The year 2019 will go down in the annals of history as one of the busiest for the Nigerian capital market. The continued recovery of the Nigerian economy, which generated a real growth of 1.81% year-on-year by the end of Q3 and improvement in macroeconomic stability, acted as catalysts to the many activities that characterized the Nigerian capital market in 2019.
The Nigerian capital market started the year with trends that sent jitters down the spines of investors, as the All Share Index nosedived in January from the 31,430.50 points it ended 2018 with, to 29,336.8 as at January 9th. However, the market made a quick turnaround and rose to as high as 32,614.05 by February 20th. Unfortunately, that has been the highest that the index attained in 2019, as everything indicates that the market will end the year with under 27,000 points.
Increase in Volatility
Increase in volatility was an important theme for investors in 2019, as the aftermath of the election increased activities of herdsmen, and the debacle about RUGA took center stage especially around the second quarter of the year. The Quantitative Financial Analytics NSE Realized Index which ended the year 2018 at 17.32 points spiked to 28.66 in June 2019, making June 2019 the most volatile month of the year. The good news, however, is that volatility has continued to moderate since then as it bottomed to 4.91 in November, only to pick up again in December, peaking at 11.27 points as at December 19th, 2019.
Yield in Downward Spiral
Interest rates or yield have fallen drastically so far in 2019. The Nigerian 10-year Bond which reached a maximum yield of 15.856% on December 4, 2018 bottomed to 11.324% on December 10, 2019. Most Money Market Funds in Nigeria are currently making yields in the single digit. Falling interest rate was not peculiar to Nigeria though, as many countries witnessed negative yield in 2019.
The Year of the Rights
2019 could be rightly described as the year of the rights. Nigerian corporate entities issued more rights in 2019 than in any other year. Notable among them are rights issues by C&I Leasing, NPF Micro Finance, Sovereign Trust Insurance and Fidson. Rights issues were seen by corporate management as easier and cheaper ways to raise additional capital. In addition to rights issues, other major corporate actions took place in the capital market, like the optional dividend by Stanbic IBTC and the share buyback by the management of Dangote Cement.
Enter the Initial Public Offerings (IPO)
There seemed to have been an IPO drought in the Nigerian capital market, but 2019 changed that. The Exchange recorded two initial public offerings, with the listing of MTN and Airtel. Elsewhere in the world, in the New York Stock Exchange to be precise, what could be described as Africa’s largest digital retail platform, or Africa’s Amazon.com, Jumia Plc, floated its IPO.
Mergers and Acquisition
One heavyweight corporate action that took investors by storm in 2019 was the acquisition of Diamond Bank by Access Bank. Another big acquisition was that of Dangote Flour Mills by Olam International Limited. The Nigerian capital market witnessed other forms of business combinations, notable among them being the combination of Cement Company of Northern Nigeria, (CCNN) and BUA’s Obu Cement.
in 2019, the Nigerian Stock Exchange (NSE) continued its quest to provide investors with different benchmarks against which to measure the performance of their investments. The Exchange, in collaboration with Afrinvest Asset Management, launched two new factor indices: the NSE-Afrinvest Banking Value Index (NSE-Afr BVI) and NSE-Afrinvest High Dividend Yield Index (NSE-Afr HDYI). Also, the NSE and Meristem Securities Limited, launched two new-style indices – the NSE-Meristem Growth Index and NSE-Meristem Value Index – which would act as benchmarks for the performance evaluation of value and growth stocks listed on the Exchange.
The Nigeria Stock Exchange also launched its Corporate Governance Index which seeks to track performance of companies that meet the most stringent corporate governance criteria in Nigeria.
NSE Inaugural Hackathon
In furtherance of its desire to encourage tech nerds and enthusiasts with the passion for Fintech innovation, the NSE organized its first ever Hackathon challenge at the end of which the first three winners smiled home with N5million, N3million and N2million respectively.
