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Will NASCON have a very salty year?

NASCON Allied Industries was incorporated in Nigeria as a limited liability company on 30 April 1973.

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Linkage Assurance Plc

NASCON Allied Industries Plc, may deliver a flat 2018 full year result, going by first and second quarter results released. NASCON is our stock pick for the week.

About the company

NASCON Allied Industries Plc (Formerly known as National Salt Company of Nigeria) was incorporated in Nigeria as a limited liability company on 30 April 1973. It was fully privatized in April 1992 and became listed on the Nigerian Stock Exchange on 20 October 1992.

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At a general meeting held on 29 September 2006, the shareholders approved the acquisition of the assets, liabilities and business undertakings of Dangote Salt Limited and the issue and allotment of additional NASCON PLC shares as the purchase consideration.

Dangote Industries Limited (DIL) owns about 62.19% of the company’s 2.65 billion shares.  DIL is ultimately controlled by Aliko Dangote.

Recent results

Results for the half year ended June 2018 show that revenue rose from N12.7 billion in 2017 to N12.8 billion in 2018. Profit before tax rose from N2.8 billion in 2017 to N3.2 billion in 2018. Profit after tax also rose from N1.9 billion in 2017 to N2.2 billion in 2018.

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Pricing

Current Share Price: N18.50
Year High: N24.75
Year  Low: N18.50
Year to Date: 0.0%
One Year Return: 65.81%

Price outlook

The stock is currently trading at a year low of N18.50. The stock market closed down 5.97% last month and is currently trading at a year low. If bearish sentiments persist, the stock could dip further.

Valuation

NASCON is currently trading at a price to earnings ratio of 8.77 times earnings. This is slightly lower than the average PE on the exchange of 9.4 times earnings.

The stock is trading at a much higher premium compared to its peers such as Dangote Sugar, which is trading at 4.7 times earnings and Flour Mills of Nigeria, trading at 4.87 times earnings.

Outlook

NASCON had a fantastic FY 2017 result. Revenue increased from ₦18.2 billion in 2016 to ₦27 billion in 2017. Profit before tax jumped by over 100% from ₦3.5 billion in 2016 to ₦7 billion in 2017. Profit after tax also rose massively from ₦2.4 billion in 2016 to ₦5.3 billion in 2017.

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However, 2018 full year numbers could come in slightly flat, going by the half-year results. While half-year 2018 results show a slight increase year on year, Q2 2018 results show a slight decline compared to the comparative period of 2017. Q3 2018 results would provide more clarity, as to the possibility of the company exceeding FY 2017 figures.

Patricia

While NASCON is operating in a niche area, an influx of smuggled salt, if left unabated, could lead to lower profits.

 

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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Coronavirus

Covid-19 Update in Nigeria

On the 2nd of June 2020, 241 new confirmed cases and 15 deaths were recorded in Nigeria bringing the total confirmed cases recorded in the country to 10,819.

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COVID-19: FCMB reschedule operations

The spread of novel Corona Virus Disease (COVID-19) in Nigeria continues to rise as the latest statistics provided by the Nigeria Centre for Disease Control reveal Nigeria now has 10,819 confirmed cases.

On the 2nd of June 2020, 241 new confirmed cases and 15 deaths were recorded in Nigeria.

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To date, 10819 cases have been confirmed, 3239 cases have been discharged and 314 deaths have been recorded in 35 states and the Federal Capital Territory having carried out 65,885 tests.

Covid-19 Case Updates- 2nd June 2020

  • Total Number of Cases – 10,819
  • Total Number Discharged – 3,239
  • Total Deaths – 314
  • Total Tests Carried out – 65,885

The 241 new cases are reported from 14 states – Lagos (142), Oyo (15), FCT (13), Kano (12), Edo (11), Delta (10), Kaduna (9), Rivers (9), Borno (8), Jigawa (4), Gombe (3), Plateau (3), Osun (1), Bauchi (1).

READ ALSO: COVID-19: Western diplomats warn of disease explosion, poor handling by government

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The latest numbers bring Lagos state total confirmed cases to 5277, followed by Kano (970), Abuja at 687, Katsina (371), Edo (336), Oyo (317), Kaduna (297), Borno (296), Ogun (280), Jigawa (274), Rivers (248), Bauchi (241),  Gombe (164), Sokoto (116).

Kwara State has recorded 111 cases, Plateau (108), Delta (98), Nasarawa (80), Zamfara (76), Yobe (52), Osun (46), Akwa Ibom (45), Adamawa (42), Ebonyi (40), Imo (39), Kebbi and Niger (33), Ondo (28), Bayelsa (21), Ekiti (20), Taraba and Enugu (18), Abia (15), Anambra (11), Benue (9), while Kogi state has recorded only 2 cases.

