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Market/Economic Insight: The weekly brief ( August 13th – 17th 2018)

The performance of the Nigerian Equity Market remained bearish last week with the index (NSE ASI) down by 0.51%

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Nigerian Equity Market

The performance of the Nigerian Equity Market remained bearish last week with the index (NSE ASI) down by 0.51% WTD to close at an index level of 35,266.29 and Market capitalization at N12.88 trillion.

The sectoral performance was negative as bearish sentiments were witnessed in all sectors with the exception of Industrial Goods sector that rose by 1.29% owing to price increase in DANGCEM by 2.80%. The Banking sector recorded the highest decline amongst NSE indices with the NSE Banking Index down by 3.80% WTD, owing to significant price depreciation in UBA (-11.64%) and ZENITHBNK (-3.18%).

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The market activities were characterised by profit taking on 4 out of 5 trading sessions last week. Despite an improved m acroeconomic environment, investor remained sceptical about the equities market as the nation approaches election period.

In the global space, equities market witnessed a mixed sentiment last week as investors focused on trade wars between US and China and as the currency crisis in Turkey triggered more sell off of assets in emerging economies. The US Dow Jones fell by 1.41% to close at 25,669.32, while the China CSI 300 fell by 4.67% to close at 3229.62.

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Stock Watch

Over the last five trading sessions:

SEPLAT (Seplat Petroleum Dev. Company) remained unchanged to close at N650.00.

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Recommendation: We place a hold rating on this stock.

Patricia

 

FBNH (First Bank of Nigeria Holdings) fell by 2.08% to close at N9.80.

Recommendation: We place a buy rating on this stock.

 

GUARANTY (Guaranty Trust Bank) fell by 2.56% to close at N38.00.

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Recommendation: We maintain a buy rating on this stock.


Contact Anchoria Asset Management Limited for more information

Email: research@anchoriaam.com

www.anchoriaam.com

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The Wisdom behind Jaiz Bank

Not only have these business magnates from the northern part of the country created something of an oligarchy, they also obtained the backing of Saudi Arabia’s Islamic Development Bank.

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The idea of taking out loans without interest rates as the future of banking might still sound as foreign as flying cars to many, but it is already in motion.

Currently, there are over 300 Islamic banks in over 51 countries, including the United States. In Nigeria, Jaiz bank stands at the forefront of this revolution. The bank was created out of the former Jaiz International Plc, which was set up in 2003/2004 as a Special Purpose Vehicle (SPV) to establish Nigeria’s first full-fledged Non-Interest Bank.  

Jaiz and its unconventional Banking methods 

With Islamic banking, there are two main peculiarities and none of them confer a bias on only members of the religion. The first is the sharing of profit and loss, and the other is the prohibition of the collection of interest as stipulated in Islamic law – otherwise regarded asriba.”

Both concepts feed off each other in that to augment the lack of interest gains, equity participation is employed. In other words, the borrowing business will pay back the loan without interest and also give the bank a share of its profits.  

Jaiz bank is the first non-interest (Islamic) bank operating in Nigeria. Being that Islamic banking is grounded in Sharia or Islamic principles and morals, the financial institution does not support businesses that could impact the society negatively.

So even as it finances business, and shares their risks and profits accordingly, it does not partner with businesses involved in betting, alcohol, and so on. Needless to say, their methods have served them well.

From being founded in 2003, to 2011 when it received a license from the CBN to operate as a regional bank, to its official commencement as Jaiz Bank Plc in 2012, the institution has expanded its services exponentially.

Today, the company is owned by over 26,000 shareholders who are spread over Nigeria’s six geopolitical zones and its balance sheet has grown from N12 billion in 2012 to about N62 billion, with asset financing of over N30 billion. The bank operates 27 branches and has a full service range of offerings.

The force behind  

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Behind the bank’s recorded success is a strong shareholder base, spread across one foreign shareholder, 108 Institutional, 220 Corporate, 26,157 Individuals, 156 Joint, 6 States and 106 Local Government shareholders.

However, seven major shareholders control a total of about 65% of the total share capital of the bank. They include: Dantata Aminu Alhassan having 5.24%, Altani Investment Limited with 7.47%, Dangote Industries Ltd wit 8.48%, Islamic Development Bank (IDB) with 8.50%, Indimi Muhammad with 9.28%, Dantata Inv’t & Sec. Ltd with 12.49%, and, former minister, Mutallab Umaru Abdul with the highest stake of 13.50%.  

Not only have these business magnates from the northern part of the country created something of an oligarchy, they also obtained the backing of Saudi Arabia’s Islamic Development Bank.

Whether or not the oligopoly poses a threat to the corporate governance and decision-making power of the rest of the bank’s shareholders is a question that can only be answered based on the happenings that arise. 

The Managing Director of the bank, Hassan Usman, had however noted that “fundamental to the vision and mission of Jaiz Bank is to create wealth for MSMEs.” He also assured all that the bank is set to ensure maximum benefits is attained by all stakeholders. 

Performance and Investment Outlook 

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The company has done well in building up funding to keep its operations afloat especially given its style of banking. Just last year, it had secured a N3 billion financing facility from the Bank of Industry (BOI) to boost and develop their operations and give zero-interest loans to Micro, Small and Medium Enterprises (MSMEs) within the country.

