the post-COVID world.”

BUA Cement Overstretched Valuation Eclipses Growth Potential

Brand Spur
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BUA Cement Overstretched Valuation Eclipses Growth Potential

Recently, BUA Cement Plc filed its audited FY-2020 results. Despite substantial cost pressures, the cement maker saw a 19.1% and 19.4% y/y increase in PBT and PAT, respectively, to N78.9bn and N72.3bn.

This was primarily driven by volume growth (+13.3% y/ y), which supported topline (+19.3% y/y), and lower Net financing expenses (-28.3% y/y) over the period. We review the FY earnings and adjust our expectations for FY-2021 below.

Revenue: Resilient Output Amid Harsh Operating Environment

In the period under review, BUACEMENT’s revenue surged (+19.3% y/ y) to N209.4bn in FY-2020, on the back of a 13.3% y/y growth in sales volumes to 5.1Mt. and a 5.3% increase in Revenue per tonne to N41,116/tonne. Sales within Nigeria made up 99.3% of Revenue (vs 97.1% in FY-2019) as exports fell by 71.8% amid the pandemic’s effect on regional trade.

The strong performance was aided by strategies to increase market presence and distribution capacities. Furthermore, a rebound in construction activity following the lifting of pandemic-related lockdowns in late Q2-2020 and a comparatively quiet rainy season in Q3-2020, bolstered volume growth, as observed with industry peers.

Notably, the cement maker maintained the highest level of capacity utilization (compared to peers) at 63.8% . However, we highlight that two (2) major customers accounted for 23.9% of Revenue from cement sales (vs 26.5% in 2019), with each contributing more than 10% of total revenue.

Profitability: Margins Give-In To Inflationary And FX Pressures

BUACEMENT saw faster growth in Cost of Sales (+22.4% y/y to N114.0bn), owing to higher energy costs (+18.6% y/y to N43.1bn), which remains a persistent concern, and Raw materials cost (+81.2% y/y to N21.3bn) amid inflationary pressures and increased production

The rise in energy costs was mostly reflective of the impact of Naira devaluation on gas supply contracts, an industry-wide issue . This pressured Gross Margin 138bps lower y/y to 45.6%. Similarly, Operating expenses grew 21.2% y/y to N13.5bn as EBIT margin shrank by 153bps

However, Net finance cost declined by 42.7% y/y to N3.0bn due to an increase in Finance income (+447.5% y/y to N859.6mn), and a decrease in Finance cost (-28.3% y/y to N3.8bn) despite a significant increase in debt. Recall that the group registered a N200.0bn Bond program in 2020. Notably, the bulk of the first tranche (N115.0bn) of the bond issuance was used to refinance existing debt at a much lower funding cost, leveraging the low yield environment in 2020.

Summarily, PBT and PAT increased by 19.1% and 19.4% y/y, respectively, to N78.9bn and N72.3bn. Thus, BUACEMENT’s Net profit margin for the year settled at 34.5%, (vs DANGCEM’s 36.1% and WAPCO’s 15.7%), Return on equity at 19.2% (vs DANGCEM’s 31.0% and WAPCO’s 14.9%) and Return on assets at 9.4% (vs DANGCEM’s 13.7% and WAPCO’s 6.1%).

Net Debt Climbs To N269.3bn, 71.6% Of Equity

As noted above, BUACEMENT took to the debt markets in the year under review, taking advantage of the lower interest rate climate in a bid to finance its working capital needs, expansion plans, and refinance related-party debt. The Company issued a N115.0bn local bond in Dec-2020, with a 7-year tenor and a coupon rate of 7.5%. Net financial debt for the full year totaled N269.3bn, representing 71.6% of equity (vs 5.9% in FY-2019). Consequently, the Leverage Ratio climbed to 2.0x.

Our Dupont Analysis of BUACEMENT’s Return on Equity (ROE) indicates that the increased leverage made for a higher ROE (19.2% vs 16.7% in FY-2019) amid a marginal 1bps expansion in Net Margin (34.5%) and lower Asset Turnover (0.27x vs 0.37x in FY-2019). Relatedly, proceeds from the bond issuance reflected in BUACEMENT’s cash position (+694.4% to N123.8bn).

