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CBN blows $36 billion defending the naira in 2018, up 130% from 2017.

The Central Bank of Nigeria sold a whopping $36.6 billion in forex in 2018 according to a report released during the week on its website. This compares to $15.8 billion sold in 2017, a whopping 130% rise.

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CBN, Key lending rate, CBN to boost creative industry with N22 billion , CBN increases LDR to 65%, sets December deadline, External reserves drop by $3.2 billion in Q3’19 , Banks' loans to Oil and Gas, Power, other sectors drop by N411.8 billion 

The Central Bank of Nigeria sold a whopping $36.6 billion in forex in 2018 according to a report released during the week on its website. This compares to $15.8 billion sold in 2017, a whopping 130% rise.

The report, 2018 Activity report, is aimed at “informing the public of the measures taken by the Department to implement the decisions of the CBN and its Monetary Policy Committee towards the achievement of price and financial system stability.”

Key numbers: The CBN explained the breakdown of the $36.6 billion as $25.6 billion for spot sales and $11 billion in forward transactions.

  • Included in the spot sale was $8.2 billion sold in the I&E window.
  • The I&E window is where investors come to buy and sell forex and its the closest to a market with an exchange rate that floats.
  • Total sales in 2017 were $15.8 billion lower than spot sales recorded in 2018. The bank reported that spot sales for 2017 were just $3.4 billion compared to $25.6 billion in 2018 alone.
  • Net sales (sum of forex sold and bought by the CBN) was $17.8 billion in 2018 compared to $9.7 billion in 2017

Numbers explained: The higher sales recorded in 2018 suggest there was more demand for forex in 2018 compared to 2017. Thus, to keep the exchange rate stable and speculators at bay, the CBN had to increase its defense of the naira by selling more dollars. This is further buttressed by the more than 8 folds increase in spot sales with most of it targeted at the I&E window where foreign investors trade.

By burning through reserves, the CBN sacrifices forex savings for naira stability hoping that this will help drive down the inflation rate. Critics believe this might be work in the short term but it is detrimental in the long run when we factor in the opportunity cost of burning out reserves.

CBN’s explanation: “The increased volume of transactions in 2018 was attributable largely to the Bank’s foreign exchange policy and its management, coupled with the improvement in the levels of foreign reserves during the year.”

The exchange rate debacle: Most analysts we have spoken to believe the exchange rate is somewhat overvalued at N365. They point to frequent interventions in the FX market by the CBN as one of such artificial dynamics that inhibits price discovery. The more CBN intervenes to stifle demand the better the chances of the naira holding sway at its current price.

The upshots: Now that the presidential elections are over and the Central Bank Governor guaranteed another term of 5 years, the focus will not be channeled at how the CBN plans to manage the exchange rate. Will it be more of the same or a change of course. Rumours that the CBN might devalue something this year will likely persist. Some believe it is just a matter of time particularly if oil price fails to recover past the $70 mark.

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

5 Comments

5 Comments

  1. Anodebenze

    May 17, 2019 at 1:12 pm

    I do think it is more than you said .What I saw the cbn did had a shift in forex monetary.They did start to intervene actively, than you said,THEY SHIFT IN ALLOWING THE NAIRA IN FLOATING,and I think they devised at least 3 major forex monetary policies.so did some Nigerian bank,they all raised some dollar bond.The Nigerian did not raised any forex bond before
    Secondly,in all I have been reading.i am curious about this one they raised in America and Britain.nairametric have been silent about them ,even by the ministry of finance.i means this diaspora dollar bond,and the one that was oversubscribed in London,thirdly some Nigerian used some foreign broker in trading forex.
    last year and in 2017,some suspect the naira will reaches 1000 naira to I dollar,so I feel they implement a new forex policies.it is possible that the naira may appreciate in a major way,if not this year,it will appreciate next year,we are looking forward for the present budget to be passed,or maybe,how much Nigerian banks is holding or spending in forex.

    • Brian

      May 17, 2019 at 5:04 pm

      Please be coherent in your response. Na work to dey read this your reply oo.. 🧐😅

      • Nena

        May 18, 2019 at 9:27 am

        Exactly oh…hard to understand…grammer needs urgent improvement.