Lock Down and Curfew

In a move to combat the spread of the pandemic disease, President Muhammadu Buhari directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days, which took effect from 11 pm on Monday, 30th March 2020.

The movement restriction, which was extended by another two-weeks period, has been partially put on hold with some businesses commencing operations from May 4. On April 27th, 2020, President Muhammadu Buhari declared an overnight curfew from 8 pm to 6 am across the country, as part of new measures to contain the spread of the COVID-19. This comes along with the phased and gradual easing of lockdown measures in FCT, Lagos, and Ogun States, which took effect from Saturday, 2nd May 2020, at 9 am.

 

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READ ALSO: Bill Gates says Trump’s WHO funding suspension is dangerous

Patricia
DateConfirmed caseNew casesTotal deathsNew deathsTotal recoveryActive casesCritical cases
June 2, 20201081924131415323972667
June 1, 20201057841629912312271579
May 31, 20201016230728714300768687
May 30, 2020985555327312285667267
May 29, 202093023872612269763447
May 28, 202089151822595259260647
May 27, 202087333892545250159787
May 26, 2020834427624916238557107
May 25, 202080682292337231155247
May 24, 202078393132265226353607
May 23, 202075262652210217451317
May 22, 2020726124522110200750337
May 21, 2020701633921111190748987
May 20, 202066772842008184046377
May 19, 202064012261921173444757
May 18, 202061752161919164443407
May 17, 202059593881826159441837
May 16, 202056211761765147239737
May 15, 202054452881713132039544
May 14, 202051621931683118038154
May 13, 202049711841646107037374
May 12, 20204787146158695936704
May 11, 202046412421521090235894
May 10, 202043992481421777834794
May 9, 202041512391271174532784
May 8, 202039123861181067931154
May 7, 20203526381108460128184
May 6, 20203145195104553425071
May 5, 2020295014899548123704
May 4, 2020280224594641722912
May 3, 2020255817088240020702
May 2, 20202388220861735119522
May 1, 20202170238691035117512
April 30, 2020193220459731715562
April 29, 2020172819652730713692
April 28, 2020153219545425512322
April 27, 20201337644102559942
April 26, 20201273914152399942
April 25, 20201182873632229252
April 24, 202010951143312088552
April 23, 20209811083231977532
April 22, 2020873912931976482
April 21, 20207821172631975602
April 20, 2020665382311884662
April 19, 2020627862221704362
April 18, 2020541482021663562
April 17, 2020493511841593172
April 16, 2020442351311522772
April 15, 2020407341211282672
April 14, 202037330111992632
April 13, 202034320100912422
April 12, 20203235100852282
April 11, 202031813103702382
April 10, 20203051770582402
April 9, 20202881471512302
April 8, 20202742260442262
April 7, 20202541661442042
April 6, 2020238650351982
April 5, 20202321851331942
April 4, 2020214540251850
April 3, 20202092542251800
April 2, 20201841020201620
April 1, 2020174352091630
March 31, 202013982091280
March 30, 2020131202181210
March 29, 2020111221031070
March 28, 20208919103850
March 27, 2020705103660
March 26, 20206514102620
March 25, 2020517102480
March 24, 2020444102410
March 23, 20204010112370
March 22, 2020308002280
March 21, 20202210001210
March 20, 2020124001110
March 19, 20208000170
March 18, 20208500170
March 17, 20203100030
March 16, 20202000020
March 15, 20202000020
March 14, 20202000020
March 13, 20202000020
March 12, 20202000020
March 11, 20202000020
March 10, 20202000020
March 9, 20202100020
March 8, 20201000010
March 7, 20201000010
March 6, 20201000010
March 5, 20201000010
March 4, 20201000010
March 3, 20201000010
March 2, 20201000010
March 1, 20201000010
February 29, 20201000010
February 28, 20201100010

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Business News

Subsidy and PIB

Today, Oil prices are low, thus no need for the Federation to pay a part of your fuel bill, so no subsidy on imported PMS on retail price. 

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Subsidy and PIB

“There is no fuel subsidy anymore in Nigeria. It is zero subsidies forever. Going forward, there would be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like another marketer in the space,” – Mele Kyari, GMD NNPC, April 7th, 2020

Stepping back from the subsidy debate, it is important to clarify what the main issues in the debate are.