Outlook And Valuation

Overstretched valuation undermines growth potential For 2021E, we expect BUACEMENT to pick up from its strong FY-2020 debut, with volumes driving revenue, supported later in the year by its 3Mt plant in Sokoto, which is expected to be operational this year.

On costs, we struggle to see improvement in cost efficiency for the full year, given persistent inflation and BUACEMENT’s long-term gas contracts, which are highly susceptible to FX risk. The cement maker is also likely to maintain its marketing efforts to drive volumes, pressuring OPEX. Furthermore, we anticipate additional debt financing, beginning with the second tranche of its N200.0bn bond program, for the funding of its additional 9Mt capacity tabled for completion in 2023, and higher tax charges, due to pioneer status expiry on its OBU lines.

Accordingly, we expect higher financing costs and tax charges. Consequently, we expect a 15.5% increase in Revenue to N241.9bn, driven by a 10.1% volume growth to 5.6Mt. and a slight moderation in EBITDA margin to 46.0%. In all, we forecast a 8.9% y/y and 6.9% y/y growth in PBT and PAT, respectively to N85.9bn and N77.3bn. Additionally, we expect a BUA to maintain its dividend payout strategy and forecast a N2.2/s dividend for the fiscal year.

We acknowledge the cement maker’s growth potential by virtue of its expansion strategy, volume growth, headroom for price increases and healthy margins. However, we consider the ticker highly overvalued at current price. BUACEMENT trades at an EV/ EBITDA ratio of 26.1x (vs DANGCEM 8.5x and WAPCO’s 4.4x) and PE ratio of 34.9x, a massive premium over the domestic peer average (12.1x ex. BUACEMENT). Following our forecast updates and adjustments for the higher rate environment, we set a target price of N42.2/s and reiterate a SELL recommendation due to the 41.9% downside on the stock

Lafarge Africa Potential Room For Growth

WSTC Research
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Lafarge Africa Potential Room For Growth

Lafarge Africa Plc in its recently released FY 2020 financial result, reported an 8% YoY revenue growth from N212.99bn in FY 2019 to N230.57bn in FY 2020, driven by volume (+6%) and price (+3%) growth.

In our view, we believe that the low-yield environment that characterized the Nigerian financial markets resulted in a redirection of capital into alternative assets – of which the real estate was a beneficiary. Therefore, the increased levels of activities in that space possibly raised the demand for cement in 2020.

A combination of cost efficiency and optimization resulted in margin expansion, as Lafarge’s operating margins advanced by 400 basis points from 16% in FY 2019 to 20% in FY 2020. By implication, operating profit grew by 31% YoY from N34.91bn in FY 2019 to N45.67bn in FY 2020.

The sustained deleveraging efforts by the Company continued to yield positive results, which reflected in the 52% YoY decline in finance cost from N20.18bn in FY 2019 to N9.71bn in FY 2020. As of FY 2020, the Company’s total borrowings stood at N49.73bn, representing a 23% YoY decline from N64.21bn in FY 2019.

Finance income also declined by 63% YoY from N3.15bn in FY 2019 to N1.18bn in FY 2020. On a net basis, net finance cost lowered by 50% YoY from N17.02bn in FY 2019 to N8.53bn in FY 2020. Hence, the Company’s profit before tax grew significantly by 110% YoY from N17.89bn in FY 2019 to N37.57bn in FY 2020. Profit after tax grew by 99% YoY from N15.52bn in FY 2019 to N30.84bn in FY 2020, which effectively implies an increase in earnings per share from N0.96 in FY 2019 to N1.91 in FY 2020.

The Company maintained the N1.00 dividend it declared in FY 2019. Strong Cash Flow Generation Operating cash flow before working capital changes grew by 19% YoY from N65.77bn in FY 2019 to N77.95bn in FY 2020. However, operating cash flow, after working capital, lowered by 21% YoY from N81.30bn in FY 2019 to N63.74bn in FY 2020, majorly due to a N15bn prepayment for gas supply used in the production process.

