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What Warren Buffet will do if he traded Nigerian stocks

Warren Buffett bought $5 billion investment in the Bank of America which expanded to $12 billion in 2017, gaining a whopping $7 billion.

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warren-buffett, Young Investors, Here’s why Warren Buffet's $4.6m lunch with Bitcoin entrepreneur is experiencing delay , What Warren Buffet will do if he traded Nigerian stocks

In 2011, Warren Buffett invested $5 billion in the Bank of America. On October 9, Bank of America CEO, Brian Moynihan was discussing this investment on the David Rubenstein Show. In 2011, Bank of America’s financial health deteriorated after the global financial crisis.

However, Buffett bought preferred stock in the bank. In 2017, that $5 billion investment expanded to $12 billion, gaining a whopping $7 billion.

A similar situation that happened in America about a decade ago is taking it to shape in the Nigerian Stock Exchange as the dividend yield on the Nigerian equities market has in recent times continued to increase as a result of the persistent free-fall in equity prices owing to a bouquet of factors.

The global Coronavirus pandemic has further strengthened the panic selloffs in the local and foreign financial markets.

[READ MORE: Here’s what Warren Buffet thinks parents should teach their kids about money)

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The impact of the virus seems heavy, killing more stock markets and economy than people across the globe, sending panic waves around the world, more devastating than the financial meltdown of 2008.

Nigeria @59: Rise, fall & rise of Nigerian stock market 

Nigerian stocks hit new lows as the Nigerian ASI Index hit a new 11-year low on a huge traded volume that suggests that investors are dumping their shares, in their desperate bid to cut their losses.

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So far, the Nigerian market has lost all of 13% in just four trading sessions of the week, just as over N1.82 trillion has been shaved off the market capitalization within the same period.

Meanwhile, with the resultant fall in the price of crude oil at the international market, the Nigerian economy is already challenging Nigeria on fiscal balancing and its recent devaluation of the naira

 The Central Bank of Nigeria’s efforts to spur economic growth and development through the low-interest rate regime, a situation that is first in the history of Nigeria, even as the lack of investor protection and corporate governance are hurting the market.

READ MORE: Another crushing recession ‘is coming’

The prolonged market downturn has, however, boosted yield, especially of blue-chip stocks and other dividend-paying equities across the different sectors of the market. Banking and other financial services stocks are powerhouses of any economy, just as they are intermediaries and agents of development.

Dividend investing has become necessary in the post-general election Nigerian stock market.

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That has been characterized by a free-fall in equity prices, which has eroded investors’ capital and confidence in the entire economy due to weak macro-economic indices and a lack of development and growth-stimulating policies from the government to offer the much-needed direction.

The Dividend Yield at any time measures how much cash flow you as an investor are getting for every Naira invested in a company’s equity. It also tells what percentage of net profit a company pays out in the form of dividends. This is one of the main factors you need to consider when investing in dividend-paying stocks.

It’s expected that there will be a slowdown on the losing momentum as low prices of stocks and high dividend yields attract buying interest that cannot be resisted by smart money, as more audited corporate earnings hit the market, going forward.

[READ ALSO: Why Warren Buffet’s $4.6m lunch with Bitcoin entrepreneur is experiencing delay)

This is despite the likely continuation of the mixed intraday movement in the midst of selloffs, with investors buying increasing positions in undervalued stocks ahead of dividend declaration.

This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020.

Nigeria top tier one banks like ZENITH, GUARANTY, UBA, FBNH, ACCESS look attractive based on their recent Price book ratio and dividend yield.

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However, it’s very important to seek a certified financial advisor or licensed stockbroker, when picking stocks for investments, as unprofessional advice can erode your capital or savings.

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Olumide Adesina is a French-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment Trading. Member of the Chartered Financial Analyst Society. Behavioral Finance, Duke University. You can follow Olumide on twitter @tokunboadesina or email [email protected]

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Companies

Dangote Cement to extend clinker export to other African countries 

Dangote is on course to sell more clinker across West Africa and commence shipment to Central Africa in H2 2020. 

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Dangote Cement Plc. appoints Ms. Berlina Moroole as non-Executive Director

The Management of Africa’s largest cement producer, Dangote Cement Plc (DCP), disclosed during a virtual event yesterday, that the cement producer is set to commence clinker export to other African countries within the next few weeks. 

The Acting Group CFO, Guillaume Moyen, made this known in his presentation at the joint virtual event with NSE, tagged “Facts Behind the Figures and Sustainability report’’ on Wednesday24th September, 2020. 

Backstory: In its half-year report, the Management of Dangote disclosed that on 12 June 2020, the maiden shipment of 27.8Kt of clinker from Nigeria to Senegal left the Apapa Export Terminal. 

The Management reiterated that the company is on course to sell more clinker across West Africa, and commence shipment to Central Africa in H2 2020. As it is in line with the Group’s vision of making West and Central Africa, cement and clinker independent, with Nigeria the main export hub. 