The company’s performance has also been noteworthy. In 2019, the company declared a profit after tax of N1.79 billion which was a 114% growth as compared to the N834.36 million recorded at the end of 2018.

The company is on a growth trajectory; currently, with its low share price of N0.66 on a 52 week average of 0.34 and 0.82, it is a convenient buy.

With a price-to-earnings ratio of 9.27, it shows good signs of growth. Its model might just be the thing to spur economic growth as its result-based gains will not just increase the income of the bank but also aid the growth of small businesses within the nation. 

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Naira gains against the dollar at I&E window, as forex liquidity goes up by 358%

The performance of the naira at the I&E window, however, seems to contrast with that at the parallel market where the local currency lost N3 to a dollar as it depreciated to N450 to a dollar on Friday.

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Central Bank Continues intervention in Forex market to stabilize Naira, Naira to depreciate slightly over $1.52 billion maturing contracts expires, Naira hits N388.84 to $1 at the currency spot market, Investors and Exporters (I&E) window, Naira weakens against the dollar by 1.14% amidst uncertainty

The naira has appreciated to N386.50 to a dollar at the Investors and Exporters (I&E) window, despite the uncertainty of the foreign exchange market. The local currency was strengthened by N0.20 against the dollar, when compared to the N386.70 to a dollar that it traded on Thursday, June 4, 2020. 

The exchange rate at the I&E window is different from the Central Bank of Nigeria’s published exchange rate, which currently stands at N360/$1. This is also different from the exchange rate at the parallel market, which depreciated to N450 to a dollar, according to information on AbokiFX as of Friday, June 5, 2020. 

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Available information from the daily trading at FMDQ (where FX is traded by importers and investors) shows that the naira improved against the dollar by N1.25, closing at N386.50 to a dollar, as against the indicative rate of N387.75 to a dollar that it opened with on Friday. 

READ ALSO: Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira

A cursory look at the data from the FMDQ shows that the turnover for the day went up by about 358% at $112.89 million. This is against the $24.64 million turnovers that was recorded on Wednesday, June 3. 

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The performance of the naira at the I&E window, however, seems to contrast with that at the parallel market where the local currency lost N3 to a dollar as it depreciated to N450 to a dollar on Friday as against the previous day’s rate of N447 to a dollar. 

The Central Bank of Nigeria had promised to provide more liquidity in the foreign exchange market, especially for genuine users while also discouraging currency speculators from heating up the market. 

The apex bank yesterday debited the accounts of 25 commercial banks with the sum of N460 billion naira ($1.2 billion) as additional cash reserves for missing cash reserve ratio (CRR). Apart from serving as penalty to the banks, this also reduces the excess cash in the money market which might be used to put further pressure on the foreign exchange market. 

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Markets

OPEC+ agrees to output cuts extension, as crude oil prices hit over $42 per barrel

The group has agreed to maintain its current output cut of 9.7 million barrels per day till the end of July as against the 7.7 million barrels per day that was initially planned. 

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OPEC+ Alliance, US, Russia, Canada, Mexico reach historic deal to cut 13.4 million bpd, Oil market still uncertain over the OPEC+ deal as prices react positively, 7 oil producing countries most affected by covid-19, see where Nigeria is placed

The Organization of Petroleum Exporting Countries and its allies (OPEC+) has agreed to extend its current record output cuts by another one month, to further support the oil price recovery. The current output cut, which is to terminate at the end of June, is part of the measures taken by the cartel to help rebalance the oil market. 

The agreement to this deal by all member countries, precedes today’s meeting of the alliance, which is currently underway through a video conference. The group has agreed to maintain its current output cut of 9.7 million barrels per day till the end of July as against the 7.7 million barrels per day that was initially planned. 

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This is a victory for Saudi Arabia and Russia, who have been trying to persuade other members of the alliance to implement these cuts. 

READ ALSO: OPEC+ DEAL: How much Nigeria will contribute to the oil cuts

The Algerian Oil Minister, who is also the President of OPEC, praised the efforts of Saudi Arabia, United Arab Emirates, Kuwait and Oman for offering voluntary additional cuts for the month of June amounting to a total of 1.2 million barrels per day. He said that by the first half of 2020, oil stocks are expected to increase by an unprecedented 1.5 billion barrels. 

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Nigeria had, a few hours earlier, reconfirmed its commitment under the existing agreement of 9.7 million barrels per day output cut. It had also committed to making additional oil output cuts from July to September to compensate for producing more than its quota in May and June. This was confirmed in a tweet post from the Federal Ministry of Petroleum Resources on its official twitter handle. 

Meanwhile, the news of the agreement had made positive impact on crude oil prices. 

The Brent crude went up by more than 5%, selling for $42.30 per barrel on Saturday morning. This is the highest in about 3 months. The American WTI crude went up by more than 5% to close at $39.55 per barrel, while the Nigerian Bonny light crude went up by 2.90% to sell for $41.17 per barrel, the highest in 5 months. 

Apart from Nigeria, other traditional laggards on OPEC+ output cuts have promised a couple of times to do better this time around, although some analysts are skeptical about this.  

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