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Market Views

Disclosed insider dealing seen impacting share prices.

It appears there is a correlation between insider dealings and share prices.

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Disclosed insider dealing seen impacting share prices.

On May 28, 2020, a director at Dangote Cement, Devakumar Edwin,  purchased 1 million units of the stock valued at N138.5 million. This is according to official disclosure by the company via the Nigerian Stock Exchange published June 1, 2020.

Between the 11th and 12th of May 2020, a major shareholder at UACN, Blakeney JP sold a cumulative 50 million unit os shares of the stock at prices ranging between N6.02 and N6.9.

Insider Dealing

The Nigerian Stock Exchange introduced the new “Insider Dealing” disclosure last year to limit the high prevalence of insider targeted sale of shares without informing the public. Proponents of transparency in matters of the stock exchange have often complained about insiders (directors and management of companies) with knowledge of the operations of the company trading the stock without adequate disclosures.

READ MORE: MTN to still sell stake in its Nigerian subsidiary

A cursory view of some of the disclosures published by the NSE shows most of the companies ended up having their share prices rise subsequent to the sale or purchases. In the case of Dangote Cement, following the transaction disclosure, the share price rose to N140 before falling to N136. For UACN, the share price has risen to as high as N7.7. These are not the only two stocks that have recorded a positive rise since May.

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Another example is the Insurance Company AIICO. On May 18th its Managing Director, Babatunde Fajemirokun purchased 1,198,330 shares at 90 kobo. Another 3,769,586  followed on the 20th at 96 kobo and subsequently 2,473,095  and 5,782,586  at 1.02 and 1.04 per share respectively. The stock has gone on to rise and now trades at N1.1 per share.

FBNH also reported one of its directors purchased over 2 million of the Holdco’s shares at about N4.8, the stock now trades at N5.4 per share. The same can be seen from over a dozen stocks surveyed by Nairametrics research including Cusdotian, Fidelity Bank, United Capital, Vitafoam, Stanbic IBTC between late April and May (the dates reported on the Nigerian Stock Exchange website).

Impact on share prices

Could there be a cause and effect? One will have to go all the way to last year browsing through tons of official disclosures to confirm if insider dealings do have an effect on short term share price movement. However, for the trades done in the month of May, a clear pattern can be seen between insider dealings and share price movement.

The Nigerian Stock Exchange has faced several criticisms about suspected cases of insider trading as no one has been convicted of it in recent years. Discussions on several internet forums and blogs capture retail investor frustrations about changes in share prices without any fundamental reasons. A few years ago, investors saw the share price of Forte Oil rise to as high as N240 from under N20.

It was only later to be revealed that significant trades between AMCON and the majority shareholder of the company may have been the reason for the share price growth. Several stocks still record significant price increases shortly before the results are announced or corporate actions disclosed suggesting some insiders may have instituted action on the back of insider information.

READ ALSO: Nigerian banking stocks remain most liquid stocks, as investors gain N25.1 billion

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We have also seen share prices of moribund companies rally without any tenable explanation.

A phenomenon we call 14.29 captured in a Nairametrics article some years back, detail how share prices can be manipulated. The Nigerian Stock Exchange has over the years introduced several measures aimed at curtailing insider trading updating its rule book periodically. This has brought some transparency to the Exchange. One of such is the Insider Dealing.

As more and more insiders disclose trades, experts will beam their searchlights on how these are impacting share prices and the market in general.

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Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

1 Comment

1 Comment

  1. Obinna Okafor

    June 8, 2020 at 12:58 pm

    An example is Neimeth which has recorded an increase of over 300% in the last 3 months, without any clear reason.

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Company Results

2020 Q2 Analysis: Conoil Plc, hanging by the thread

Conoil must stay aware and strive in Q3 to maintain a positive net cash position.

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Conoil Plc, NSE, Conoil Plc's shares, NSE suspends shares from trading shares, Conoil Plc declares dividend payment for FY 2019, announces AGM soon

A profit decline worth over N600 million within a 1-year period is more than enough to throw any concerned shareholder in a frenzy. Sadly, this is the reality for Conoil Plc, according to its latest unaudited earnings report.

