Columnists
Can I “Short” Dangote Cement stocks?
A follower on my Twitter account asked me a simple question this week, “Kalu how can I short Dangote Cement?”
First, what does shorting a stock mean?
Shorting is seeking to profit from the projected fall in the price of an asset. It involves borrowing shares you do not own and then selling to another investor. The strategy is selling high and buying low, i.e. selling the stock today, generating cash today with the intent to repurchase the same stock at a lower cost, making a spread.
To be able to short any stock, you need.
- A research-based belief that the asset is overpriced, i.e. it is trading in the public market at a price above its intrinsic value.
- Availability of shares that can be borrowed, sold, and rebought. This implies that the target stock to be shorted should have sufficient volume.
READ: United Capital Plc CEO purchases additional 1.5 million shares worth N8.03 million
First, let us understand the terms I will use?
If I am selling, I am Shorting or Putting.
If I am buying, I am going Long or Calling.
So how do I short a stock?
I have identified the target stock to short, let us call it Kalu Plc or KPLC. Let us assume the stock is priced today at N100.00. I go to a broker that holds stock of KPLC, and I borrow 10,000 units of PLC for three months. He will charge a fee for this. Let us assume the fee is 100.00 per 10,000 shares for the 90 days. I will simply sell those shares of KPLC for 100 per share and bank 1,000,000.
So, my position is cash N1,000,000 liability N1,000,000 (10,000 shares of KPLC)
Next, I can buy a Forward Call to cover my bet. This means I buy an option to buy KPLC at 100 in three months as well. The is called a Hedge. I am covering my Short position on PLC by buying the option to buy KPLC back at N100 in 90 days, I will also pay a fee to buy this cover. This means if KPLC instead of falling, rises in value, I will not make money, but I also will not lose money because my Put (Sale) trade has been covered by my Call (Buy) trade. This is called a Covered Call.
READ: Aliko Dangote’s net worth falls by $840 million
Can I Short without a cover?
Yes, I can still Short KPLC without buying a call option. That will save me the expense of paying the Call premium and increase my overall projected profit but expose my trade to unlimited losses if the shares of KPLC do not fall but rise.
What happens if shares of KPLC fall as planned?
If shares of KPLC fall, that is perfect. Let us assume shares fall to 50 per share in 90 days, I simply debit my cash position for 500,000 and buy back the 10,000 shares of KPLC and return to the broker I borrowed it from. I have just made 500,000 or 50% (ignoring fees).
What happens if shares of KPLC rises?
If shares of KPLC rise instead of falling, problem. Let us say KPLC goes from 100 to 150 in 90 days, this means I must spend 1,500,000 to buy back the initial 10,000 shares a return to the Broker, I have lost 50%.
READ: Dangote Cement commences buy back of 85 million issued shares of the company
What if I covered my Short call?
Well, if I covered by Short Putting by buying the 90-day Call, then that was smart. I can simply exercise that call to buy 10,000 shares at 100 instead of 150. This means I debit my cash account to fund my Call excise and repay the broker. I do not make any return, but I do not lose N500,000.
What about options?
Now I can increase my potential returns (or magnify my losses) by simply buying options.
Options are exactly what is described above both in Call and Put scenarios, but options are sold in units of 100. Thus the 10,000 units are 100 options contracts. Leverage allows the investor to make money on the upside but magnify losses on the downside.
READ: United Capital Plc CEO purchases additional 1.3 million shares worth N7.19 million
So back to Dangote…
Can I short Dangote Cement? The simple answer is yes, rules exist to enable a short of Dangote Cement, the real question is can you make money from that trade?
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Olumide Soyombo discusses his flair to invest in some of the most prospective startups in Africa.
I have been privileged to invest in some of the most interesting Startups in Nigeria and other parts of Africa.
This journey started in 2014 and my approach has always been to just do my thing behind the scenes and support the companies I invest in strategically. However, following the Paystack exit, folks have been curious to see what other companies I have backed, so I have finally decided to share.
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Gbedu (Gbedu.live)
Gbedu is a music discovery and streaming service built to dispense the rich sound of Africa. They have created an experience that gives young, upcoming (up and coming) artists the chance to get discovered and earn per stream of their music content.
The startup is connecting Africans to the most extensive catalog g of free localized content, leveraging the power of playlisting, offline, and radio-integration to create new interactions and vast, unique music experience per user locale.
Gbedu is freely accessible to all users and pays every content owner.
Industries: Digital Entertainment, Music Streaming.
Wesbsite: www.gbedu.live
2. PiggyVest
Piggyvest is the leading online savings & investment platform in Nigeria, helping individuals manage their finances effectively.
The platform enables users to save small amounts of money frequently with minimal effort. They automate the process of saving tiny amounts daily, weekly, or monthly; and then allow savers, withdraw for free on only set withdrawal dates, thereby practically making saving and investingpossible for users of their platform.
Industries: Financial Services, Banking, FinTech
Website: www.piggyvest.com
3. Intelligra
Intelligra is the builder of an open platform created for smartphone financing. The company’s platform offers MNO (mobile network operator) integration and lock technology, proprietary credit scoring algorithms, and device lock solution. The platform also offers an in-store seamless onboarding app and integrates device OEM (Original Equipment Manufacturer), financiers, and mobile network operators, enabling consumers to access affordable smartphones.