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Is there a subsidy paid on imported PMS? Yes, Subsidy is pricing. Paying a subsidy on imported PMS means the Nigerian Federation (not just FGN) pays a part of your fuel cost. Removing subsidy means you the buyer pays all the fuel costs. Deregulation means that fuel “cost” is not decided by the FGN but by the seller. Today, May 2019, Oil prices are low, thus no need for the Federation to pay a part of your fuel bill, so no subsidy on imported PMS on retail price.

However, the NNPC GMD also said, “But we (NNPC) will be there for the country to sustain the security of supply at market price.” Translation? NNPC will keep importing PMS and there is no deregulation, the FGN will still fix “market prices”

What is subsidizing? The landing cost of petroleum products? Yes, but we are also subsidizing the infrastructural inefficiency of the government, e.g. demurrage arising from having limited offloading ports in Nigeria.

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(READ MORE: NNPC reduces fuel price to N108 per litre)

The subsidy is not the problem, there is nothing wrong with subsidies. A government subsidy should be a tax cut to the poor, the vulnerable, and the economically backward. However subsidizing fuel imports is simply subsidizing imported consumption, while creating jobs outside Nigeria. So, subside local refining not imported fuel. This creates another problem. The subsidized locally refined petrol can find its way to Cameroon, Benin Republic even Senegal.

Fuel subsidy, Nigeria's pump price, Subsidy and PIB

The only way to cut down the cost of paying subsidies is to reduce the cost of petroleum products, and the way to do so is to refine locally. To refine locally means that refining companies can buy crude oil forward contracts to feed their refineries. To open the crude buying process is to pass the PIB.

The PIB as originally drafted would allow a transparent and measurable process of ownership of the Nigerian petroleum assets. With the PIB regime, it is possible for a refinery to buy crude oil in advance, at a price it can negotiate with private crude supplies to feed its refinery stock. So long term, passing the PIB encourages local refineries. More local refineries will eradicate the need to import fuel and pay subsidy on “inefficiencies”.

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The original PIB drafts also proposed certain new directions as below:

Patricia
  1. PIB created a commercially viable National Oil Company, restructures the NNPC from a government-run entity into a private one that can raise private capital and not rely on FGN “cash calls”. By these, NNPC would sell 30% of its shares to the Nigerian public within 6 years. The Nigerian Gas Company would sell 49% of its shares to the Nigerian public.

(READ MORE: Crude oil prices drop, geopolitical tension deepens)

  1. Created a new fiscal regime where royalties and taxes due are based on production, not terrain, and investment. Thus, Nigeria earns more when the International Oil Companies (IOCs) produces more.

Petrol Subsidy gulped over N11 trillion in 6 years - Senate Committee, Subsidy and PIB

  1. It introduced Company Income Tax to the industry. IOCs will have to incorporate in Nigeria as a company and pay 30% CIT and 50% Nigerian Hydrocarbon Tax based on rents and royalties. Both must be paid; one tax cannot be set off against the other.
  1. The PIB prohibition on flaring of natural gas beyond a “flare out date”. This is good for the environment and forces the IOCs to invest in Gas projects rather than burning it into the atmosphere.
  1. PIB has a relinquishing provision where oil blocks not utilized are reverted to the FGN for reallotment. This will free up acreages tied up by the IOC.
  1. The Production Sharing Contracts signed by Nigeria with the IOCs in 1993 was based on $20 a barrel. PIB allows Nigeria to review those terms and earn more.

Pass the PIB, this removes the need, in the long term, for the payment of subsidies

It is our problem, we can fix it.

 

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FEATURED

Why Nigeria’s banking stocks performed well in May

Many portfolio investors were unable to move their money from the country due to FX limitations. So, they reinvested.

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Nigerian Banks,Impact of coronavirus pandemic on asset quality of Nigerian banks

Virtually all the banks listed on the Nigerian Stock Exchange (NSE) witnessed varying degrees of growth in their share price during the month of May. Besides Union Bank of Nigeria Plc which declined by 0.7% and Aso Savings and Loans Plc which recorded no price movement, all the other banking stocks recorded increases according to checks by Nairametrics Research.

Best banking stocks in May

The best-performing banking stock for the month was Jaiz Bank Plc. The share price increased by 27.3% to N0.70, up from N0.55 in April. This is followed by Stanbic IBTC Holdings Plc which rose by 25.6%. Zenith Bank Plc and Unity Bank Plc both gained by 18.2%, followed by FBN Holdings Plc which rose by 16.3% and then Ecobank Transnational Incorporated with 14.6%.

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See the rest of the banks and their share price performances in the chart below.

