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.  

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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. 

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. 

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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. 

READ ALSO: Access Bank mourns staff, activates Business Continuity Plan

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.  

Dangote Sugar reported a modest 7.1% y/y growth in Revenue to N161.1bn in FY 2019 from N150.4bn in FY 2018. Net Income also grew 1.8% y/y to N22.4bn for FY 2019. Q4 was a strong quarter as Revenue grew strongly q/q, up 17.8% to N43.7bn in Q4 2019 from N37.1bn in Q3 2019. Compared with Q4 2018, Revenue grew strongly, up 33.6% y/y. Net Income also grew strongly y/y, up 105.5% to N7.7bn for Q4 2019. Though Net Income declined 9.0% y/y and 16.8% q/q in Q1 2020, Revenue grew significantly, up 24.9% y/y and 9.9% q/q.

We raise our key forecasts higher over 2020e-2024e. Volumes have recovered following closure of the border in August 2019 while the company has been able to implement price increases since Q4 2019 in the absence of lower priced smuggled sugar. Despite expected headwinds such as, possible opening of the borders, expected stutter in demand following disruptions to industrial activities & ban on social gatherings and elevated cost pressures due to higher import duty on raw sugar, VAT increases and FX concerns, we expect recovery in industrial activities in Q3 and Q4 to sustain growth albeit at a slower pace.

Following upward revisions to our forecasts, we revise our target price higher to N17.65/s from N13.87/s previously. Our new target price implies 21.3% upside to Monday’s closing price of N14.55/s, making us upgrade our recommendation to a BUY from HOLD previously. Our valuation combines a mix of DCF analysis and relative valuation in the ratio 60:40 with the greater weighting on DCF valuation.

CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.