The company’s Q1 2020 result seemed impressive, with about N260 million worth of profit after tax (PAT) reported. Ideally, this ought to have been a sign of good performances for the subsequent quarters of the year. Unfortunately, this hasn’t quite been the case.

The appalling nature of the second quarter (Q2) results was partly caused by the COVID-19 pandemic, as well as the recent reduction in fuel pump price by the federal government. As you may well know, the virus hit Nigeria at the start of April 2020, thereby ushering Q2 economic activities and operations into a compulsory lockdown. These notwithstanding, no one could have anticipated a revenue plunge 70% deep in the span of 6 months between Q1 and Q2.

Conoil Plc has an impressive reputation as a market leader playing in Nigeria’s downstream oil and gas sector. Due to the company’s positioning in the downstream sector, it is seldom directly affected by events in the often volatile global oil market… until now.

The Nigeria-based company was also hit hard when the federal government decided to allow market forces to determine the price of the pump in the country. The price was reduced to 125p/ltr from 145 p/ltr in late March this year. This contributed to the derisory N19.3 billion posted as Q2 revenue.

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The oil giant is in the business of marketing, distributing, and manufacturing under three business products, representing its operating segments. They market refined petroleum products and manufacture lubricants and household Liquified petroleum gas (LPGs) for domestic and industrial use. The three segments; White products (PMS, DPK, LPFO AGO), Lubricants, and Liquefied petroleum gas (LPG), individually and respectively experienced poor turnover in Q2.

Worst quarter

Conoil’s recently released financial statement exposes arguably its worst Q2 figure in a couple of years, with Profit after tax (PAT) standing at a paltry N78.3 million. This pales significantly in comparison to Q1 PAT figure of N260 million representing a colossal 70% negative change and an 88.9% decline when compared to Q2 of 2019 with PAT of N707 million.

Revenue for the H1 peaks at N57.5 billion (although comparatively way below H1 2019 at N72 billion YoY) with Q2 Contributing a meager 16% N19.3 billion. Fundamental analysis of the financials, exposes that the sporadic shrink in turnover for Q2 could be attributable to these two major reasons. Firstly, the general lull in economic activities sponsored by the COVID-19 pandemic. This affected CONOIL’s marketable segment, halving the sales figures for white products by approximately 50% from N36.5 billion to N18 billion in Q1 & Q2 respectively. Manufactured lubricants also experienced a 7.7% dip in Q2 at N1.2 billion from N1.7 billion in Q1.  The second cause as hitherto stated was the reduction in fuel pump price N145 to N125, for the first time since 2016.

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The impact of such a decline in revenue is humongous. It questions the company’s ability to effectively service its debt obligations in the next quarter as well as providing adequate cover for its cost of sales and other expenses.

Investors are reputed to be ruthless pragmatics who accord more importance to the fine-prints than selling price when making purchasing decisions. Thus they often would place emphasis on the statement of cash flow as opposed to the income statement.

Conoil must stay aware and strive in Q3 to maintain a positive net cash position since Q1 & Q2 bear negative balances of N2billion and N1.2billion respectively. Negative cash flow is always a worrying omen. With current ratio for Q2 at 1.47:1 indicating the Oil giant’s relatively unconvincing ability to comfortably settle its liquidity problems if they arise.

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Market Views

Apple market capitalization nears $2 trillion, as Apple’s CEO becomes a billionaire

Tim Cook has now joined the elite club of CEOs who didn’t actually create companies they run.

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Apple iPhone 11, Tax battle: Apple challenges $14 billion court case , Apple to pay $500 million settlement in lawsuit over slow iPhones, Apple supplier Foxconn to reopen manufacturing base in China, Apple donates 10 million face masks to healthcare workers, App developers can now challenge Apple store guidelines 

Almost a decade after Apple’s founder Steve Jobs stepped down and passed the leadership baton to Tim Cook, the new CEO has been leading the world’s most valuable company to astronomical highs.

Last week, the tech firm’s share price gained almost 5% last week. This has caused Apple (which Jobs co-founded about five decades ago at his parents’ California home) to reach a milestone market value of nearly $2 trillion. As at the time Jobs died, the company’s market valuation was around $350 billion.

Meanwhile, Apple’s current CEO, Tim Cook has now joined one of the most elite clubs for CEOs who didn’t actually create companies they run. His net worth has now reached $1 billion, according to calculations by the Bloomberg billionaires index.

