Nigerians: Tiger Brands is being mauled in Nigeria, and shareholders are seething because “management does not seem to have plans” to deal with this.

The share price of the maker of Black Cat peanut butter and Jungle Oats plunged 5.24% after it said this week that it would take longer than the expected 12 months for its Nigerian business to be profitable.

Shareholder activist Theo Botha has labeled the acquisition of 64% of Dangote Flour Mills (DFM) a “disaster”.

Shareholder value in DFM almost halved in the December quarter as the company appears to be operating through its reserves and borrowings. Its share price fell 17% in the year to date on the Nigerian Stock Exchange.

Botha questioned whether proper due diligence was conducted before DFM was bought. “Somebody did not assess the risks here [in DFM)]” he fumed. Tiger Brands’s quarterly trading updates offered no solutions for the problems facing its Nigerian subsidiary, he said.

Last year, CEO Peter Matlare said it would take two years for DFM to be profitable. He changed his tune on Tuesday, saying: “2017 is when we will be getting to that kind of decent performance in profitability.”

DFM posted an operating loss of R282-million in Nigeria for the year to September 2014.

 

Now shareholders such as Botha are wondering where Tiger Brands’s pain threshold is. He said: “Where does the board draw the line in terms of pain?”

Matlare told analysts that the factors affecting the Nigerian business were the naira’s 40% devaluation, the oil price plunge, and Boko Haram attacks.

Botha said the group needed to recapitalize the unit, which Matlare conceded was correct. Botha said Tiger Brands’s actions “defy logic” after the company invested R1.5-billion and lost about R600-million.

Botha calculated that Tiger Brands would need another R1.7-billion to recapitalize DFM.

DFM’s current liabilities exceed current assets by 19-billion naira (R1.1-billion). In the year, DFM’s fixed assets fell 11.4% and cash and bank balances shrank 60.3% while short-term loans rose by 48.5%.

Botha’s argument was backed by Alex Ibhade, a research analyst at Dunn Loren Merrifield in Nigeria, who said negative working capital signaled the need for a capital injection to drive daily operations.

Tiger Brands’s venture into Nigeria brings to mind Telkom’s failed attempt to enter the country that caused R7-billion losses.

Botha said Tiger Brands might be in the same position as Telkom was in 2011, saying DFM’s balance sheet was in tatters.

Ibhade said DFM appeared to have a “long road ahead” to reach the revenue and profit levels attained in 2009.