Sub-Saharan Africa's Mobile Boom - 'Huge Opportunities'

Sub-Saharan Africa's mobile industry has been the fastest growing region in the world for mobile users in the past five years, according to a report published on Monday by the GSMA, the body representing mobile operators worldwide.
The region's mobile subscriber base has grown by 18% a year over the past five years to 253-million unique users and 502-million connections. GSMA forecasts in their report, "Sub-Saharan Africa Mobile Economy 2013", that mobile users in the region will be closer to 346-million within the next five years.
Despite the high figures, there is still ample room for growth. "With unique subscriber penetration rates still less than 33%, this opens up a major opportunities for growth in the next five years," the GSMA said.
At 65.7%, South Africa has the highest penetration rate, while Niger represents the lower end at 20%.

Economic effect
The mobile industry currently contributes more than 6% of Sub-Saharan Africa's gross domestic product (GDP) - higher than any other comparable region globally, according to the report. This contribution is expected to rise from $60-billion in 2012 to $119-billion, or more than 8% of GDP, by 2020.
Last year, the mobile ecosystem directly supported 3.3-million jobs and contributed $21-billion to public funding in the region, including licence fees, the study shows.
By 2020, mobile is set to double its economic effect, employing 6.6-million people in the region and contributing $42-billion to public funding.
Fixed-line penetration rates in many countries in the region are less than 5%. "Mobile has emerged as the main medium for accessing the internet across sub-Saharan Africa. While 2G connections still dominate, 3G and 4G networks are gaining scale and smartphone ownership is on the rise," the GSMA said.
"Despite the significant impact of the mobile industry in sub-Saharan Africa in recent years, even greater opportunities are ahead," said Tom Phillips, GSMA's chief regulatory officer. "Beyond further growth for voice services, the region is starting to see an explosion in the uptake of mobile data."
However, Phillips said, a short-term focus by some countries on generating high spectrum fees and maximising tax revenue risks "constrains the potential of the mobile internet".

Policy reform
The GSMA has called on countries to develop a more "transparent and enabling policy environment" to help realise the mobile sector's potential.
"Operators and investors need clarity to fund the substantial investment needed to extend coverage to remote areas and meet the growing demand for higher speed connectivity."
The report highlights three key areas that it believes most affect the growth of the mobile industry:
Managing spectrum allocation in a way that balances socioeconomic benefits with the costs needed to deploy advanced networks. The association urged regulators to use transparent and predictable processes for granting and renewing spectrum licences, which would allow operators to better plan their investments.
The importance of spectrum harmonisation in the region, including the need to accelerate the analogue to digital television switchover, which would free up spectrum for mobile and help boost economic growth.
"Broader economic analysis predicts that mobile broadband adoption would generate up to $197-billion in additional GDP in Sub-Saharan Africa between 2015 and 2020 and help fuel the creation of 16-million new jobs across a variety of sectors," the report said.
Taxation, including customs duties on handsets, is very high, retarding the take-up of new mobile services.
"Lowering taxation levels on the mobile sector would benefit consumers, businesses and government by lowering the cost of ownership, encouraging the take-up of new mobile services, improving productivity and boosting GDP and overall tax revenues in the longer term," the GSMA said.

Transformative effects
Mobile solutions are used to address a range of socio-economic challenges in Sub-Saharan Africa. According to the GSMA, there are almost 250 mobile health services in operation across the region. These support patients who may not have access to local healthcare services.
Many people who never had a bank account are now able to be financially active. According to the study, there are more than 100 active mobile money initiatives and 56.9-million registered mobile money users in the region.
Mobile solutions are also playing an increasingly important role in improving agricultural output, which generates around a third of the region's GDP and employs nearly two-thirds of the labour force.
"The mobile industry has already had a transformative effect on the social and economic life of sub-Saharan Africa, but there is scope for far greater growth and innovation, if the right conditions are established," said Phillips.
"In addressing key regulatory concerns, policy makers throughout the region have a major opportunity to unlock the potential of a dynamic and interconnected Africa."

Source: All Africa

Analyzing Investments With Solvency Ratios

Solvency ratios are primarily used to measure a company's ability to meet its long-term obligations. In general, a solvency ratio measures the size of a company's profitability and compares it to its obligations. By interpreting a solvency ratio, an analyst or investor can gain insight into how likely a company will be to continue meeting its debt obligations. A stronger or higher ratio indicates financial strength. In stark contrast, a lower ratio, or one on the weak side, could indicate financial struggles in the future.

A primary solvency ratio is usually calculated as follows and measures a firm's cash-based profitability as a percentage of its total long-term obligations:

After Tax Net Profit + Depreciation

Long-Term Liabilities

Commonly Used Solvency Ratios

Solvency ratios indicate a company's financial health in the context of its debt obligations. As you might imagine, there are a number of different ways to measure financial health.

