Welcome to our Word On The Street Newsletter. This newsletter takes you behind the curtains and into some of the major talking points, snippets, back stories and behind-the-scenes intelligence that affect the value of your position in the stock market. Do well to sign-up for our mailing list to get more exciting Newsletters.
If you have a stake, invest, or plan to invest on the Nigerian Stock Exchange, NASD, and like scoops, then this newsletter is for you. We send this out to our subscribers every Sunday, on or before 2 pm.
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On Custom Street
The Nigerian All-Share Index closed the week on a negative note, shedding 0.29%. Stocks are now 4.3% down in June, 2.6% up in the last 6 months, and 15.8% up from a year ago.
Somehow, you get the feeling that we are gradually hitting the bottom in the foreign investor induced sell-off that has gripped the market in the last 10 weeks. Stocks are beginning to appear cheap again, and as we approach the end of another quarter, next week is looking like the best period to double down on bargain hunting for cheap stocks.
No love for Lafarge
We read two interesting reports last week that seem to condemn Lafarge to the laundry bin of stocks you probably need to dispose of. According to an ARM Research published on Nairametrics, the stock was downgraded to a sell and Lafarge was valued at N34 despite commentary about an “improvement in fundamentals, mainly from higher volumes, energy savings and lower finance cost.” According to ARM, the reason for the downgrade was due to its excessive valuation.
Stanbic, just like ARM, believes that Lafarge’s fundamentals are not bad and forecast an increase in volume during the year. However, they are worried about their huge debts and attendant interest costs, giving them enough reason to assign a sell rating to the stock. Stanbic believes that Lafarge should be sold at N43. The stock closed the week at N39; it last traded within the N43 range back in April.
A report on Bloomberg during the week quoted analysts from Templeton (a major emerging market investment company) revealing that they were positive about keeping their investments in emerging markets like Nigeria. According to Templeton, the investors believe that higher oil prices will help keep the exchange rate stable, despite other emerging market currencies taking a beating as investors desert. For most foreign investors, exchange rate remains their major concern and so long as there is risk that it could depreciate, they will continue to toy with our market.
So, for this market to continue to attract hot money (Foreign Portfolio Investments), oil prices need to climb, or at least remain stable, while the CBN demonstrates the capability to defend the naira. You shouldn’t, therefore, be surprised when the CBN Governor occasionally grants interviews thumping up his determination to keep liquidity flowing in the Investor Exporter window, while warning banks and BDCs to ensure that they don’t drive up the price by engaging in hoarding and round-tripping.
Penny stocks have plenty of issues and it is petrifying to think that maybe the managers of these companies don’t think that someone is watching them. Take the case of Prestige Assurance Plc. Just a few weeks back, they announced that they were planning a share reconstruction.
They eventually got their wish and had the stock formerly placed on full suspension from Wednesday, 23 May 2018 to Wednesday, 6 June 2018, to enable the Registrars to update the register of members. To our profound surprise, the company issued a press release on the website of the Nigerian Stock Exchange informing it that it was planning an AGM among which they will discuss a possible bonus issue!!
Just in case you are new to stocks, a share reconstruction involves a reduction in the number of shares which a company has. They often do this, either because they believe the shares outstanding is too much and expensive to manage, or wish to theoretically boost their share price by reducing the number of shares outstanding. It is therefore shocking that the company will be considering to issue bonus shares which inadvertently means they will be bloating their share register yet again.
An Exit and some trades in the “family”
Last week, the erudite CEO of United Capital, Toyin Sanni announced that she was resigning from the company. Madam Toyin is well respected in the industry and is one of the CEOs we admire quite much at Nairametrics. Word on the street suggests that she is going into her own private business and could be launching something big quite soon.
Just as she was announcing her exit, we noticed large trades in United Capital and Afri Prudential Stocks. We reached out to a few of our contacts to decipher what was going on and if there was a reason to panic. From what we gathered, a majority shareholder (I am guessing you know who by now) in both companies was “moving things around” their portfolio being part of a strategic business decision. It’s basically Mr/Mrs. A moving shares in their SPV1 to SPV 2.
As we await the big MTN IPO, word on the street suggests that they are looking to raise about $500 million. Probably not true considering that they are currently raising about $741 million. No date has been fixed yet for this IPO but it appears that it could take place sometime in late July/Early August.
We also gather that they could be looking to place about 30% of their shares as free float, which is a welcome liquidity for our very shallow stock market. MTN has also been equipping its Investor Relations Unit ahead of this Nigerian IPO and we hear that they are determined to make this a massive success.
Computer Warehouse Group, one of the few tech companies listed on the Nigerian Stock Exchange, announced last week that it had been selected as one of the Meter Asset Providers by the Nigerian Electricity Regulatory Commission (NERC). Being a MAP means that CWG can now finance, procure, install, repair and even replace electricity meters.
According to CWG, it “initiated and designed a ‘Smart Metering Solution’ which works in the form of a connected mobile app for electricity consumers – both the Maximum Demand Customers (MDCs) and the Non-maximum Demand Customers (NDCs).”
CWG claims that its solution can help “power Distribution Companies to detect power theft, monitor and measure usage for improved power efficiencies.” Energy theft costs power companies over N12 billion monthly, by our estimates.
While all of this sounds good and points to a potential revenue stream for the company, word on the street suggests that CWG does not have the capital to execute this task (well, at least currently). With less than N300 million in the bank (as at 2018 Q1) and a net asset of just N1.5 billion, one wonders how they will seize this opportunity.
Perhaps they might turn to bank lending, seeing as they do not have external loans on their balance sheet. It is also interesting to note that CWG Software Business was worth just N781 million in 2017, down from N1.4 billion in 2016. The company makes nearly half its N10 billion in revenue from its Managed Support Business were it helps companies with service maintenance and outsourcing.
World Cup and Stocks
Ever wondered how Nigerian stocks perform during World Cups? Our research team looked at how stocks performed at the end of the world cup with focus on the month of July of every world cup year. Here is what we found out.wpDataChart with provided ID not found!
To think that Nigeria missed out on the 2006 World Cup.