A total of 27 stocks out of 165 ended the last week in July with gains. The stock market squeezed out a 0.88% gain in July as the earnings season and economic uncertainty weighted down on stocks.
However, one equity stood tall among the rest as the best performer this week and second-best in July. It is also one of the best equities this year having gained over 60%.
The equity is New Gold ETF an exchange-traded fund listed on the Nigerian Stock Exchange. It gained 17.4% last week alone and 27.5 in July month to date.
What is New Gold ETF? This is an exchange-traded fund managed by Vetiva Securities.
- It tracks the price of gold and offers institutional and retail investors the opportunity to invest in a listed instrument (structured as a debenture) that is fully backed by gold bullion.
- Each NewGold security is equivalent to approximately 1/100 ounces of real gold bullion held in a secured stockpile of gold bullion.
- All gold is kept in the form of London Gold Delivery Bars and Good Delivery Standards are prescribed by LBMA.
- Its unit price rose from M7,995 to N8, 500 in just one week.
Why is it hot? Not clear what is driving demand however, we believe the uncertainty in the economy and the limited viable investment options is driving smart money towards this ETF.
- Investors typically flee to gold during periods of uncertainty and this could just be an example.
- Gold prices have also hit multiple. highs in recent weeks in markets across the world.
- The dollar is also under pressure as Americans step up their bailout plans. This is impacting positively on Gold prices.
- It is also the best performing Mutual Fund in 2020.
Guinness Nigeria Plc jostles to improve from its insipid 2020 financial year
In the 2021 financial year, the task before the company is to drive its strategic objectives to bring the company back to profitability.
Guinness Nigeria Plc has started its 2021 financial year with a loss, just like the company did in 2020. However, this time, the value of the loss adds up to N841 million for the opening quarter. In 2020, it was N370 million, which set the tone for what eventually degenerated into a truly horrible and uninspiring financial year. A year that saw loss position in the aggregate 12 months period peak at N12.6billion.
Apparently, all that could possibly go wrong with Guinness, did go wrong. From what in retrospect, turned out to be an over-ambitious outlook at the start of the year, to the effects of not giving immense attention to controllable costs, rise in inflation with its resultant pressure in decreased consumer spending, and the crippling effects of the unprecedented COVID-19 pandemic; no company could have asked for worse.
However, the horrendous performance was not peculiar to Guinness Nigeria alone. The results from its competitors, such as the International Breweries Plc, and Nigerian Breweries Plc, amid appalling industry figures recorded, proved that 2020 has been a tumultuous year indeed for all companies operating in the brewery manufacturing sector.
The analysis of FY 2020
How poor was the 2020 FY performance of Guinness Nigeria and what can be inferred from its Q1 2021 reports? For a company in the habit of declaring dividends especially after the N5.5billion profit in 2019, how did the company move from that profit margin to a loss of N12.6billion just 12months after?
- Profit declined by 129.1% from N5.5billion Profit after Tax in 2019 to N12.6billion Loss after Tax in 2020. This Steep decline was evident in all arrears from top-line to bottom.
- Gross profit down by 16.9% to N33.33billion in 2020 as against N40.13billion reported in 2019
- Revenue plunged 21% to N104.41billion in 2020, from N131.5billion generated in 2019.
- Cost of sales did show some improvement, moving from the N91.4billion expended in 2019 to N71.1billion in 2020 – a 22% decrease.
- Administrative cost continued the rising trajectory to N14.3billion in 2020 from N9.9billion in 2019.
- Finance cost rose to N4.5billion from N2.6billion in 2019, while finance income declined from N750.9million to N301million in 2020.
Speaking on 2020 results, Mr. Baker Magunda, Managing Director/CEO, Guinness Nigeria Plc said,
“The last quarter performance of fiscal 2020 was significantly impacted by restrictions due to COVID-19, exacerbating the already challenging economic environment. Closures of on-trade premises (bars, lounges, clubs, and dine-in restaurants), which represents the major part of the consumption occasion for our products and bans on celebratory occasions, impacted sales.
“Demand was also impacted by reduced consumer income, unemployment concerns due to the shutdown of a large number of businesses, and increases of VAT and excise throughout the year.”
Magunda further explained that, “Distribution was impacted by the ban of inter-state, and in some cases intra-state travel. Although, Management worked diligently with regulatory authorities to minimize the impact, this hampered our distributors’ ability to restock and have our brands available for purchase.”
The analysis of Q1 2021
In the 2021 financial year, the task before the company is to drive its strategic objectives to bring the company back to profitability. The Chairman, Mr Babatunde Abayomi Savage, recognizes that this would be no stroll in the park, as he affirmed that despite predictions that the coming year will be challenging globally due to the new normal, “we believe we have experienced our full share of the impact and are now geared to go back to profitability.”
The opening quarter for 2021 (July-September) saw improvements in sales volumes on the back of eased restrictions from the COVID-19 necessitated lockdown.
- Revenue posted is N30.02billion, 11.64% increase from the N26.89billion recorded in the corresponding period of 2020.
- However, Cost of sales worsened by 21.1%, increasing from N18.9billion in Q1 2020 to N23.01billion in Q1 2021.
- Marketing and distribution expenses, as well as administration expenses, showed marginal reduction, depicting management interest in controlling these variables.
