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CBN’s intervention in FX market hit $39 billion in 2018

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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

The Central Bank of Nigeria (CBN)stabilized the Naira in 2018 by injecting $39.9 billion into the foreign exchange market (Forex). This is according to the CBN Q4 2018 economic report.

In the last quarter of 2018, the CBN sustained its interventions at both the inter-bank and Bureau de change (BDC). The Central Bank’s $US39.9billion intervention in 2018 represents an 87% increase year-on-year when compared to US$21.36 billion in 2017.

Despite the apex bank’s intervention, the interbank exchange rate (₦/$) stood at an average of ₦306.70/US$, the relative level it was at the end of September 2018.

Basic Highlights

  • At the inter-bank segment, average exchange rate naira vis-à-vis the US dollar depreciated by 0.2%.
  • At the BDC segment, the average exchange rate depreciated by 0.9%. This represents 0.01% below the levels in the preceding quarter of 2018, and the corresponding period of 2017 to N362.42/US$.
  • At the Investors and Exporters (I&E) window segment, the average exchange rate stood at N364.27/US$, representing 0.5 % and 1.0% depreciation relative to the levels in the preceding quarter and the corresponding period of 2017, respectively.
  • A total of US$9.18 billion was sold by the CBN to authorised dealers in Q4 of 2018. This represented 16.1% decline below the level in the Q3 of 2018 but was 80.6 per cent above the level in the corresponding period of 2017.

Break down of disbursements to authorised dealers in Q4 2018 

  • US$3.15 billion was foreign exchange forwards disbursed at maturity date, this represents 34.3% of the total amount.
  • The sales to BDCs amounted to US$2.98 billion. This represents 32.5 per cent% total disbursement
  • Also, at the I&E window, US$2.09 billion was sold. This represents 22.8% of the total amount disbursed.
  • On interbank sales, forex disbursement was US$0.82 billion (8.7%)
  • The premium between the average inter-bank and BDC rates widened by 0.8% points in the review quarter, from 18.2% points at the end of Q4 2018.
  • The spread between the average exchange rates at the Investors’ and Exporters’ window and the BDC segment narrowed further to 0.5%, from 0.9% at the end of the preceding quarter
  • The sum of US$0.13 billion was disbursed to Swaps transactions. That is 1.5% per cent fo total forex disbursement to authorised dealers in Q4 of 2018.

Growth Rate of Forex Supply in the fourth quarter of 2018

  • The total Forex Supply to BDC and rDAS reduced by 62% in Q4 2018. US$2.16 billion was supplied in Q3 as against US$0.82 in Q4 2018.
  • Also, the supply of Swaps dropped by 89.4% in Q4 2018. Supply of Swaps stood at US$0.13 billion in Q$, a fall compared to US$1.23 billion in Q3 for the year under review.
  • Supply to BDC increased in Q4 of 2018 to US$2.98, as against US$2.41 in Q3. This is a US$0.57 increase supply of forex to BDC in Q4 of 2018.
  • Foreign exchange Forwards on the other hand from in Q4 to US$3.15 as against US$3.24 in Q3
  • Total forex supplied to both BDC and rDAS dropped from US$11.88 in Q3 to US$9.18 in Q4 2018.

Why CBN Intervention? 

The Apex bank of a country whose currency is enduring extreme upward or downward financial pressure intervenes in either buying or selling of currencies. This is done to stabilise the currency market situation. Essentially, such a market situation is usually caused by high volatility from a surge of trading by speculators and market players.

The intervention is sometimes used to boost or decrease a currency value, most commonly for the purpose of boosting and decreasing productivity and exports of a nation.

Economic Agents in various sectors require forex for the various cross-border transactions and investment. Hence, the Apex bank periodically intervenes in the foreign exchange market to aid investors and businesses in the economy.

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Like firms, individuals equally make transactions which cut across medical trips, tuition and other basic travel allowances Hence, the high demands of forex without corresponding forex supply can trigger currency exchange rates to jack up.

Similarly, speculations in the forex market can result in an artificial scarcity of forex supply, which will have multiplier effects on businesses and individuals.