Industries: Financial Services, Mobile Financing.
Website: https://intelligra.io/
4. TeamApt
TeamApt is a financial technology company focused on developing Digital Banking, Business Solutions, and Payments Infrastructure. They are rethinking the needs of consumers, businesses, and the financial industry.
Industries: Fintech, Financial Services
Website: https://teamapt.com/
5. VertoFX
VERTO is a complete F.X. and payment marketplace built for business. VERTO helps business operate efficiently on the international stage. The company makes it possible to open a free U.K. business banks account in minutes with the ability to hold up to 39 different currency balances. Additionally, VERTO gives its business users the ability to make or receive payments in foreign currencies and trade those currencies at lucrative rates.
VERTO provides liquidity and price discovery tools for international businesses. The marketplace provides easy access to exotic and foreign currencies with seamless international online payment services. Mono
Industries: Finance, FinTech, Marketplace
Website: https://www.vertofx.com/
6. Mono
Mono is an API financial technology software designed to become the go-to financial data infrastructure API platform in Africa. The company’s software provides access to financial statements for historical and real-time transactions, balances, bank statements, credit and spending patterns. The platform also make s it possible to initiate direct debit payments and recurring debit. They are enabling users to get an accessible way to check their financial statements and transactions conveniently.
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Industries: Big Data, Financial Services
Website: https://mono.co/
7. Spleet
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They have built a platform and partner with homeowners who want to earn constant (recurring, monthly, and quarterly subscriptions) revenue and homeowners who wish to earn non-recurring income.
Industries: Real Estate, Property Management, Vacation Rental
Website: https://spleet.africa/
8. Migo (Done via a Syndicate)
Migo is a cloud-based platform that allows customers to use loans, make purchases, and withdraw cash without the need for plastic debit/credit cards.
Migo offers a digital Credit-as-a-Service platform to domestic banks, mobile operators, retailers, and payment processors. The platform includes APIs, frameworks, consumer insights tools, and expertise on best practices that enterprise partners can use to build transformative consumer credit services in emerging markets.
Industries: FinTech, Financial Services, Credit
Website: https://www.migo.ng/
9. LendMe
LendMe is an online consumer loans platform. Users can choose a loan amount in Naira(₦) and set a repayment schedule. The loan limit of the user increases if the user successfully repays loans. The app is available for the Android platform.
Industries: FinTech, Financial Services, Credit.
Website: https://www.mylendme.co/
10. Bitnob
Bitnob simplifies access to the Bitcoin Blockchain Technology for People to create wealth, grow their wealth and even build and provide support for their businesses. It is a cryptocurrency exchange that allows users in the African Region to buy or sell Bitcoins quickly. One key feature of the exchange is that it enables its users to automatically and periodically save in Bitcoins with as little as one dollar.
Industries: FinTech, Financial Services, Cryptocurrency
Website: https://bitnob.com/
11. Lemonade.Finance
Lemonade Finance is a startup that makes it easy to send money to Nigeria from Canada within seconds. Their platform, available on Google Play and App Store, offers some of the best exchange rates at any given time. What’s more, transactions on lemonade are free, safe, and secure.
Industries: FinTech, Financial Services.
Website: https://lemonade.finance/
12. Brass
Brass is a digital bank that provides small and medium businesses with a suite of products and tools to help them grow. Brass provides bank-backed, fully insured current account services to local companies in Nigeria.Brass makes it super easy for every business to get a current account from any device, cut traditional bank fees and help businesses and people save money.
Industries: FinTech, Financial Services.
Website: https://www.trybrass.com/
13. Trove
Trove Finance is a platform that allows you to invest in stock markets around the world for as low as ₦1,000. Troves allows its users to automate their investments by linking a debit card to the Trove App.
Its Investment app aims to make the process of finding and selecting investments — specifically Stocks & Bonds — accessible and approachable for beginners. With Trove, users can find stock from public companies from Nigeria, and the U.S. Users can also easily access various bonds, cryptocurrency assets, and mutual funds.
Industries: FinTech, Financial Services, Cryptocurrency
Website: https://www.troveapp.co/
14. Gradient Boost
The Gradient Boost is an end-to-end platform training, upskilling, and matching data science talent in Africa to companies. This last mile data science upskilling platform enables companies to build a reliable data science, data engineering, and data analytics talent pipeline of the top data talent in Africa.
They take on talent with strong data science fundamentals and upskill them through mentorship from experienced data scientists.
This enables the young talent to gain strong collaborative skills, soft skills and practical experience. Ultimately, these young talents can prove their abilities to companies looking to hire talent.
Industries: Data Science, Training
Website: https://www.thegradientboost.com/
15. Send.ng
SEND is a Digital freight Forwarder & Customs Broker for African Businesses. Send ships container and air cargo to Nigeria, managing the entire process — from suppliers in China, U.S. & Europe, to the customs clearance and then delivered to customers.
