The founder and chairman of the Honeywell Group, Oba Otudeko gained a whopping N690 million from his Honeywell Flour Mills Plc stake in a single session on the Nigerian Stock Exchange, as local investors bid up the shares of his flour milling company.
Otudeko who is also well known for his investment in the oceanfront Radisson Blu in Lagos, is the single majority shareholder of Honeywell Flour Mills, considering his ownership stake in the company which runs to about 5.29 billion units, out of the 7.93 billion total issued shares of the company.
Otudeko’s stake in Honeywell Flour Mills has a valuation of about N7.58 billion
His 75% ownership stake in Honeywell Flour Mills of about 5.29 billion issued shares of the company which he holds indirectly through Siloam Global Services Limited, is presently worth about N7.57 billion, up from a N6.88 billion valuation at market open yesterday 20th of April 2021.
The recent gains in Otudeko stake were driven by buying pressure in the shares of his company as the move saw the shares of Honeywell surge by 10% in a single session, from N1.30 at the open of the market on the 20th of April, to N1.43 at the close of the market.
This bullish move in the shares of the miller pushed its market capitalization up by about N1.03 billion on the exchange yesterday, from N10.31 billion as of Monday, 19th April to N11.34 billion at the close of the market.\
What you should know
At the close of trading activities yesterday on the exchange, the market capitalization of all the issued shares of Honeywell flour mills Plc was put at N11.34 billion.
The shares of the flour miller cleared at N1.43 per share. This is 10% higher than Monday’s N1.30 closing price, with about 8,935,946 ordinary shares of the company exchanged in 150 executed deals on the Exchange yesterday, worth about N12.56 million.
Honeywell’s shares are currently trading at 62.5% higher than its 52-week low of N0.88 per share, and 8.33% lower than its 52-week high.
The prevailing market price presents bargain hunters who bought shares of the company low with the opportunity to book some profits.
- The Nigerian Stock Exchange All-Share Index and Market Capitalization appreciated by 0.43% to close higher at 39,015.58 index points and N20.418 trillion respectively, at the end of trading activities yesterday.
- The NSE Consumer Goods Index, an investable benchmark designed to track the performance of consumer goods companies like Honeywell Flour Mills, appreciated by 0.38% to close the day higher at 555.22 index points.
Wall Street drops from record high amid inflationary concerns
Concerns about inflationary spillovers pushed up an indicator of inflation expectations to its highest level since 2006.
Concerns over accelerating inflation weighed on stocks on Monday, with the Dow Jones Industrial Average snapping back from a record peak, while the dollar struggled at a 10-week low. Concerns regarding inflationary spillovers pushed up an indicator of inflation expectations to its highest level since 2006.
The rise in raw materials prices is fueling debate ahead of a U.S. CPI study due on Wednesday, which is expected to show a strong increase in April. The pandemic shocks a year ago will amplify the year-on-year reading, but it feeds into a wider market fear that the Federal Reserve will be forced to lift interest rates faster than current guidance suggests to keep inflation in check.
Since rising to 1.60 percent earlier this week, the benchmark 10-year Treasury yield has dropped once again. The yield on 10-year Treasuries dipped about one basis point to 1.59%. Investors punished Big Tech equities during the daily session, pushing both the Dow Jones Industrial Average and the S&P 500 off record highs, sending Nasdaq futures lower on Monday evening.
On Monday, investors sold Apple and Microsoft stocks, causing the Dow Jones Industrial Average and the S&P 500 to fall below their all-time highs. To begin the week, each of those stocks had lost at least 2% of their value.
S&P 500 futures were down 0.6 percent while Dow futures were down 67 points. Nasdaq 100 futures were hit by selling pressure and fell 1%. The Nasdaq Composite took the brunt of the selling, falling 2.5 percent to close at its session low. Facebook is down more than 4%, while Amazon and Netflix are also down more than 3%. After Citigroup downgraded Alphabet, the stock fell more than 2%.
After a ransomware attack forced Colonial Pipeline to shut down the country’s largest fuel pipeline over the weekend, gasoline futures swung back and forth in choppy trading on Monday. Sections of the company’s 5,500-mile grid are being brought back online Monday afternoon, and service is expected to be restored by the end of the week, according to the company.
Gasoline futures were 0.31 percent higher at $2.1334 per gallon at the end of the day. Gasoline futures soared as much as $2.217 during the overnight session, the highest amount since May 2018.