It can, however, turn problematic for a nation to use market intervention whenever the currency value does decline steeply in the foreign exchange market. One key disadvantage of regular intervention is that export-dependent countries could spiral into recession if they become too reliant on market intervention.

Stabilising Naira 

The CBN intervention in recent years is attributable to a sharp or sudden decline in the value of a currency due to decline in prices of the country’s major export. The supply is expected to have multiplier effects across key sectors of the economy in the immediate run.

According to the CBN Director, Corporate Communications, Isaac Okorafor,

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“CBN had made commendable effort in keeping the exchange rates at the current levels.”

“The CBN is determined to sustain a stable exchange rate as it continues to put in place relevant measures to shore up the country’s reserves,” Okorafor said in a statement”.

In order to stabilize the forex market, the Apex injected a total of $US39.9 billion in 2018, majorly, the relative stability of the exchange rate of the country in Q4 of 2018 is traceable to the periodic intervention by the CBN. In the short run, this is good for the economy as demand for forex by the market players are at least contained.

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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Analysis: Total Nigeria needs a financial overhaul

 Total Nigeria’s Q1’20 results are a testament that some might have it worse than others as it recorded a revenue drop of 9.3% to N70.2 billion

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Total Nigeria, Analysis: Total Nigeria needs a financial overhaul

The Oil Industry has had a particularly tough year, owing primarily to the novel pandemic. The International Energy Agency (IEA) predicts that the global oil demand is expected to further decline this year as Covid-19 spreads around the world, constraining travel as well as other economic activities.

Organizations like Total depending on international trade will be forced to scale down operations until restrictions ease off. However, Total Nigeria’s Q1’20 results are a testament that some might have it worse than others.

The period recorded a revenue drop of 9.3% to N70.2 billion in the first quarter of this year compared to Q1 2019. Total earns its revenue from three main sectors namely: Networks, General Trade, and Aviation. Revenue from Aviation fell by 39.5%. The decline in Networks is attributed to the reduced demand as a result of the enforced lockdown and restriction on travel across the nation.

READ ALSO: Analysis: MTN’s blow out Q1 profit vs Covid-19 headwinds  

Yet, it is clear that the company had its own challenges pre-COVID-19. In the quarter, it attained a loss after tax of N163 million which was 65.6% better than the loss after tax of the comparative quarter; it is overwhelmed by a myriad of distinct issues.

First off, its revenue has experienced a steady fall over the years; reasons for this is tied largely to its lack of importation of petroleum products.

It is also burdened by inefficiencies in its operations evident in its high operational and direct expenses, as well as its high debt over the past years. The company has carried on huge loans and borrowings in its books: N40.6 billion in 2019 and only a marginal reduction of N2.2 billion in the current year.

(READ MORE:Nigeria’s Bonga crude oil export terminal shut down)

Even higher are its expenses after an 8.38% reduction in the just-released results, it arrived at N69.7 billion for Q1 2020. Amongst its high operational expenses is the high and increasing technical fees it pays to its parent company. From N251 million in the first quarter of last year, it incurred around N700m in the year under review. It also has cash flow issues with about N22b in negative cash and cash equivalents. In its 2019 report, it revealed that the year had been tough with its cost of doing business rising exponentially as evident in its interest expense, 395% higher than the previous year as a result of repayment for products and a high level of borrowing.

Total Nigeria records loss for the first nine months of 2019, Analysis: Total Nigeria needs a financial overhaul

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The company, in its last full year annual report, noted that to make significant savings to both operational and capital expenditure costs, a series of initiatives relating to cost efficiency, process optimization, and significant reduction of working capital requirement and finance costs, were put in place and are in motion for this year.

READ ALSO: STERLING BANK: Reduced fee income, weak operating efficiency drives steep decline in pre-tax profit

As Dr. Fatih Birol, IEA’s Executive Director put it “The coronavirus crisis is affecting a wide range of energy markets – including coal, gas, and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand transport fuels.”

However, Total’s position goes beyond the impact of the pandemic. Its rebound rests on its ability to carry on with cost control and lower debt commitments, together with the speed of the containment of the virus. That said, the company might need to raise capital soon while also coming up with formidable strategies to strengthen its business model.

