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Columnists

Traders’ Voice… Did you miss the “wow” moment at the Nigerian stock market?

At the close of the week, the market had improved, making the Nigeria Stock Exchange the best performing in the world.

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Nigerian Stock Exchange, NSE

If you have ever been to Oja Eko (Lagos Island market), then you can simply infer the activities in the equities market last week by examining the experiences garnered in this commodity market.  There was a lot of buying; many got value for their money while some had to live with the regret of missing out on great opportunities or even lost money. On the local bourse last week, for all, it was a buying frenzy, but for many people, it was like the stock market held its first giveaway.

In nominal terms, the market gained N2.10 trillion W/W, representing a 12.97 percent uptick in both all share index and market capitalization. The WOW moment was on Thursday when the market had to throw in a circuit breaker for the first time, which is simply the exchange’s way of telling market participants to “please calm down.” The exchange paused trading for 30 minutes, after the market gains climbed past 5 percent, and resumed activities afterward. At the close of the week, the market had improved its year-to-date return to 30.53 percent, making the Nigeria Stock Exchange the best performing in the world. Great news, right?

The major push behind this aggressive buying interest seen in the equity space can be traced to the depressed stop rates at Wednesday’s treasury bills auction. The auction was concluded with stop rates at 0.035%, 0.15% and 0.30% for the 91-day, 182-day, and 364-day treasury bill, respectively (as against, 0.34%, 0.50%, and 0.98% recorded in the last auction).  Compared to its peers, Nigeria Treasury Bills is the only paper yielding negative real rate of return. It is safe to say we should not be expecting any FPI inflow in the fixed income space soon.

In a desperate hunt for higher investment returns, a plethora of retail investors rushed to the equities market to pick up stocks cutting across all sectors, irrespective of what the fundamentals dictate. Another factor that lent support to the bullish momentum was the circular from PENCOM instructing PFAs to restructure their business models, making the various fund categories reflective of the permissible risks of the underlying demographics. This action is expected to push some funds into the equity market over the four months period given by the regulators to restructure their asset allocation, and we saw some position taking by large fund managers at the start of last week.  and we saw some positioning by large fund managers at the start of last week.

The bullish sentiment seen in the equities market is not unique to last week, as we have witnessed eight consecutive weeks of market appreciation, driven by the low rates in the fixed income market. Hence, this puts us at a crossroad, as we are faced with the possibility of further gains as fixed income rates are expected to remain low.

Overvalued or Undervalued?

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Some school of thought still believes Nigeria equities market is undervalued despite the rally and believes there is still room for a sustained rally based on a relative PE analysis. Compared to its peers PE average of 14.13x (JSE 25.87x, Nairobi 10.09x, BRVM 6.62x and Vietnam 15.63x) the Nigeria All Share Index is still relatively undervalued with a current PE of 12.43x. While the opposing school of thought believes stocks are overvalued based on technical indicators.

So, this brings us to the vital question, ‘Are you too late to the party?’

Please find attached our stock recommendation for the week.

Guess who is back on top?

Stanbic 728 x 90

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Columnists

The role of healthy communication in the workplace

To foster a healthy work environment, employers should take communication more seriously.

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Networking, way to success in Nigeria

Profit is the purpose of every business organization. The best way to sustain profit is to strengthen the “Employer-Employee” relationship and the “Buyer-Seller” relationship. The profit of every business organization depends on these two. The success and failure of every business organization also depends on these two.

Communication is one of the major concerns in an organization and it is very necessary in our workspace and among people around us. Constant communication helps to build a strong connection in the relationship between an employer and an employee. It is crucial to the growth and success of your business and it allows everyone to provide input and feel that their ideas are valued.

Everyone can communicate as long as it is with words. In an organization, both the employer and the employees should develop good communication skills.

Your employees are part of the vision of your company and their opinions and innovations should be considered. This will go a long way in building a positive workplace culture.

Communication can be in oral or written form; and while written communication is the preferred form of communication in organisations, oral communication should neither be limited or downplayed. As an employer, your employees should be able to communicate freely with you. Communication reminds your employees about the goals of your company and helps you to delegate responsibilities effectively.

According to research, 57% of employees report not being given clear directions. A survey of 400 companies with 100,000 employees cited an average loss of $62.4 million per annum because of inadequate communication between the employer and the employees.

It is the responsibility of an employer to communicate the organisation’s vision, mission, goals and objectives to employees. Goals must also S.M.A.R.T (Specific, Measurable, Achievable, Realistic and Timely). Where communication is absent or ineffectively handled, employees can become unproductive, unresourceful, demotivated, and disorganised. There may also be high employee turnover which ultimately affects the profitability of the business. Without effective communication, an organisation will most likely be unable to retain its star performers or motivate average-performing employees into becoming highflyers.