Nigerian mutual fund Asset under management hit a new milestone by reaching an all-time high of N1 trillion. This laudable achievement was mostly as a result of the growth in demand for money market funds.
New Fund Launches
Though the performance exchange-traded funds have not impressed shareholders and investors, fund managers still maintain their desire to create new funds. In that regard, Greenwich Asset Management Limited listed a new Exchange Traded Fund, ETF on the floor of the Exchange. The new ETF is the Greenwich Alpha ETF that tracks the NSE 30 Index.
Foreign Participation in Equity Trading
Nigeria continues to be a destination of choice for foreign investors in spite of the insecurity occasioned by Boko Haram and Herdsmen. Though not as much as in 2018, foreign participation in equity trading in Nigeria continues to grow and there is no reason to see the growth waning anytime soon.
The Demise of a Colossus
On a sad note, the Nigeria capital market community lost one of its own, in the person of Mr Cyril Odu, who was a Director at ValuAlliance Asset Management Company and the Chairman of the Board of Directors of Union Bank Nigeria Plc. May his soul rest in peace.
What to Expect in 2020
As 2019 glides to an end and we usher in a new year and a new decade, investors are looking forward to a more rewarding year in 2020. There is the likelihood that interest rates will continue to fall, albeit slowly. The hint came via the US Fed in its last meeting in 2019, disclosing that the Fed was no longer in a hurry to raise interest rate.
Higher Inflation Rate
Nigerian inflation rate fell in September 2019 through October but began rising again in November. I foresee this increase in the rate of inflation to continue, at least to the first two quarters of 2020. There is a relationship between interest rate and inflation such that lower interest rate tends to result in inflation. The Central Bank of Nigeria should, therefore, pay close attention to those two variables in 2020. Another catalyst for inflation in 2020 will be the implementation of minimum wage, which may generate some wage push inflation.
Increase Activities in the Bond Market
As interest rates fall and probably continue to do so, it becomes cheaper for the government and corporate bodies to borrow. There will most likely be increased activities in the bond market as corporate bodies would try to retire their high interest-bearing debts and take on lower coupon debts. In the same way, bond market activities will be on the increase as the government takes advantage of lower interest rate to increase its domestic borrowing and meet up with budget deficits.
Increase in Economic Growth
If the Central Bank can keep interest rate down without heating up the economy with higher rate of inflation, Nigeria will witness some higher economic growth rate in 2020. As corporates and the government borrow to finance investments, it is expected that the results will translate to greater capital accumulation and economic growth.
Volatility Will Remain
The Nigerian capital market may witness a slightly elevated level of volatility in 2020 as a result of the expected increase in fixed income market, the uncertainties in the US-China trade relations and the oil market. However, with Boris Johnson midwifing Brexit, it is expected that the uncertainty from Brexit under Theresa May will not be as much.
Expect More Mergers, Acquisitions and Business Combinations
As the corporate management teams of Nigerian companies evaluate the synergies that are derived from mergers and acquisitions, it is expected that 2020 may see one or two more of such corporate actions than seen in 2019. Given the newfound affection for rights, more corporate bodies will raise capital through right issues in 2020.
The regulatory authorities and yield-hungry Nigerians should be on the lookout for Ponzi schemes, because as interest rate falls and interest related income dries up, some yield-hungry investors may be tempted to invest in Ponzi schemes in their desperation for increased investment returns. This clamour for higher yield may motivate Ponzi scheme operators to rear their ugly heads in the most unexpected places and manner. Be on the lookout and Happy New Year and New Decade.
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.
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 as “riba.”
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
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
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.
Nigerians now seeing CBN Intervention funds as audio money
Despite the rhetoric, majority of Nigerians are still wary of the so called N1 trillion intervention fund.
When the COVID-19 pandemic came with all her fangs, world leaders swung into action with the creation of intervention funds and palliatives to ease the burden of the average citizen.
In Nigeria, asides the palliatives of foodstuff given by state and federal governments alike, drums were rolled when the Central Bank of Nigeria disclosed its support for critical sectors of the economy.