Nigerian banking stocks’ performance in May compared to April

The factors responsible for the positive performance, starting with CBN’s FX restrictions

Interestingly, the positive returns for Nigerians banks may not be linked to any tangible fundamentals. According to Investment Advisor and Fixed Income expert, Ighodaro Alonge, these banks are significantly undervalued and operate in a very challenging economy. He told Nairametrics that one of the factors responsible for the positive performance of the banking index was the fact that many portfolio investors were unable to move their money from the country due to FX limitations. So, they reinvested.

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READ ALSO: PwC’s Andrew Nevin urges FG to provide more economic stimulus amid Covid-19

Fundamentally, the Nigerian banking system is not what is really driving performance. What is driving performance is more from investments that cannot exit the Nigerian market due to the backlog of FX demands. There’s a backlog of FX demands at the Investors & Exporters window of about $1.5 billion. Those monies have not been able to leave Nigeria. So, some of them have had to roll their money back into the stock market,” Alonge said.

Equity Trader, Kenneth Kanebi, shared a similar point of view. In a separate phone interview with Nairametrics, he explained that given the very sparse FX liquidity due to the fall in oil prices and also the Coronavirus pandemic, Nigeria was not getting as much FX revenue as it used to get in the past. As a result, the country’s obligation to foreign portfolio investors who invested in Nigeria, sold their assets, and were looking to repatriate funds, could not be met.

A couple of these foreign portfolio investors have had their money trapped since March when the CBN restricted the sale of dollars on the I&E window. A couple of these investors have also earned dividends within that period. And what we believe is that they began to reinvest in the market. Hence, the demand we saw in the likes of GTB,” he said.

Some maturing financial instruments found their way to the equities market

In an emailed response to Nairametrics’ inquiries, the Head of Retail Business at CSL Stockbrokers Limited, Ifeoma Ukwunna, noted that “maturing debt instruments found their way into the equity market rather than being rolled over at very low-interest rates, and banks were their favorites.”

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On his part, Kenneth Kanebi also explained the role played by OMO maturities. He said:

Patricia

OMO maturities also played a huge role. This is because the investments that are maturing cannot be reinvested in OMO given the new CBN policy. So, we believe that some of that naira inflow found their way into the equities market now that there are limited opportunities to invest in. Secondly, the few domestic investors that tried to use NTBs as substitutes for the OMO bills have realised that because of huge demands, the yield on NTBs crashed significantly. So, for a few of these guys, the only option available was equities.”

Global influence on the Nigerian bourse

It should be noted, at this point, that the performance of the Nigerian stock market in May, was in tandem with global trends. Across major markets in North America, Europe, Asia, and Sub-Saharan Africa, the prices of equities increased. As Ighodaro Alonge explained, this can be attributed to what he described as ‘central banks’ liquidity’. In other words, central banks around the world, especially the U.S Federal Reserve, pumped liquidity into the system. He explained:

In May, equity prices rose across the globe. We saw that reflect in Nigeria across the board. What was fueling the rise in asset prices is Central Banks’ liquidity. The amount of liquidity pumped into the system by the U.S Federal Reserve between March and April has gotten to about $3 trillion. They pumped in about $3 trillion into buying a range of assets such as US Government bonds, U.S-backed mortgage securities, and even investment-grade corporate bonds. So, the liquidity helped assets to climb upwards.

“Now, whatever obtains within the U.S market usually tends to happen across the globe. The U.S makes up about 40% of the global stock market capitalisation. So, the U.S direction tends to sway the global market either upwards or downwards. Therefore, because the U.S market has been bullish, the Nigerian market was also bullish.

READ ALSO: Nigerian banking stocks remain most liquid stocks, as investors gain N25.1 billion

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Impacts of COVID-19, crude oil prices and more

In her emailed response, Ifeoma Ukwunna also attributed the rally on the NSE to the COVID-19 pandemic and fall in crude oil prices. According to her, the pandemic, oil price decline, and asset sell-offs by foreign investors all led to stock prices declining initially. As bad as this was, it also presented an opportunity for other investors buy up value stocks; including a lot of the banking stocks. She, however, forewarned that the rally may not be sustainable.

With the outbreak of COVID-19, fall in crude oil prices, and sale programme activated by foreign investors in Q4 2019, most stock prices dropped sharply in February and March. The banking index in particular fell by 15.59% and 21.56% respectively, presenting a good opportunity for bargain hunters to pick up value names.

“We doubt the trend will be sustained going into this quarter, with the IMF’s call for banks to call off dividend payments. The CBN hasn’t said anything to the effect as there are already existing conditions to be met for dividend payments. Investors will react negatively if the CBN advocates the same.

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