Debt to equity is a fundamental indicator of the amount of leverage a firm is using. Debt generally refers to long-term debt, though cash not needed to run a firm’s operations could be netted out of total long-term debt to give a net debt figure. Equity refers to shareholders’ equity, or book value, which can be found on the balance sheet. Book value is a historical figure that would ideally be written up (or down) to its fair market value. But using what the company reports presents a quick and readily available figure to use for measurement.

Debt to assets is a closely related measure that also helps an analyst or investor measure leverage on the balance sheet. Since assets minus liabilities equals book value, using two or three of these items will provide a great level of insight into financial health.

More complicated solvency ratios include times interest earned, which is used to measure a company's ability to meet its debt obligations. It is calculated by taking a company's earnings before interest and taxes (EBIT) and dividing it by the total interest expense from long-term debt. It specifically measures how many times a company can cover its interest charges on a pretax basis. Interest coverage is another more general term used for this ratio.

Solvency Versus Liquidity Ratios

The solvency ratio measures a company's ability to meet its long-term obligations as the formula above indicates. Liquidity ratios measure short-term financial health. The current ratio and quick ratio measure a company's ability to cover short-term liabilities with liquid (maturities of a year or less) assets. These include cash and cash equivalents, marketable securities and accounts receivable. The short-term debt figures include payables or inventories that need to be paid for. Basically, solvency ratios look at long-term debt obligations while liquidity ratios look at working capital items on a firm’s balance sheet. In liquidity ratios, assets are part of the numerator and liabilities are in the denominator.

What Do These Ratios Tell an Investor?

Solvency ratios are different for different firms in different industries. For instance, food and beverage firms, as well as other consumer staples, can generally sustain higher debt loads given their profit levels are less susceptible to economic fluctuations. In stark contrast, cyclical firms must be more conservative because a recession can hamper their profitability and leave less cushion to cover debt repayments and related interest expenses during a downturn. Financial firms are subject to varying state and national regulations that stipulate solvency ratios. Falling below certain thresholds could bring the wrath of regulators and untimely requests to raise capital and shore up low ratios.

Acceptable solvency ratios vary from industry to industry, but as a general rule of thumb, a solvency ratio of greater than 20% is considered financially healthy. The lower a company's solvency ratio, the greater the probability that the company will default on its debt obligations. Looking at some of the ratios mentioned above, a debt-to-assets ratio above 50% could be cause for concern. A debt-to-equity ratio above 66% is cause for further investigation, especially for a firm that operates in a cyclical industry. A lower ratio is better when debt is in the numerator, and a higher ratio is better when assets are part of the numerator. Overall, a higher level of assets, or of profitability compared to debt, is a good thing.

Industry-Specific Examples

A July 2011 analysis of European insurance firms by consulting firm Bain highlights how solvency ratios affect firms and their ability to survive, how they put investors and customers at ease about their financial health and how the regulatory environment comes into play. The report details that the European Union is implementing more stringent solvency standards for insurance firms since the Great Recession. The rules are known as Solvency II and stipulate higher standards for property and casualty insurers, and life and health insurers. Bain concluded that Solvency II “exposes considerable weaknesses in the solvency ratios and risk-adjusted profitability of European insurers.” The key solvency ratio is assets to equity, which measures how well an insurer’s assets, including its cash and investments, are covered by solvency capital, which is a specialized book value measure that consists of capital readily available to be used in a downturn. For instance it might include assets, such as stocks and bonds, that can be sold quickly if financial conditions deteriorate rapidly as they did during the credit crisis.

A Brief Company Example

MetLife (NYSE:MET) is one of the largest life insurance firms in the world. A recent analysis as of October 2013 details MetLife's debt-to-equity ratio at 102%, or reported debt slightly above its shareholders’ equity, or book value, on the balance sheet. This is an average debt level compared to other firms in the industry, meaning roughly half of rivals have a higher ratio and the other half have a lower ratio. The ratio of total liabilities to total assets stands at 92.6%, which doesn’t compare as well to its debt-to-equity ratio because approximately two-thirds of the industry has a lower ratio. MetLife’s liquidity ratios are even worse and at the bottom of the industry when looking at its current ratio (1.5 times) and quick ratio (1.3 times). But this isn’t much of a concern given the firm has one of the largest balance sheets in the insurance industry and is generally able to fund its near-term obligations. Overall, from a solvency perspective, MetLife should easily be able to fund its long-term and short-term debts, as well as the interest payments on its debt.

Advantages and Disadvantages of Relying Solely on These Ratios

Solvency ratios are extremely useful in helping analyze a firm’s ability to meet its long-term obligations; but like most financial ratios, they must be used in the context of an overall company analysis. Investors need to look at overall investment appeal and decide whether a security is under or overvalued. Debt holders and regulators might be more interested in solvency analysis, but they still need to look at a firm’s overall financial profile, how fast it is growing and whether the firm is well-run overall.

