Transactions on the Nigerian Stock Exchange (NSE) reopened positive, occasioned by gains in blue-chip stocks. At the close of trading, the All-Share Index recorded a 0.40% gain to settle at 25,267.82 points. Similarly, market capitalization gained N53 billion to close the last trading day of the month at N13.168 trillion.
A total of 325.61 million shares valued at N4.47 billion was traded in 5,647 deals on Friday. FBNH was the most traded stock by volume of 75.1 million units, while GUARANTY topped by value at N904.25 million.
Market sentiment, as measured by market breadth, was negative with 20 losers against 14 gainers. DANSUGAR (-7.86%) recorded the highest price decline to close at N12.90 per share, while CADBURY (+8.65%) topped the gainer’s chart at N8.65k per share.
The sectoral performance was positive following gains in the Industrial, Insurance, and Oil & Gas Indices, having appreciated by 4.92 %, 3.12%, and 0.63% respectively.
The Banking Index (-1.93) led the laggards, as price decline in ZENITH BANK, GUARANTY and ETI pressured the index. Similarly, the Consumer Goods index trailed distantly to shed -0.65% on the back of -7.86% depreciation in DANGSUGAR.
CADBURY went up by 8.13% to close at N8.65; DANGSUGAR went up by 7.86% to close at N12.9; BUACEMENT went up by 7.69% to close at N42; FLOURMILL increased by 5.00% to close at N21, and DANGCEM went up 0.36% to close at N139.
CAVERTON went down by 7.50% to close at N2.58; VITA FOAM went down by 7.50% to close at N5.55; ETI went down by 6.42% to close at N5.1; ZENITH BANK went down by 3.15% to close at N16.9, and GUARANTY went down by 1.64% to close at N24.
Nigeria’s Stockmarket finished on a positive note as industrial stocks finished bullish. Profit-taking continued at most banking tickers. We envisage profit-taking dominating Nigeria’s stock market in the short term.
The risk of buying Forex at black market rate of N460/$1
Between 2012 and 2017 the naira has depreciated by 30% compounded annually.
If you ask anyone today to choose between being paid in dollars or in naira, there will only be one winner. Since the oil price crash in early March and the ravaging COVID-19 virus, the exchange rate between the naira and dollar has depreciated across the multiple official and unofficial markets where the currency can be purchased.
At the black market, the exchange rate sells for an average N460/$1 (as at this week) and is projected to go higher depending on who you speak to. At the NAFEX market where forex is sold by exporters and investors, the exchange rate is closer to N388/$1 oscillating between a plus or minus N2 band. Just last week the CBN informed the market that the SMIS window where forex is sold to importers and traders that the new floor for forex purchase in N380/$1. The exchange rate at the official CBN window remains N360/$1.
This buttresses the growing calls for the unification of the various exchange rate windows. The market wants a single uniform rate. It is easy to see why. No one wants to be on the losing side if a repeat of 2017 occurs. In case you forgot, the exchange rate was highly volatile in the parallel market trading for as high as N505/$1 before crashing down to N366/$1 after the CBN introduced the NAFEX window. Many people lost money as the naira converged towards that rate. You don’t be in this boat if history repeats itself.
This is why speculating the exchange rate between the naira and dollar can be a brutally risky exercise compounded by the multiple exchange windows in the country. Buy at N460/$1 today and hold as most non-savvy speculators often do and the multiple forex windows are collapsed into one at N388/$1, as the central bank governor alludes to, things could get very risky. If unifying the exchange unlocks liquidity into the market rate and it holds at N388/$1, there is every likelihood that the parallel market rate will follow suit. Those on the other side of the trade looking to convert their dollars (purchased at N460/$1) into naira will be burned badly.
Perhaps a consolation is that so long as Nigeria continues to be import-dependent, it is only a matter of time before the naira depreciates to your buying price. Between 2012 and 2017, the naira has depreciated by 30% compounded annually. You probably only need to wait another 2-3 years and you claw back your losses. But the same cannot be said for anyone with a dollar investment and looking to convert to naira. The burn can be severe.