Send is making it easy for people and businesses to ship across Africa and to the world. Their web app, mobile app, and API are used to request their shipping services. They then pick up, package, and ship items through major couriers/carriers. Send.ng provides simple yet not-so-available value-added features like tracking and transparent pricing.
Industries: Logistics, Supply Chain Management, Freight Service
Website: https://www.send.ng/
16. Gloo
Initially, Gloo.ng, a pure-play electronic retailing service dedicated to delivering direct to their clients’ doorsteps, Gloo has now pivoted into the e-procurement space as Gloopro.
Gloopro simplifies purchasing for large enterprises with eProcurement and commerce solutions. As a one-stop platform for large enterprises to optimize the purchasing of material and service inputs not included in their core products or service, Gloopro offers its customers valuable supply-chain visibility.
Additionally, they enable large enterprises to standardize and automate their entire procurement lifecycle across multiple locations with stock reorder level parameterization and budgeting caps.
Industries: Retail, E-Procurement
Website: https://www.gloopro.com/
17. PushCV
PushCV is the largest pool of pre-screened candidates in Africa. PushCV aims to help tackle the unemployment epidemic by providing a platform on which only the best talents are connected to top employers and recruiters.
Push CV is focused on the features that matter most to an employer and hence, the job seeker. Through continued iteration on complex employment problems, they seek to provide continuous improvements to the service that already makes thousands of people find their dream jobs a lot faster, safer, and more seamless.
Industries: Recruiting
Website: https://www.pushcv.com/
18. Bento
Previously verifi.ng, Bento has metamorphosized into more than just a payroll and H.R. platform to help companies in Nigeria manage their employees’ salaries. Today, Bento has expanded beyond pension, healthcare, and taxes to provide a platform for salary earners to manage what they consume and how they consume.
Bento has provided healthcare and salary advance services by partnering with a healthcare provider, Hygeia, and money-lender, Zedvance. Moreover, it aims to do much more, for instance, helping parents pay their children’s tuition monthly and pay rent monthly.
Industries: Financial Services, Employee services
Website: https://bento.africa
19. Leadspace
Leadspace is an alternative commercial real estate startup aiming to create shared infrastructure for entrepreneurs and founders of small & medium-size businesses.
They provide co-working spaces for entrepreneurs/founders of small and medium businesses, mid-level corporate executives, Independent freelancers, remote workers, and creative artists.
Industries: Co-working
Website: https://theleadspace.co/
20. PowerCube
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Industries: Clean Energy
Website: http://www.powercube.ng/
21. Accounteer
Accounteer is a cloud accounting platform for small businesses. A business owner can create invoices, track expenses and follow up on their finances with ease. Accounteer integrates with external services like banks, e-invoicing platforms and e-commerce.
Industries: Financial Services, MSME
Website: https://accounteer.com/
22. Blackbet
Blackbet is a product-driven Africa sportsbook operator. The company has ambitions to expand and delight the global gaming community by bringing safe, imaginative and innovative sports play to a new generation by simplifying the platform and delighting new customers play-by-play.
Industries: Gambling & Casinos
Website: https://www.blackbet.ng/en/
23. Fantastic.ng
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The sports gaming platform runs on a freemium model that allows users to play for free or buy ₦100 token to access premium games with higher rewards.
All rewards are paid in a digital currency called Fan Coins (F.C.s). These F.C.s are then used in the Fan Shop to purchase various items, including airtime, food, phones, laptops, and get cash back.
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Industries: Gaming
Location: Lagos, Nigeria
Website: https://www.fantastic.ng/
24. Engage
Engage is a customer messaging platform that helps businesses grow and improve customer retention. It is messaging based on the end user’s journey, preferences, and actions through your business application.
Engage is able to achieve this by segmenting your customers based on their attributes (e.g., gender, location, plan, age) and their actions (e.g., used up data bandwidth, canceled subscription, scheduled an appointment, submitted feedback), and allowing you directly “message” these segments or create automation.
Industries: Artificial Intelligence, Business Development, Messaging
Website: http://engage.so/
25. Koa
Koa is an app-based platform that helps its users save and grow their money at the tap of a button, making it easier for them to reach their financial goals, starting out from Kenya.
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Industries: Finance, Savings, and Mutual Funds
Website: https://withkoa.com/
26. Paystack (Exit)
Paystack is a payment platform that enables businesses in Africa to accept payments by anyone, anywhere in the world, from multiple local and global payment channels, including credit cards, debit cards, money transfers, and mobile money.
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Industries: Financial Services and Payments
Website: https://paystack.com/
Article culled from Medium
Dapo
February 2, 2021 at 1:27 pm
Thanks for simplifying this as much as you can.
It is well appreciated.
Ahmad Isa
February 3, 2021 at 9:30 am
Please which stock broker allow shorting of stocks?
Emeka U
February 5, 2021 at 3:03 pm
In theory you can short Dangote Cement. But in practice where do you borrow those shares to deliver.
I don’t know of any active securities lending in Nigeria.
Additionally, brokers that lend securities usually require a capital deposit which will be used to cover the position. This capital requirement increases as the price of the underlying security declines.