The apex bank first initiated a fund of N50 billion soft loan to small businesses. The N50 billion Targeted Credit Facility (TCF) was to serve as a stimulus package to support households and micro, small and medium enterprises (MSMEs) whose economic activities have been significantly disrupted by the COVID-19 pandemic.
The financial institution for the scheme is NIRSAL Microfinance Bank (NMFB) and the interest rate under the intervention was fixed at 5% per annum (all-inclusive) up to February 28, 2021, and thereafter, the interest on the facility shall revert to 9% per annum (all-inclusive) as from March 1, 2021.
Next, it increased its intervention by another N100 billion in loans to support health authorities to ensure laboratories, researchers, and innovators work with global scientists to patent and produce vaccines and test kits in Nigeria so as to prepare for possible crisis ahead.
Finally, it increased its intervention in boosting local manufacturing and import substitution by another N1 trillion across all critical sectors of the economy.
Despite the rhetoric, majority of Nigerians are still wary of the so called N1 trillion intervention fund. The CBN is yet to issue any policy guideline for its implementation and failed to provide further details in its monetary policy committee meeting held last week. This has led many to start to view these promises as “audio money” a social media term for financial promises that are never fulfilled.
The journey thus far
The Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance bank, on behalf of the Central Bank of Nigeria (CBN), has started the disbursement of the N50 billion Targeted Credit Facility (TCF) to the beneficiaries. As at April, it noted that it had received over 80,000 applications for the facility, out of which 40,000 of them were households.
As expected with such funding, the sentiments have been both positive and negative. While some have said they have gotten the funds, others have complained incessantly about the various challenges encountered in the process of obtaining or applying for the loans. Pockets of tweets revealed the general struggles of obtaining the loans. Several applicants have complained about not being able to open accounts or access the facilities and others have complained about making inquiries without responses.
Bola Murtala explained to Nairametrics that “I applied online around the 30th of April, filled out the forms, and submitted. After I got a reply in my email that my application has been received, but then I haven’t heard back from them since then. I wouldn’t know what’s going on but I have seen people who say they got an approval. How far it is true, I wouldn’t know.”
Another applicant, Okey Adinde, said “I applied and received a message telling me that I will be contacted if there was any other document required and if I didn’t send that document after 72 hours after the mail, my application will be declined. Since then, I have not heard from them.”
One Twitter user also complained about being asked to tender collaterals even though the loans do not require any.
Clearly, the program is not without its own hiccups. During an interview with Channels TV, the Managing Director of NIRSAL Microfinance Bank Plc, Abubakar Kure, explained that the nationwide lockdown and restrictions had a major challenge to the smooth processing of the facility. Yet, on the company’s website, it claims to have disbursed over N25 billion and going.
However, there are positive comments too:
Fidelis Ayebae, the chief executive officer of Fidson Healthcare Plc. explained that his company had received N2.5 billion from the central bank’s coronavirus intervention fund. Dollar scarcity and a weakening naira had heightened the inflation on inputs of many pharmaceutical firms in the country.
“You now have a situation where nobody is holding letters of credit, no manufacturer is getting anything from their suppliers abroad because even the ones that we owe, we are not able to pay,” said Ayebae, who also heads the 180-member pharmaceutical group of Nigeria’s manufacturers association.
In truth, sentiments on the program is still burdened with the same lack of faith and trust in systemic leadership and Nigerians have had their fair share of disappointments. Even as the CBN and NIRSAL have set off on a good note by augmenting businesses and individuals in key areas to withstand the impact of the pandemic, the need for transparency cannot be overemphasized.
By employing tighter systems, particularly in the area of customer relations, while also clearly disclosing its activities, the system will assuage the fears of Nigerians whose faiths have been battered by deceptive leadership amongst others.
It is only then that they’ll know for sure that the days of audio money are over and that its leaders can be trusted.
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
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.
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.
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.
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.
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.