Free cash flow declined by 6% YoY by N57.45bn from FY 2019 to N54.28bn in FY 2020. The slower decline in FCF, relative to operating cash flow, was due to a 58% YoY decline in capital expenditure in FY 2020.

We relate the Capex decline to the movement restrictions induced by the coronavirus pandemic. Free cash flow to equity (FCFE) improved from a N52.91bn negative amount to a N33.32bn positive amount.

Business Outlook

We expect to see a sustained revenue growth in FY 2021, on the back of volume growth. We note the significant nominal GDP growth in the cement sector over the last five years (35% CAGR), and we believe that the upside potentials for additional growth are present. Some of the industry fundamentals that could drive growth, in our view, include the persistent infrastructural deficit, rising trend in urbanisation, and population growth. Cement Manufacturing GDP Trend.

Lafarge Africa Potential Room For Growth-Brand Spur Nigeria
Lafarge Africa Potential Room For Growth-Brand Spur Nigeria

In the near to medium term, we expect to see continued increase in the Group’s products demand based on the industry fundamentals. We estimate a 9% YoY revenue growth in FY 2021, and a 23% YoY profit growth. The bottomline expansion is hinged on a sustained deleveraging by the Group, thereby resulting in an estimated reduction in finance cost in FY 2021.

In FY 2020, two of the Group’s major competitors announced a capacity expansion, to take advantage of the growing cement industry. In line with the trend, we expect to see a possible future expansion by the Group, to stay competitive and protect its market share. The expected capacity expansion could be a core value driver in the medium to long term.

Valuation

Using a blend of Discounted Cash Flow (DCF), Dividend Discounted Model (DDM), Residual Income Model (RIM), and Enterprise Value/EBITDA methodology; we estimate a N26.73 fair value for the stock. Our fair value estimate effectively implies an 11.37x justified P/E. At the forward P/E of 8.93x, the stock trades at a 27% discount to our fair value.

We forecast a N1.40 dividend for FY 2021, which translates to a 7% dividend yield. Based on the combined expected 34% total return, we maintain our BUY recommendation.

FBN Holdings FY-2020 Earnings Update: Lessons Learnt

United Capital Research
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FBN Holdings FY-2020 Earnings Update: Lessons Learnt

Earlier, FBN Holding Plc released its FY-2020 results, showing a 1.9% y/y decline in Gross Earnings (GE) to N590.4bn. Hesitant top-line growth was driven by weaker Interest income which fell 10.9% y/y to N384.8bn amid lower asset yields.

Interestingly, PBT and PAT continued to improve, up 11.2% y/y and 14.5% y/y to N83.7bn and N75.6bn, respectively.

Meanwhile, a N14.1bn Profit from discontinued operation, further bolstered bottom-line performance, bringing Profit for the year to N89.7bn. We review the financial performance and adjust our expectations for FY-2021 below.

Lower Funding Cost Fails To Offset Significant Pressure On Asset Yield

FBNH’s weaker Gross Earnings growth was dragged by decline in Interest Income, even as Non-Interest Income (NII) surged 26.7% y/y. Unsurprisingly, lower asset yield (at 9.4% as at FY-2020 vs 11.5% in FY2019), triggered by a dovish monetary policy environment in response to the pandemic resulted in a decrease in income from loans & advances, as well as investment securities during the period.

Again, although interest expense reduced significantly (settling at N133.2bn vs. N152.3bn) on the back of lower cost of funds across board, this was unable to compensate for the reduction in Interest Income. As such, Net Interest Income fell 10.0% y/y to N251.6bn. Accordingly, Cost of Fund (CoF) and Net Interest Margin (NIM) both slid to 2.3% (from 3.1% prior) and 6.1% (from 7.4% prior).

Notably, improvement in NII, up 26.7% to N174.7bn, was supported by Fees and Comm. Income as well as a surge in Trading gains from investment securities from N17.5bn in FY-2019 to N48.1bn in FY-2020.

