South African owned Insurance Giant Old Mutual has sold its stake in Nigerian-listed Ecobank Transnational Ltd. to close its Fund III according to reports from Bloomberg. Nedbank, controlled by the insurer, holds about 20 percent of Ecobank.
Whilst this may not be a sign of an imminent risk in holding Ecobank shares we are a bit concerned about the reasons given for their exit from Ecobank. Bloomberg quotes a fund manager with the company Jacci Myburgh as saying;
“We saw the bank had re-rated a little bit over the past while and we’re not sure there’s much more to come from that in the short term,…….There are issues around Nigeria with the oil price and the currency as well.”
In our view, this sends three critical messages to investors.
- Firstly, the company is not in Ecobank for the long haul as it is basically abandoning the bank due to short term risk which may or may not be within the bank’s control. The global economy is going through elongated slowdowns with global growth expected to drop this year.
- The second message here for investors is that they probably do not expect much from Ecobank in terms of capital appreciation and dividend yield.
- Thirdly, they do not see much respite for the country’s revenue position with the price of oil continuing to be bearish as the year draws to an end. Oil is still a critical driver of growth in the Nigerian economy even though its contribution to GDP has been dropping over the last few quarters.
- Fourthly, they are obviously not happy with the exchange rate situation. Just as many other investors, the controversial CBN forex policy and the attendant effect on identifying the true value of the naira is a risk most FPIs will not bear.
Ecobank is currently priced at about N18.35 had has had a flat return year to date. Price earnings ratio of 5.26 is slightly above industry average. Ecobank was embroiled in the board squabble last year after its former CEO was fired in response to him firing a whistle blowing director.