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For example, you purchase $1,000 at N460 and invest in an asset that should earn you 10% or $100 in profits. If by the time you liquidate your $1,100 and the exchange rate has strengthened to say N400, your $1100 is now N440,000 compared to the N460,000 it cost you when you purchased at $1,000. The exchange rate loss has basically wiped out your profits and part of your capital.
Speculating in forex is hugely rewarding but also very risky. Don’t be fooled to believe it only goes up, things can go down faster than you can imagine. The market will always deliver greater fools.
Herbert Wigwe purchases more Access Bank shares
Wigwe has the highest stake in the bank, directly owning 201.23 million shares.
Access Bank’s Chief Executive Officer and Managing Director, Herbert Wigwe purchased 3.1 million shares worth N21.4 million. In a disclosure filed at the Nigerian Stock Exchange, the transaction, which noted to be carried out via indirect holding through Tengen Holdings (Mauritius) Ltd.
The notification of insider dealing, on the NSE website, revealed the following details: Purchase of shares by directors of a listed company is legal and occurs regularly. However, regulatory provisions require that such trades are disclosed.
Details of the current transaction include:
- A total of 3,144,859 was purchased indirectly in the month of June. The shares were broken down into two transactions.
- Wigwe purchased 3,094,853 shares at a price of N6.81 on the 15th of June 2020 and another 50,000 shares at a price of N6.79 on the 16th of June.
- It noted that the 3,144,859 shares purchased were from Wigwe’s indirect holding through Tengen Holdings Ltd in Mauritius.
- The aggregate price of the transaction was N21,415,448.93.
Recall that in January, the bank’s CEO had sold 55.6 million ordinary shares held indirectly, followed by another 28.86 million shares worth N297.82 million, cumulatively representing a stake of 6.81% in the bank. Of the 15 members of Access Bank’s board of directors, Wigwe has the highest stake in the bank, directly owning 201.23 million shares and 1.24 billion shares indirectly.
The price difference between both days of the transaction could be as a result of the correlation between insider dealing and share prices. Access bank’s share price as of yesterday stood at N6.85, down from its 2020 year high of N11.6 per share. Access Bank has a market capitalization of 243.5 billion and a net asset of N635 billion.
Lafarge Africa: Improved leverage to soften impact of COVID-19 induced headwinds
We believe the steep decline in the stock price (down c.28% since the start of the year) presents an attractive entry point for investors.
Lafarge Africa Q1 2020 revenue was up 9.8% y/y to N63.7bn, driven by higher Cement Sales (up 11% y/y to N62.3bn) which offset the weakness in Aggregate and Concrete (down 21% y/y to N1.4bn). The growth in Cement sales was driven by increased volumes (up 8% y/y to 1.4MT) and price increment (c.2%) implemented by management at the start of the year.
Buoyed by a steep decline in Finance Cost (down 69% y/y), PBT rose significantly, up 104% y/y to N9.4bn in Q1 2020 compared with N4.6bn in Q1 2019. EPS rose by 1.56x to N0.50 in Q1 2020 (Q1 2019; N0.20).
Management noted that the sale of cement weakened significantly in the month of April due to the outbreak of COVID-19. Consequently, we expect Revenue in Q2 to be affected by slowdown in cement volumes, owing to subdued activities in the construction sector caused by the social distancing measures.
Despite our expectation of weaker Q2 Revenue, we expect earnings to receive a boost from significantly lower finance cost due to the improved leverage position of the company (Debt/equity ratio moderated to 0.19x in FY 2019 compared with 2.25x in FY 2018 and 1.83x in FY 2017). The key risk to our outlook is the possibility of a second wave of lockdown due to growing numbers of new cases of COVID 19.
We have updated our model and the overall impact is a marginal downward adjustment of our price target to N23.9/s from N24.4/s previously. However, we maintain a Buy rating given the 117% upside potential implied by our target price from the latest closing price of N11.0/s.
We believe the steep decline in the stock price (down c.28% since the start of the year) presents an attractive entry point for investors. Lafarge is currently trading at a FY2020e P/E and EV/EBITDA of 4.7x and 2.9x respectively, a discount to EM peers average of 11.5x and 6.5x respectively.
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