This was traceable to trade-related transactions, credit charges, and letters of credit fees. Management had hinted that strong performance from its agency banking business supported non-interest income. Specifically, the bank reported that agent banking grew by over 100%, tallying at 86,000 agents across all local government areas in Nigeria, as well as expansion of the scheme to Ghana, DRC & Guinea.

Profit Profile Bolstered By Lower Impairment Losses

Interestingly, while loan loss expense had risen sharply as at H1-2020 to N30.7bn (vs N22.1bn in H1-2019), driven by translation impact of foreign currency loans and weak macro environment, audited FY-2020 result indicated that impairment losses reduced 1.0%y/y to N50.5bn. Thus, the cost of risk slid to 2.4% in FY-2020 from 2.6% in FY-2019.

According to the management, the impact of the COVID19 pandemic on loan losses was muted due to the benefit from the retooling of its risk management unit, a well-diversified loan book, and under-exposure to sectors most devastated by Covid-19. Notwithstanding the increase in general price level and FX devaluation, the Cost-to-Income ratio slowed to 68.6% (vs. 69.7% in 2019). Clearly, Operating income grew faster, up 2.1% y/y, relative to 0.5% y/y expansion in Operating expenses, mainly due to muted growth in staff cost which rose by 4.9% y/y.

Supported by surprisingly muted growth in loan losses and cost containment, PBT jumped 11.8% to N83.7bn.

Again, the Post-tax profit from continuing operations which improved by 14.5% y/y to N75.6bn was further enhanced by a N14.1bn gain on discontinued operations following the sales of 65.0% stake in FBN Insurance Ltd. during the period. As such, after-tax ROE and ROA settled at 12.6% and 1.3% (vs. 12.4% and 1.3% previously) respectively

Asset Quality Concerns Well Handled, Capital Buffers Enhanced

Net loans and advances rose 24.0% y/y to N3.2tn with credit origination traceable to trade finance activities and increased appetite in manufacturing, power, oil & gas, and general commerce.

Management insisted that exposure to sectors such as aviation and hospitality, which were affected the most by Covid-19, was limited. Accordingly, NPL ratio fell to 7.7% as legacy NPLs were contained to below 1.1%.

While improvement in asset quality appears unusual in a pandemic year, based on developments in other jurisdictions within the continent, our most convincing rationalization is that efforts by the bank to rebuild its balance sheet, after the 2015/2016 episode of asset quality deterioration, appears to have prepared the bank for the 2020 economic turmoil which was triggered by the pandemic.

Again, we recall that FBNH injected fresh Tier-1 capital into First Bank Ltd (the commercial banking division), to reinforce its capital positions during the year. This resulted in a 150bps increase in CAR of FBN Ltd to 17.0%. To achieve this, a 65% stake in FBN Insurance was divested.

Meanwhile, CAR for the merchant banking division surged from 17.7% to 26.6%. Clearly, this supports our view that the bank has not only learnt from its recent experience but has also become smarter in managing subsequent crises as a result.

Overall, the balance sheet position looks healthy amid a sustained increase in customer deposits, up 21.8% y/y to N4.9tn.

This puts net loans to deposits at 46.8%, suggesting that the bank is very liquid. Notably, to support its dollar liquidity, FBNH raised a Eurobond worth $350m in 2020.

Outlook And Valuation; Stellar NII And Improved Risk Management Framework Brightens Prospect:

We are of the view that the stellar non-interest income performance was supported by agent banking dominance, improvement in OPEX, and benefit from an improved risk management framework. More importantly, improved capital adequacy ratio, buoyed by divestment from the insurance business, looks good on the Bank, as it can better withstand the lingering impact of the Covid-19 pandemic.

As such, we expect pre-tax profit and post-tax profit to sustain an uptrend in 2021 amid a reversal in the yield environment which should bolster interest income. FBNH announced a final dividend of N0.45/share, translating to a dividend yield of 6.2%. Compared to EPS of N2.45/share, this implies a payout ratio of 18.0% relative to an average pay-out of 17.0% in the last 3 years.