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Merger, Tax incentive boosts BUA Cement FY 2019 result

BUA Cement Plc recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.

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BUA Cement gives succour to host communities in Edo

One of the industries set to experience the downsides of the Covid-19 pandemic is the construction industry. Given the slowdown in construction activities as a result of the lockdowns and constrained economic activities, the reasons are not farfetched.

Prior to the outbreak of the pandemic, Globe Newswire had predicted an accelerated growth pace of the global construction industry from 2.6% in 2019 to 3.1% in 2020. This growth has now been revised to 0.5%. What is even more daunting is that the revised growth rate is based on the assumption that the outbreak will be contained across all major markets by the end of the second quarter of 2020.

It is only after that (including freedom of movement in H2 2020) that events could facilitate reverting to the normal course of activities to foster businesses in the industry like BUA Cement or those that depend on it to restart activities.

Nigeria’s third-largest cement company, BUA Cement Plc, however, still has its 2019 victories in order. Involved in the manufacturing and sales of cement, BUA Cement has 3 major subsidiaries and plants in Northern and Southern Nigeria.

(READ MORE:Update: BUA Cement Plc lists N1.18 trillion shares on NSE)

With a market capitalisation of N1.18 trillion ($3.3 billion), BUA is the third most capitalised company on the NSE. Its recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.

Kalambaina Cement Line 2, BUA Group, Kalambaina Cement, CCNN, Merger, Tax Incentive Boost BUA Cement FY 2019 Results

The company’s profits also increased by 69.1% from N39.17 billion in 2018 to N66.24 billion in 2019. Core operating performance was strong, and this was supported by strong cement sales in the domestic market, impairment writes back, and other income.

Deal book 300 x 250

The main reason for the company’s increased earnings is from the cost synergy and increased revenue as a result of the merger that took place between CCNN Plc and Obu Cement Company Limited.

There was also a striking jump in its income statement on its tax for the year. For FY 2019, it incurred a tax expense of N5.6 billion, in comparison to the N24.9 billion tax credit it received in FY 2018.

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This was as a result of a reversal of previous tax provision made on Obu Line 1; it received approvals for an extension of the company’s pioneer status on Obu line-1 and Kalambaina line-2 in February 2020, to leave effective tax rate at just over 8% in 2019. The pioneer status will help the company save funds that will otherwise have been spent on higher taxes.

(READ MORE:Dangote Cement to access more debt funding)

BUA reported an impressive FY’19 result. Its performance shows the growing strength of the company and its increasing market share. On the back of the strong performance, management declared an N1.75 dividend per share that translates to a dividend yield of 5.5% on current prices.

Cash flow position was also robust with a strong closing cash balance – from N2.8 billion in 2018 to N15.6 billion as at year ended 2019. The company’s growth, as well as the impact of its merger, present a great buy opportunity of the highly capitalized, low-cost stock. As of today when the market closed (21st May) its share price stood at N35.60 from a 52-week range of N27.6 and N41.

READ ALSO: COVID-19: Best and worst case scenarios for the Nigerian economy

What we see is a great growth stock further heightened by the population expansion and increased urbanization. However, we expect the impact of the Covid-19 pandemic to be felt from the Q1 results of the company.

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The industry could slow down for the year as the level of commercial construction also slows down. Yet the best part of holding stocks like this is that even with stalled operations for a period, a resurgence will always emerge.

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Analysis: Airtel Nigeria is winning where it matters

Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.  

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Analysis: Airtel Nigeria is winning where it matters.

Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.

Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.

Performance Overview: Airtel Africa 

Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.

Full Report here.

Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”

(READ MORE: NCDC and NNPC-IPPG reinforce #TakeResponsibility theme with multi-lingual campaign)

Behind The Numbers – Nigeria

Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.

Regulation forces Airtel Africa to initiate shares listing in Malawi , Analysis: Airtel Nigeria is winning where it matters.

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Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.

On cash flows…

The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.

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“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”

To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.

(READ MORE: COVID-19: MTN says it has put strict measures in place to preserve resources)

Buying opportunity

Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.

It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.

 

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