Bottom Line

Credit analysts and regulators have a great interest in analyzing a firm’s solvency ratios. Other investors should use them as part of an overall toolkit to investigate a company and its investment prospects.

Source - Investopedia

The Basics Of The Bid-Ask Spread

You've probably heard the terms spread or bid and ask spread before, but you may not know what they mean or how they relate to the stock market. The bid-ask spread can affect the price at which a purchase or sale is made - and an investor's overall portfolio return. What this means is that if you want to dabble in the equities markets, you need to become familiar with this concept.

Supply and Demand
Investors must first understand the concept of supply and demand before learning the ins and outs of the spread. Supply refers to the volume or abundance of a particular item in the marketplace, such as the supply of stock for sale. Demand refers to an individual's willingness to pay a particular price for an item or stock.

Example - How Supply and Demand Work Together
Suppose that a one-of-a-kind diamond is found in the remote countryside of Africa by a miner. An investor hears about the find, phones the miner and offers to buy the diamond for $1 million. The miner says she wants a day or two to think about it. In the interim, newspapers and other investors come forward and show their interest. With other investors apparently interested in the diamond, the miner holds out for $1.1 million and rejects the $1 million offer. Now suppose two more potential buyers make themselves known and submit bids for $1.2 million and $1.3 million dollars, respectively. The new asking price of that diamond is going to go up.
The following day, a miner in Asia uncovers 10 more diamonds exactly like the one found by the miner in Africa. As a result, both the price and demand for the African diamond will drop precipitously because of the sudden abundance of the once-rare diamond. This example - and the concept of supply and demand - can be applied to stocks as well.

The Spread
The spread is the difference between the bid and asking prices for a particular security.

Example - The Bid-Ask Spread
Let's assume that Morgan Stanley Capital International (MSCI) wants to purchase 1,000 shares of XYZ stock at $10, and Merrill Lynch & Co. wants to sell 1,500 shares at $10.25. The spread is the difference between the asking price of $10.25 and the bid price $10, or 25 cents.
An individual investor looking at this spread would then know that if he wants to sell 1,000 shares, he could do so at $10 by selling to MSCI. Conversely, the same investor would know that he could purchase 1,500 shares from Merrill Lynch at $10.25.

The size of the spread and price of the stock are determined by supply and demand. The more individual investors or companies that want to buy, the more bids there will be; more sellers results in more offers or asks.

On the New York Stock Exchange (NYSE), a buyer and seller may be matched by computer. However, in some instances, a specialist who handles the stock in question will match buyers and sellers on the exchange floor. In the absence of buyers and sellers, this person will also post bids or offers for the stock to maintain an orderly market.

On the Nasdaq, a market maker will use a computer system to post bids and offers, and essentially plays the same role as a specialist. However, there is no physical floor. All orders are marked electronically.

It is important to note that when a firm posts a top bid or ask and is hit by an order, it must abide by its posting. In other words, in the example above, if MSCI posts the highest bid for 1,000 shares of stock and a seller places an order to sell 1,000 shares to the company, MSCI must honor its bid. The same is true for ask prices.
Types of Orders
An individual can place five types of orders with a specialist or market maker:

1. Market Order - A market order can be filled at the market or prevailing price. By using the example above, if the buyer were to place an order to buy 1,500 shares, the buyer would receive 1,500 shares at the asking price of $10.25. If he or she placed a market order for 2,000 shares, the buyer would get 1,500 shares at $10.25 and 500 shares at the next best offer price, which might be higher than $10.25.

2. Limit Order - An individual places a limit order to sell or buy a certain amount of stock at a given price or better. Using the above spread example, an individual might place a limit order to sell 2,000 shares at $10. Upon placing such an order, the individual would immediately sell 1,000 shares at the existing offer of $10. Then, he or she might have to wait until another buyer comes along and bids $10 or better to fill the balance of the order. Again, the balance of the stock will not be sold unless the shares trade at $10 or above. If the stock stays below $10 a share, the seller might never be able to unload the stock.

3. Day Order - A day order is only good for that trading day. If it is not filled that day, the order is canceled.

4. Fill or Kill (FOK) - An FOK order must be filled immediately and in its entirety or not at all. For example, if a person were to put an FOK order in to sell 2,000 shares at $10, a buyer would take in all 2,000 shares at that price immediately, or refuse the order, in which case it would be canceled.

5. Stop Order - A stop order goes to work when the stock passes a certain level. For example, suppose an investor wants to sell 1,000 shares of XYZ stock if it trades down to $9. In this case, the investor might place a stop order at $9 so that when it does trade to that level, the order becomes effective as a market order. To be clear, it does not guarantee that the order will be executed at $9. However, it does guarantee that the stock will be sold. If sellers are abundant, the price at which the order is executed might be much lower than $9.

Bottom Line
The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders. By executing a market order without concern for the bid-ask and without insisting on a limit, traders are essentially confirming another trader's bid, creating a return for that trader.

Source: Investopedia