As such, we expect pay-out in 2021 to maintain a similar trend. Notably, FBNH’s PB and PE ratios settled 0.3x and 3.5x compared to peer (tier-1) average 0.4x and 2.8x respectively.

As such, we place a HOLD rating on FBNH but revise our year-end TP to N7.13, due to increased risk-free rate as well as poor sentiment for riskier assets. Compared to the current price of N7.30/share this translates to a downside of –2.3%.

MoneyGram Advances Payments As A Service Offering With Sigue Partnership

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MoneyGram Advances Payments As A Service Offering With Sigue Partnership

MoneyGram has announced a partnership deal with Sigue Corporation, a leading U.S.-based transnational P2P and B2B payment company.

The partnership enables Sigue’s customer base to access MoneyGram’s domestic and international receive network, adding scale to Sigue’s existing global footprint.

“Over the last few years, we’ve built a modern, mobile, and API-driven organization that enables companies to seamlessly plug into our global network to provide expanded services for their customers, and we’re thrilled to announce our latest partner integration with Sigue,” said Alex Holmes, MoneyGram Chairman, and CEO.

“Opening our global platform to companies like Sigue enables us to increase payment volumes through our network and process additive transactions. MoneyGram has built an extremely valuable, tech-enabled, and scalable global payments infrastructure that can absorb significant volume at very low marginal cost.

“As other companies plug into our platform, we have the opportunity to create meaningful processing revenue in the years ahead, and I’m excited about the momentum in the market leading to a strong partnership pipeline.”

The MoneyGram and Sigue partnership is the most recent successful integration in the new MoneyGram as a Service business line. Partnerships such as this expand processing volume by enabling other financial institutions to access the Company’s global payout capabilities through its powerful API-driven infrastructure and best-in-class technology.

“We are very enthusiastic about our partnership with MoneyGram, as it allows us to scale further, quicker and keep our resources free to focus on creating the best money remittance experience in the business. It strengthens our market presence as the world’s leading privately owned remittance business and confirms our credentials as a leading technology innovator for the global money services industry,” said Guillermo de la Viña, Sigue CEO and Founder.

“This reaffirms our commitment to serving millions of families through our secure, reliable, and innovative services, with the dignity and respect our customers demand and deserve. The partnership further enables Sigue to better serve our customers by expanding our commitment to provide the value-added services that our customers and agent base expect, which is the cornerstone of our success.”

Saudi Aramco’s Profit Halved In Two Years, Market Cap $210B Below Apple’s

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Saudi Aramco’s Profit Halved In Two Years, Market Cap $210B Below Apple’s

Even before the pandemic, the oil and gas industry was faced with slumping prices. However, with a record collapse in oil demand amid the lockdowns, the COVID-19 crisis has further shaken the market, causing massive revenue and market cap drops for even the largest oil companies.

According to data presented by Finaria, the net income of the world’s biggest oil producer and one of the largest publicly listed companies, Saudi Aramco, dropped to $49bn in 2020, a 55% plunge in two years.

The COVID-19 Crisis And Oil Price War Cut Profits By Almost $40B In A Year

In preparation for its IPO, which took place in December 2019, Saudi Aramco had published 2018 profits. With a net income of $111.1bn, Saudi Arabia’s state-run oil giant ranked as the most profitable publicly listed company in the world.

Global macroeconomic concerns like the US-China trade war and the oil overproduction set significant price drops even before the coronavirus outbreak. In 2019, the company reported a profit of $88.2bn, a 20% drop year-over-year.

However, a standoff between Russia and Saudi Arabia in the first months of 2020 sent prices even lower and caused a massive hit for Saudi Aramco’s profits.

After global oil demand plunged in March, Saudi Arabia proposed a cut in oil production, but Russia refused to cooperate.

Saudi Arabia responded by increasing production and cutting prices. Shortly Russia followed by doing the same, causing an over 60% drop in crude oil prices at the beginning of 2020. Although OPEC and Russia agreed to cut oil production levels to stabilize prices a few weeks later, the COVID-19 crisis already hit.