  2. Brian

    May 17, 2019 at 5:01 pm

    Hello Team Nairametrics.

    Here’s a feedback from me. I don’t seem to get an email when one of my replies has been responded to. Even though I ticked the “notify via email” option on the website.

    Cheers

  3. Francine

    June 13, 2019 at 7:25 am

    Hi it’s me, I am aldo visiting thiss web site daily, this web page is really pleasant and tthe people are truly sharing nice
    thoughts.

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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.

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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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Analysis: Nestlé strong but exposed.

Being a market leader is great, but in times of economic despair, it can quickly turn you into prey.

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Why Nestle Nigeria’s return remains strong - EFG Hermes, Nestle Nigeria Plc appoints new Director, Nestle Plc: FY 2019 Revenue beats estimate; but profit underperforms, GTB, Zenith Bank, & Nestle emerge as Renaissance Capital’s top stock picks

With about six decades of being the choice companion for families within Nigeria and the diaspora, Nestlé Nigeria Plc has positioned itself as one of the largest food and beverage companies on the continent. Owing to the expansive growth of Nigeria’s population – one projected to reach 300 million by the year 2030, as well as the growing middle class, the FMCG sector has a very positive outlook.

Consequently, Nestle’s leadership in the industry and its huge market size expectedly gives it a huge advantage. However, with the global economy barely racing against the impact of the Covid-19 pandemic, even the brimming FMCG sector will experience its own level of disruption.

Nestle’s recently released Q1 2020 financials reveal a revenue decline of 0.9%, as it dropped to a marginal ₦70.33 billion from the ₦70.97 billion turnover it garnered in Q1 2019. The profit before tax also experienced an 8.7% drop while the profit after tax had a 12.84% drop, both yielding ₦17.5 billion and ₦11.2 billion respectively, for the first quarter of this year. This is predominantly owing to its increased losses from its overseas activities.

READ ALSO: Italy to invest in Nigeria’s agric sector

The company procures all of its raw materials on a commercial basis from overseas and local suppliers; consequently, the percentage of its supplies dependent on international suppliers had a negative impact on its Q1 2020 financials. Its profits were plagued by a foreign exchange loss of ₦154.7 million from ₦18.9 million, an even higher loss of 720.6%. While the company did not disclose the value of its export revenue, we believe it too might have suffered from reduced exportation in the latter part of the quarter.

The group has since been taking on expansionary projects, such as its launch of a second beverage production plant in Ogun State in February of 2018. The company, on a continuous basis, explores the use of local raw materials in its production processes, contributing its own quota to the Nigerian economy.

READ MORE: Polaris Bank’s profit rises to N26.2 billion from N2.8 billion

Just last week, Nestlé’s stocks went up 2.56% to close at ₦1000, a price it still currently holds today after markets closed. Its price to earnings ratio is 18 and its earnings per share (EPS) of 55.54, signal an investor sentiment of confidence. However, its high price to book ratio of 13.9865 reveals that the company is slightly overvalued and its price of ₦1000 makes it attractive primarily to institutional investors that can afford to purchase large volumes of the stock enough to benefit from its steady growth in value. The company had proposed a dividend payout of ₦45 per share. This also comes after paying ₦25 per share interim dividends earlier. Its dividend yield at the time of writing this is 7%, further heightening the possibilities for the income investor.

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While the company has strong fundamentals governed predominantly by its position as a market leader, its years of experience, and its existence in the FMCG sector, it too might not have a smooth sail in the coming quarter. Its overseas business from both the supply and the demand sides are expected to experience a further decline, ultimately resulting in an even lower relative turnover and lower earnings.

READ MORE: Cadbury Nigeria reports N638.9 million profit for Q1 2020

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We also expect the decline in average disposable income of Nigerians from loss of jobs and an overall wariness of the economic impact of the pandemic, to further drive down turnover; however, sound operational efficiencies and cost control/ profit strategies by the group could ease the burden. The company fundamentals remain strong but its exposure to consumer disposable income remains a major concern. There is always a cheaper alternative and when your pocket empties your choice for cheaper substitutes swells.

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