Concerns about rising inflation could prompt the Federal Reserve to alter its interest rate policy. As a result, a rise in interest rates decreases market liquidity, resulting in a drop in stock performance.
Is investing dead?
It appears the rules of investing have evolved from buy low to sell high, to buy high to sell higher.
Warren Buffett spent $7 billion to $8 billion on positions in Delta Air Lines, United Airlines, American Airlines, and Southwest Airlines. In 2021, as the scale of the Coronavirus-induced lockdown became apparent, the Oracle of Omaha, Warren Buffet sold all his airline stocks. This was no casual decision, Buffet has said that his favorite holding period is “forever” and his strategy is to buy companies, milk them of cash, pay no dividends, and compounds his returns by holding.
Why did Warren sell? Well, you don’t have to be an investing genius to see any virus that stops global commerce will affect business travel and thus reduce revenues flowing to airlines, thus airlines stock prices were going to fall. Buffet got out to avoid a diminution in the value of his position.
At the 2021 Berkshire Hathaway Annual Shareholders meeting Buffet said he diverted so the airlines would find it easier to get the CARES Act government funding, ok but the story is not about Buffet but about what happened when he sold.
Usually, Buffet buying a stock is a stamp of approval on that stock, ditto when he sells. When Buffet sold in May 2020, the shares of the US-based airlines tumbled with American Airlines falling 7.7%. After Buffet sold, stock of the airlines rose in April as retail investors bet against the judgment of Buffet.
Was Warren Buffet wrong?
Let us take a look at another example. Hertz filed for bankruptcy in May 2020, meaning that its stocks became worthless, its shares kept falling to as low of $0.40, yet its stock appreciated in price to a high of $6.00 as retail investors (again), many of them on Robinhood, pumped up purchases on this stock because it was rising in price, in essence creating a self-fulfilling buying hurricane and pumping up a stock worth zero. The higher prices were trailed by even higher demand.
Were the retail investors naïve? No, they understood the risk when Hertz tried to take advantage of the demand by selling new shares with this clear warning: “we expect that common stockholders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness are paid in full.”
So what’s going on? Is investing dead? We can argue that retail investors bought into Airlines because they were aware the US government would rescue the airlines with a package worth billions. They also anticipated that the stock price having fallen so low represents a discount to the existing price. They were buying low to eventually sell higher.
Why would retail investors buy a bankrupt company? It appears the rules of investing have evolved from buy low to sell high, to buy high to sell higher.
The price of any stock used to be the discounted present value of all future earnings, thus if I say the price of Zenith Bank today is N20, I am stating that if I take all earning of Zenith Bank from the future and discount them back to today using an agreed discount rate, I will arrive at N20. The P.E. relates the price of the stock to the earning and is often looked at as a measure of how expensive the stock or market is when compared to earnings. The PE of the US markets as measured by the Schillers CAPE valuation is at 36.6. this represents the second-highest level, since 1890. CAPE looks at the last 10 years of earnings adjusted for inflation.
Investing was a “simple” exercise in seeking to determine the intrinsic value of a stock, using fundaments such as market share and earning and then buying if intrinsic value is less than the market price and vice versa. Not anymore!
This goes far beyond traditional assets, there is an uptick in selling prices of alternative assets such as NFT and cryptocurrencies, with cryptocurrencies like Dogecoin up 675% in 3months.
So is investing dead? Not yet. The issue is liquidity, excess liquidity in the US. The average retail investor has seen two stimulus cheques from the US governments and interest rates at record lows. This means the average US investor has an incentive to take on more risk to earn above safe fixed income yield. Another driver is the record appreciation in home prices, especially in the suburbs. Many American homeowners can take “equity” (difference between home value and mortgage, if any) from their homes at record low rates and invest. This excessive liquidity is looking for where to “park” and is showing up on heightened valuations aka “bubbles.”
In Finance, there is a theory called the Greater Fool theory, where prices can keep rising as long as the current holder of any asset can sell that position to another investor at higher prices. The new holder then sells to a new investor at a higher price and so on. We are watching that right now.
In the long run, the market will correct, and valuations will again reflect earnings, the trigger will be the decoupling of the US Federal Reserve from bond-buying and the rise in yield which signals inflation. My advice to any investor is to ensure that when the market corrects, you are vested in quality assets.
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- Ardova Plc confirms appointment of Oladeinde Nelson-Cole as secretary.