In March, Saudi Aramco announced full-year figures for the second time since going public, and the results revealed huge financial losses. In 2020, Saudi Arabia’s state-run oil company reported a net income of $49bn, almost a $40bn drop in a year.

While Saudi Aramco was the most profitable publicly listed company globally in 2019, the current result puts the company behind Apple, which reported a net income of $57.4bn in 2020.

Saudi Aramco’s Market Cap $210B Below Apple’s

In December 2019, Saudi Arabia’s state-run oil giant completed its long-awaited IPO and hit a staggering $2 trillion valuation on the second day of trading, nearly one trillion higher than the world’s next-largest publicly listed companies Microsoft and Apple. The initial public offering was an essential part of Crown Prince Mohammed bin Salman’s Vision 2030 program to transform the Saudi economy.

However, Saudi Aramco’s stocks were outperformed by Apple in 2020. After plunging to $1.61trn in March last year, the market cap of the Dhahran-based company jumped to $2.15trn in September. By the end of the year, this figure slipped to $2.05trn. Statistics show that Saudi Aramco’s market cap floated around this value for the last three months and then dropped to $1.87trn in April after the company revealed the full-year results.

Although valued one trillion less than Saudi Aramco at the time of its IPO, the world’s largest tech company, Apple’s, has seen its market cap surge last year. In January 2020, the combined value of shares of the US tech giant stood close to $1.4trn. After plunging to $1.1trn in March, Apple’s market cap soared to over $2.3trn in December. Although this figure slipped to $2.08trn last week, it still represents almost a 90% increase in a year.

WeChat Brand Worth $68B, More than Three Major Chinese Banks

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WeChat Brand Worth $68B, More than Three Major Chinese Banks

WeChat, the leading social networking app in China and the fifth most widely used globally saw impressive growth amid the COVID-19 pandemic, both in revenue and the number of users.

WeChat value of Tencent Holding’s mobile messaging app also surged in the last year, launching WeChat among the strongest brands globally.

According to data presented by Stock Apps, WeChat brand value hit almost $68bn in 2021, more than three major Chinese banks.

The World’s Strongest Brand

WeChat or also called China’s “app for everything,” offers services from messaging and banking to taxi services and online shopping. During the pandemic, the app also helped keep track of those traveling or in quarantine, providing access to real-time data on COVID-19, online consultations, and self-diagnosis services powered by artificial intelligence to more than 300 million users.

This diversity of services offered to its users, especially amid the pandemic, helped the WeChat brand value surge by 25% YoY, revealed the 2021 Brand Finance’s Global 500 survey. With a valuation of $67.8bn, WeChat jumped nine spots on the ranking to enter the top 10 for the first time, behind giants like Apple, Amazon, Google, Walmart, or Facebook.

Also, the popular app ranked higher than the three major banks in China. In comparison, China Construction Bank hit a $59.6bn brand value this year, $8.3bn less than WeChat. Agricultural Bank of China and Bank of China also ranked below the popular messaging app, with $53.1bn and $48.6bn value, respectively.

The Brand Finance survey also revealed WeChat overtook Ferrari to become the world’s strongest brand with a top score of 95.4 out of 100 and an AAA+ brand strength rating. The relative strength of brands is measured through a balanced scorecard of metrics evaluating marketing investment, stakeholder equity and business performance.

Statistics show the Chinese mobile app is one of merely 11 brands in the ranking to have been awarded the elite AAA+ brand strength rating.

More than Hit 1.2 Billion Active Monthly Users

WeChat has lots of popular messaging app features, including Moments. A majority of WeChat users access WeChat Moments every time they open the app. Voice and text messaging, group messaging, payment and games are other examples of WeChat services.

Tencent’s 2020 financial results revealed the number of WeChat active accounts has been multiplying over the past years.

Between 2011 and 2015, the number of monthly active accounts surged from 2.8 million to nearly 700 million. In the first quarter of 2018, WeChat`s user base hit the one-billion benchmark, and the number just kept rising.

Statistics show the popular social networking app had over 1.2 billion monthly active users in the last quarter of 2020, ranking as the fifth most widely used social networking app globally.

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