Cook’s net worth estimates are calculated on analysis of regulatory filings and apply the market performance of a typical wealthy investor to his proceeds from share sales.

Why is Apple’s valuation surging?

The era of high quantitative easing in 2020 has helped global stock traders raise funds, for placing more bets in growth stocks like Apple, thereby resulting in their astronomical rise in valuations in spite of COVID-19. These companies also have good macros in their businesses, partly due to low debts, high-profit margins, and the fact that more people are isolated and mostly working remotely on their iPhones and Macbooks.

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Cook, 59, disclosed five years ago that he plans to give most of his fortune away. Already, he has gifted millions of dollars’ worth of Apple shares. His wealth could be lower if he has made other undisclosed charitable gifts.

“This tech cycle has been way bigger and longer than I thought,” said Hussein Kanji, a partner at venture capital firm Hoxton Ventures who had expressed caution about Apple’s long-term outlook after Jobs left the company. “Out of all these stocks, Apple has become the greatest cash generation machine in history.”

Recall that about two weeks ago, Nairametrics reported about how Apple recorded a major feat recently by becoming the biggest publicly listed company in the world. This feat was recorded when Apple’s shares gained over 10% to a record high on Friday after reporting impressive quarterly results.

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FEATURED

Dangote Cement: “Our Pan African operations is performing well”

Dangote Cement also explains that the recent devaluation by the government has not had a negative effect on its finances

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

Dangote Cement has stated that its Pan African operations performed well in the first half of 2020. This was contained in a message sent to Nairametrics after an inquiry related to the performance of its Pan African operations.

The cement behemoth noted that its African operations contributed positively to its Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA). EBITDA for the Pan African operations was N12 billion even though it ended up posting a loss of after-tax of N17 billion.

READ MORE: Dangote pays 90% of net profits as dividend

“In total, Dangote Cement’s Pan-African business is not dragging the Group down. Pan Africa is contributing net positive Earnings before interest, tax depreciation, and amortisation as shown in note 4 to our interim financial statements. As also shown in that same note, Pan Africa is contributing positively to Profit from operating activities. When you go below the operations profit line and consider the funding the Nigerian business records income for the funding it provided to Pan Africa while Pan Africa picks finance costs for the funding it got from Nigeria and this is intergroup and will eliminate on consolidation.”

Devaluation Boost

The company also explains that the recent devaluation by the government has not had a negative effect on its finances especially as most of its dollar loans to its Pan African Businesses was an exchange rate gain to the Nigerian Parent entity. It also indicates that most of its loans are in Naira.

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“The Nigerian business has dollar investments in Pan-Africa. Owing to the naira devaluation in H1:2020, the Nigerian business gained more naira for its dollar investment. As such, there is an FX gain in the Nigerian business and an FX loss in the Pan-Africa business. Furthermore, our finance cost shall not be materially affected by the devaluation as we have limited dollar debt exposure, with only 14% of our debt in dollars.”

READ ALSO: MTN Nigeria revenues rises to over N100 billion monthly in 2020

Impact of COVID-19

Despite the impact of COVID-19, the company also showed strong performance in its Pan African operations. It claims margins remained strong volumes also increased. According to Dangote Cement, there was volume growth in 5 countries where it currently operates with Senegal as one of the best performing.

“Our Pan-Africa operations performed well in the first half of 2020, with an increase in volumes and revenues, despite the impact of COVID-19. We have reduced our cash cost in 6 of our 9 Pan-African operations this year and recorded a record high EBITDA and EBITDA margin of ₦31.5B and 22% respectively. We had strong volume growth in 5 countries, with Ethiopia and Senegal performing particularly well. In fact, the output at our plant in Senegal continues to exceed its rated capacity.

READ MORE: Lafarge Africa is cutting it all out

“We have a vast opportunity to make West and Central Africa cement independent, and this is why we are deploying our ‘export to import’ strategy. Nigeria has an abundance of quality limestone, while much of West Africa is lacking it. As successfully delivered for Nigeria by Dangote Cement leadership, we are aiming at making Ecowas and CEMAC regions clinker and cement independent and eventually next exporters with Nigeria as the main supplier.”

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