Generally speaking, results for the opening quarter show signs of improvement, but the tax component was the primary factor responsible for masking the progress obtained in Q1 and eroding promising signs.
With the gradual re-opening of its previously closed company buildings in Benin City, and the shift in focus from the largely underwhelming lager segment to investing more in spirits, it will be interesting to see how this impacts volumes and revenue in subsequent quarters, despite the apparent economic conditions.
Exchange rate remains flat, currency traders resume operations after curfew is relaxed
At the black market where forex is traded unofficially, the Naira remained stable against the dollar to close at N463/$1 on Monday.
Nigeria’s exchange rate at the NAFEX window continued to remain stable against the dollar to close at N386/$1 during intraday trading on Monday, October 26.
Also, the naira maintained its stability against the dollar, closing at N463/$1 at the parallel market on Monday, October 26, 2020, as currency traders resume business activities after state governments relaxed the curfew initially imposed to curtail the widespread violence that followed the hijacked #EndSARS protests.
This is also as businesses shut down due to the outbreak of violence in Lagos and some parts of the country during the protests against the special anti-robbery unit (SARS) and police brutality by the Nigerian youth.
Parallel market: According to information from Abokifx – a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira remained stable against the dollar to close at N463/$1 on Monday. This was the same rate that it exchanged for on Friday, October 23.
- The local currency had strengthened by about 7.8% within the one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers, in order to try to boost the supply of dollars in the foreign exchange market, and reduce the high demand for forex by traders.
- The CBN has sold over $500 million to BDCs since they resumed forex sales on Monday, September 7, 2020. This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
- However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
- The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual.
- Despite the drop in speculative buying of foreign exchange, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.
NAFEX: The Naira remained stable against the dollar at the Investors and Exporters (I&E) window on Friday, closing at N386/$1.
- This was the same rate that it exchanged for on Friday, October 23.
- The opening indicative rate was N386.29 to a dollar on Monday. This represents a 29 kobo drop when compared to the N386 that was recorded on Friday.
- The N393.11 to a dollar is the highest rate during intraday trading before it closed at N386 to a dollar. It also sold for as low as N382/$1 during intraday trading.
Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined significantly by 81.14% on Monday, October 26, 2020.
- According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $197.42 million on Friday, October 23, 2020, to $37.23 million on Monday, October 26, 2020.
- The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
- The drop in dollar supply after the previous trading day’s huge increase, reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
- As part of the measure to check forex abuse and check illegal transactions, the CBN last month directed the freezing of accounts of about 38 companies.
- The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.
- Total forex trading at the NAFEX window in the month of August was about $857 million, compared to $937 million in July.
- The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand, and a shaky economy that has been hit by the coronavirus pandemic.
ASUU discloses why it is yet to call off nationwide strike
ASUU has disclosed why after several negotiations with the government, it is still yet to call off its on-going strike.
The Academic Staff Union of Universities (ASUU) has given the reason it is yet to call off its ongoing strike, following its dispute with the Federal Government.
The national body of the university lecturers said that they are waiting for the government to conduct an integrity test on the University Transparency and Accountability Solution (UTAS), a homegrown payment platform created by ASUU in place of the government’s Integrated Payroll and Personnel Information System (IPPIS).
While making the disclosure during an interview with Punch, the ASUU President, Professor Biodun Ogunyemi, said the government needed to give the clearance to National Information Technology Development Agency (NITDA) to conduct an integrity test on UTAS.
The ASUU President said, “The integrity test will be handled by NITDA, it is the government that will facilitate it because NITDA is a government agency and unless you get clearance from the government that test cannot be conducted.”
On whether the government had accepted UTAS, Ogunyemi said, “We are still talking, we have given them the position of our members, we are thinking we should be able to hold a meeting this week if they have not changed plans. The meeting for Monday was postponed. In principle, they have accepted UTAS and told us to go for the test, and on our part, we have started the process.
“We had presented UTAS at three levels, starting with the Ministry of Education, Senate President and members of his team, officials of Ministry of Finance and Office of the Accountant General of the Federation, where all other stakeholders were present, including NITDA. All stakeholders have witnessed the presentation and the next stage of integrity test is what we are moving into.
“If government facilitates it, it is not something that should drag for too long at all. We don’t foresee any problem with UTAS, it also depends on how early the government makes it possible for the integrity test to be conducted.”
Ogunyemi also explained that ASUU was ready to resume academic activities if the government was ready to play its part.
He said, “Our members are ready to resume work as early as the government is ready to play its part. I’m sure you are not suggesting that our members should resume on an empty stomach or the strike should be suspended without any concrete action on the side of the government. We don’t like to stay away from our work because we like our students; they are also our children.’’
Ogunyemi noted that as far as they are concerned, they don’t have any issue with going back to work, but they want more sincerity on the side of government.
What you should know
It can be recalled that ASUU embarked on an industrial action about 8 months ago across the country, following its dispute with the Federal Government over their insistence on the implementation of the Integrated Payroll and Personnel Information System (IPPIS) in the payment of University lecturers’ salaries and allowances. Alternatively, ASUU developed a homegrown payment platform, UTAS, which they believe guarantees the autonomy of the university.
The Federal Government, following negotiation with ASUU, said that it might consider adopting UTAS as a way of finding a solution to the lingering crisis.