Welcome to Follow The Money; a weekly review and preview of the Nigerian Investment space. We focus on the key issues in the Nigerian Economy and as it affects the Stock and Money Market in Nigeria.
ONE – Why are they selling?
What’s an earnings season without the FUGAZ? ICYDK, that stands for First Bank, UBA, GT Bank, Access Bank and Zenith Bank. Also known as Tier 1 banks, they dominate the banking sector in Nigeria. Despite impressive results from Zenith Bank and GT Bank, the market was having none of it. Zenith Bank, for example, lost 10.6% while GT Bank closed the week 5.87% lower. I got messages from some people struggling to understand what must have happened? Why are they selling they inquired? For those of us used to the Nigerian Stock Market and its irrationality, it is nothing new. This Market hardly reacts to fundamentals even if they are fantabulous.
For these banks, the impressive results have been priced in. Very few expected anything less! Some felt perhaps it was the dividends. Zenith’s N2.45 dividend gives it a dividend yield of 8% at the week’s opening price of 8%. GT Bank was even worse with its N2.4 dividend yielding just 5%. This is still within their historical averages. My take is to watch what happens as Access Bank and UBA results roll in. I’d stick to my GTB and Zenith if I owned them. Their PE ratios are still below 10x and even though there is a limited upside for another double-digit gain, it still helps balance portfolios.
TWO – of The Best
Stanbic and NASCON are one of the best performers this year thus far, but the market sent them messages. As NASCON topped its impressive results with a dividend announcement of N1.50., the market also reacted negatively as the share price tumbled 15.4% to N20.2. So what happened? The dividend of N1.5 suggests an indicative yield of 6.5%. Not bad for a company that has no debts and continues to post profits year on year. Perhaps at a Price Earnings of over 10x, NASCON was due a correction.
But Stanbic proved resilient and closed 3% higher. Reason? Look down South! The South Africans who own the majority of its shares are doubling down on their investments and are seemingly impressed with their 2017 performance. That paltry 50 kobo dividend is not going to deter them just yet. And yes, FRCN can shove up their…
THREE – A common problem
So guess who topped the losers chart last week? Yes, you guessed right, it was Japaul. After gaining over 100% this month, it lost 30.9% of its value to become the worst gainer this week. Another big loser this week was Unity Bank. The bank lost 21.5% of its value as investors sold off. The stock has now lost 9 out of 12 trading sessions this March and it’s taken just under 4 million units to shake things off.
Unity Bank and Japaul have two similarities in that investor appetite for the stock seem connected with to Milost Global, the US-based company that has been promised to invest billions of hundred’s of millions of dollars in these companies. But it appears a Businessday article last week must have panicked investors who now have reasons to doubt Milost.
FOUR – Price Joy, rate woe
Last week, the National Bureau of Statistics released Inflation Numbers and we were happy to see that inflation rate has dropped to 14.33%. Still far from single digit but a sign that the economy is perhaps getting better, at least for now. But there is an implication to lower inflation rates.
Rates on Treasury bills are only bound to fall further down and last week’s auction was another clear indication of where rates are headed. Last week 91 days went for 11.75%, 182 days 13% and 364 days 13.18%. As inflation rate drops, expect treasury bills rates to drop.
Implication? This could augur well for the stock market as investors will seek for the next best Alpha. But it’s important to note that Corporate Bonds is also a valid competitor to stocks. Most of the major corporates are looking in that direction.
FIVE – Baren Macros, More Earnings
We don’t expect to see much in terms of data on the Macro-economic front. Most of the major data has been released by the National Bureau of Statistics and we can only wait again until next quarter for anything major. But we are expecting more results this week and Access Bank and UBA should be released this week. Access Bank results could drop on the 22nd while UBA could drop the next day.
I don’t expect any major upsides for the two stocks but my money is on Access Bank for upsides in the next few months. Let’s hope they don’t disappoint with dividends. Oh yes, Dangote Cement and Dangote Sugar could also drop this week.
SIX – Oando is up to something
So I got a scoop that Oando has secured the services of Ensco Plc one of the largest Drilling firms in the world. The company is going to deploy a state of the art floating Rig in Nigeria and which cost a whopping $1 million per day to hire. Don’t worry, we understand Oando will not be paying for it.
From what I understand, Ensco and Oando Energy Services jointly own Ocean Deep Drilling ESV Nigeria Limited (“ODENL”) and will be using the vehicle for drilling services in Nigeria. As Oando’s partner, Ensco has access into some of the most productive oil wells in Africa and the world, while Oando leverages on their expertise and technology to improve their earnings. What does it mean for Oando share price? Not much!
SEVEN – What to buy
NEM was a good buy and it’s looking like I should have bought more. Another Insurance Stock on my watchlist is Custodian and Allied Insurance. Why them? They are the most diversified quoted insurance stock and have a shot at making me proud. Presco remains on the watchlist while Dangote Sugar is getting a look in. Access Bank is also on my buy list despite the lack of interest in recent weeks. The market reacts slowly sometimes.
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