Coronation Capital harps on investors’ trust to attract investment

Coronation Capital, a Private Equity Fund manager has called on corporate organizations to build transparency and investors’ trust in order to attract investment.

Specifically, the firm stated that liquidity can dry up in countries like Nigeria when the investors lose trust, adding that it is best to build transparency and Nigerian companies that are transparent are priced much better than opaque companies.

Speaking at the just concluded 2nd Coronation Capital Corporate Finance & Business Valuation Masterclass, Professor Aswath Damodaran of the Stern School of Business, New York University noted that when valuing companies in emerging markets, companies should be assessed not only from the perspective of the jurisdiction of their incorporation but also where the business of the company is conducted.

In addition, valuers should not get caught up in domestic risk factors and parameters which may be overly dismal but should always confirm the business and sector risk.

The Masterclass was conceived as an opportunity to share deep insights on business valuation with stakeholders and promote improved participation and capacity building in Nigeria’s capital markets.

It was scheduled and held as virtual three-hour sessions taking place over four days between 3pm and 6pm on July 20-21 and July 28-29. There was also an engaging fireside chat between Wole Famurewa, the CNBC Regional Anchor and Professor Damodaran.

On possible distinction in valuation methods applied in Nigeria, Professor Damodaran confirmed that the method of valuing companies is the same globally, however, some Nigerian companies are opaque in that relevant information is often withheld.

“Transparency is very important for financial markets. If there is no transparency, there is less liquidity. Lack of transparency and family control of companies is a recipe for individual investors exit as can be seen in the Middle East,” he said.

In response to a question on changes in the investment world after 40 years, Professor Damodaran stated that the investment world is now much flatter resulting in more similarities than differences in output as the same tools are available to everyone in the world for a fee.

“Passive investors have taken market share from mutual funds resulting in pressure on money managers to justify management fees; and Corporations have also witnessed some change as in the past, the local markets were protected but with globalization, corporations are exposed,” Damodaran stated.

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For instance, fewer companies can count on earnings as a measure of corporate health and are therefore reluctant to pay dividends and prefer buybacks as a more flexible way to return cash to shareholders.

There are no changes with valuation he added, however, as the intention is always to get a view on the present value of future cashflow. Another change in the investment world is the belief that things can be done the same way over the years with different results, Damodaran said.

The world is now too dynamic for the things to be done the same way for different, better results he stated, adding that a dynamic, analytical, forward-looking means of execution is now required.

Interestingly, Professor Damodaran said that market “bubbles” are a common, necessary feature of markets and are corrections that change the way we do things. In fact, every forward movement for mankind comes from people overreaching, pushing the margins on what can be done.

Professor Damodaran shared his perception that accountants are incorrect to consider a balance sheet as a true reflection of the worth of a business as a balance sheet is actually a reflection of the past in view of the nature of modern companies such as Jumia for instance.

He stated that a balance sheet is backward looking and static while valuation is forward looking and dynamic.

“Accounting earnings are used as a basis for valuation but the mis-categorisation of values should always be noted. His view is that accounting was designed for old time manufacturing companies with assets in their books. Accounting is not ideal for modern technology companies without visible, tangible assets,” he stated.

In response to the question on strategies for building human capital, Professor Damodaran encouraged Coronation Capital to create and maintain a culture of learning by not punishing staff for outcomes as long as the right processes are followed.

Where outcomes are celebrated and not processes, the learning process is undercut as staff focus more on the outcome and less on the process.

Managing Partner at Coronation Capital, Mr. John Opubor who leads deal sourcing and deal execution across Financial Services, Technology and Consumer Goods & Services gave the closing remarks at the fireside chat. He discussed highpoints from chat including the need to return to fundamentals and keep and maintain perspective and faith.

Opubor has acted as a principal or advisor on a broad array of transactions in Africa, the Americas, Europe and Asia.

Ahead of the Masterclass, pre-reading materials were provided for background and general insight into sessions to be held at the Masterclass. Some of the pre-reading materials included: Fear or Fundamentals?; Pricing or Value? Trading or Investing?; Investing for a post-virus Economy; Back to Basics!; and a Corporate Life Cycle Perspective.

The Masterclass was well attended with up to 350 representatives from all spheres of the financial services industry in Nigeria including: regulators and other stakeholders.

Adedeji Olowe, the Chief Executive Officer (CEO), Trium Networks made brief introductory remarks at the beginning of the session. Professor Damodaran discussed the assessment and pending questions from participants. Thereafter, Professor Damodaran took participants into a deep dive of loose ends in valuation.

To end one of the sessions, Aigbovbioise Aig-Imoukhuede, CEO, Coronation Asset Management made brief closing remarks and thanked participants for their time.

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