Communication in organisations should not be left only to the Human Resources department, but feedback should also be encouraged from employees. Where there is a gap in communication, employees are left with no choice but to fill these gaps with rumours, (wrong) assumptions, gossip and the spread of misinformation. This creates an unhealthy work environment that is detrimental to the business.

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To foster a healthy work environment, employers should take communication more seriously. They should not only learn the art of effective communication but should also encourage and be receptive to feedback from their employees.

 

 

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Why NNPC’s Borno power plant may not materialise 

The glaring security challenge cannot be overlooked in considering a major power plant project in Borno State.

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Only a few days ago, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, led a delegation to Borno State to meet with the Governor of the State, Babagana Zulum.

In the conversation with Zulum, Kyari promised the establishment of a gas-fired power plant in Borno State within a maximum of 4 months to solve the recent blackouts that resulted from insurgents cutting off Borno from the national grid since January this year.

In Kyari’s words, “We have talked to each other and we think it’s very possible to establish a dedicated power plant in Maiduguri which will serve current needs of power supply not only in Maiduguri but to other parts of the neighbouring cities.”

READ: NNPC GMD says AKK pipeline, Nigeria’s biggest gas project is 15% complete

Yet, there is a significant possibility that the power plant promised by Kyari may not materialize for many reasons, the first of which is security. In the meeting with Kyari, Governor Zulum had noted: “The ongoing insurgency has cut off the entire Borno from the national grid in the last three months. We put all our efforts and restored it back… but unfortunately, after 48 hours, the same group of insurgents went back and destroyed the main tower again.”

This glaring security challenge cannot be overlooked in considering a major power plant project in Borno State, particularly noting that the State and its surrounding communities have been the hot zone of insurgent and terrorist attacks by Boko Haram insurgents since 2009. Borno, Yobe and Adamawa have particularly been states where the insurgents have set up shop and carried out various activities, including kidnap, extermination of entire communities, burning of markets and religious buildings and the attack on the United Nations compound, in each case claiming tens or hundreds of innocent lives.

READ: Analysis: NNPC and its refining losses

One report reveals that at least 37, 500 people have been killed by the insurgent group since May 2011, a modest number, some say. Also, till date, some of the secondary school girls kidnapped in the April 2014 Chibok incident are yet to be returned to their families. It is then bewildering how Kyari intends to see to the construction and operationalizing of this gas power plant.

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Additionally, while the Minister of Petroleum for State, Chief Timipre Sylva, announced last year about the discovery of oil and gas deposits in the North, we have not seen any exploration and production kick-off. It then begs the question of where the gas for the Borno power plant intends to be sourced. The only gas pipeline that runs through the North – the AKK- is still in its first phase of construction out of three phases and has been earmarked at the earliest, to be completed in 2023 – not counting the typical delays the project will experience along the way.

READ: NNPC, only Nigerian company to cut losses by N800 billion in one financial year – GMD

Should the AKK by some stroke of luck materialize much earlier than the target date, the pipeline route is a considerable distance from Borno. It runs the route of Ajaokuta-Abuja-Katsina-Kano, its endpoint, a striking 481km from Borno State. Thus, there would have to be construction of a tie-in pipeline almost as long as the AKK from Kano to Borno State to get gas to Borno.

Optimists may reference the oil and gas discovery in the North and how production may start soon, thus obliterating the need for a 481km pipeline. This optimism however is not well-founded, as insecurity has been shown to be a major risk to oil and gas projects everywhere in the world. One of the major reasons the Trans-Saharan Gas Pipeline proposed to run from Nigeria to Algeria was abandoned was due to security challenges posed by Nigeria’s Movement for the Emancipation of the Niger Delta (MEND), the Tuareg guerilla movement in Niger and other insurgent groups along the proposed route of the pipeline.

READ: Why NNPC should be commercialised

Stanbic 728 x 90

These increased the risks across board, including for completion and operations through the lifecycle of the project. As such, failing to fix the security threats in northeast Nigeria makes any proposed gas plant project a pipe dream. Transporting gas via LNG trucks is not a better option, given that the drivers and their cargoes would be in danger of being kidnapped, shot at or bombed. The risks for both personnel and investors are high.

In any event, promising a power plant in 4 months for the people of Borno is unconscionable, since a typical gas power plant will take between 1 to 6 years to construct in relatively peaceful regions. What the government needs to do instead of making promises it cannot keep is to work arduously to fix the security challenges in Northern Nigeria and at the same time consider using decentralised solar power to provide power supply to homes, government institutions, schools and businesses while plans to produce gas in the region or transport gas to it are underway.

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