The absence of limestone in much of West Africa, especially those in the coastal states, forces those countries to import bulk cement and clinker from Asia and Europe, and this is quite expensive. 

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However, Dangote Cement plans an exporttoimport strategypositioning Nigeria as the main export hub of the continent, in a bid to serve West and Central Africa countries from Nigerian factories, making the region cement and clinker independent. 

This is consistent with the Group’s vision of cementing Africa’s economic independence, as this would lead to lower clinker cost for pan-African operations, due to the proximity of Nigeria to these countries, as clinker landing cost will be cheaper. 

The Management emphasized that this is possible, as Nigeria can serve a potential market of 15 countries, with over 350 million people, given the county’s relative abundance of quality limestone, especially in key Southern regions. 

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It is important to note that DCP’s clinker volume, according to figures contained in its H1 2020 results, has increased to 60Kt from 12kt in H1 2019, which translates to 400% increase. 

The benefits of DCP’s export strategy 

It is noteworthy that the innovative strategy of Dangote Cement Plc is expected to; 

  • Cement Africa’s economic independence, and contribute to the improvement of continental, regional, and intra-regional trade, as the company seeks to make regional and continental free trade agreement a reality. 
  • Ensure that the increase in production due to exports, leads to increase in capacity utilization in the Nigerian operation, and in turn, reduces fixed cost per tonnes 
  • Increase foreign revenue exchange for the Nigerian operation, and offset foreign exchange risks. 
  • Reduce clinker landing cost, by leveraging on the proximity of Nigeria to other African countries. 

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Business

Trade facilitations, key to AfCFTA implementation – Customs

The Customs boss said Nigerian exports have suffered setbacks relating to Rule of Origin issues.

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Nigeria generated N170.4 billion

Nigerian customs says the facilitation of trade requirements ranging from Pre-Arrival processes to Electronic Payments of duties would be important for the AfCFTA implementation for Nigeria.

This was disclosed by Abdullahi Babani of the Nigerian Customs Service represented by HJ Swomen (Comptroller Import and Export) on Thursday at the AfCFTA Sensitization Seminar organized by the National Action Committee of the implementation of the agreement.

Mr Swomen said the Customs is working to integrate systems with West African neighbours to prevent dumping of goods through Rules of Origin measures.

“Liberalization of 90% of tariff lines will affect customs revenues. About 85% of import come from outside Africa, leaving about 15% from the continent, but the agreement is an opportunity for Nigeria to boost exports and production,” he said.

He added that Nigerian exports have suffered setbacks relating to Rule of Origin issues and urged for a mutual exchange of data between Customs administrations in the continent.

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He said that the Nigerian Customs has already begun cooperating with its counterparts like the ECOWAS Common External Tariff (CET) and the Joint Committee on Commerce Agreement signed with Benin Republic in 2004.

However, challenges still exist in the form of engagements with the Beninese Customs on Cross Border Trade Facilitations including joint border posts, mutual escort of transit goods and the interconnection of systems of both parties, which is on-going.

On requirements need for Trade facilitation he said the Customs Service has upgraded its Pre-Arrival processing, Electronic Payment, Expedited release of perishable goods, provisional release of relief materials and Dispute resolution mechanisms.

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Business

African free trade will boost development of manufacturing in Nigeria – NEPC

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Head of States at African Continental Free Trade Agreement

The Nigerian Export Promotion Council (NEPC) says that the implementation of the African Continental Free Trade Area (AfCFTA) will serve as a catalyst for industrialization and development of the manufacturing sector in Nigeria.

This was disclosed by the NEPC Director Export Trade, Mr. Sidi-Aliyu Abdulahhi on Thursday at the AfCFTA Sensitization Seminar organized by the National Action Committee of the implementation of the agreement.

Mr. Abdulahhi said the AfCFTA is the largest free trade area since the WTO (in terms of countries participating) and will cover a market of 1.3 billion customers which would be beneficial for Nigerian producers. The trade agreements will promote infrastructural development for easy transportation of goods and services across the continent.

The liberation of trade in Africa will strengthen Nigerian SMEs for regional trade and be a catalyst for extending operations outside Africa. “The AfCFTA will promote diversification of the economy from extractive products like oil and minerals to non-oil products that were previously underutilized,” Abdulahhi added.

He disclosed that AfCFTA stakeholders are currently working to develop a digital framework to support an e-commerce platform to enable member nations to trade safely in the midst of the pandemic.

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On challenges facing the implementation, he urged the need to conduct a gap analysis on the readiness of Nigeria to AfCFTA, for a successful implementation.

He said the implementation constraints primarily lies with the government while the private sector may experience capacity constraints.

Other challenges will include high-interest rates, unreliable power supply, inadequate power supply, ease of doing business environment and SME  capacity development for the requirements to participate in regional and global value chains.

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He urged for the institutional framework to address rule of origin of goods and also technical barriers to trade SPS through the implementation of verification mechanisms.

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