Daily Independent (Lagos)
Kingsley Ighomwenghian
15 October 2008
analysis
If there has ever been a time when discerning investors should take advantage of the market meltdown, several analysts agree it is now. Why? The prices of stocks quoted on the Nigerian Stock Exchange are now on offer at a huge discount to their fair value.
The discount, they say gets better as the day go by since March 5, when market capitalisation and All-Share-Index of the Nigerian Stock Exchange rose to an all-time high of N12.64 trillion and 66,371.20 basis points respectively.
The situation presents a juicy opportunity for huge returns to investors with medium to long-term horizon, many believe, unlike the situation in the US, Asia and Europe where sub-prime mortgage crisis as led to credit crunch and then to a market place crisis that has led many erstwhile global blue-chip financial institutions into filing for bankruptcy.
In the Nigerian stock market, analysts believe that several companies have subsequently become undervalued after falling, sometimes to a two-year low. Analysts have continued to encourage their clients to have faith in the stock market yet, buy into some particular recommended stocks, because, not only are the fundamentals of the market still very strong, there are stocks that continue to turn in impressive numbers, to the extent of offering interim, sometimes special, and then final dividend and bonus shares to the delight of their shareholders. As a sign of the times, unfortunately, the share prices of these companies have continued to suffer declines that have brought them to, or near their rock bottom. Recent examples include 7-Up Bottling Company, which offered a final dividend of 150 kobo and Nigerian Breweries, 100 kobo half year interim payout.
According to equities' analysts, many stocks have reached a situation where technically their prices have fallen to such a degree "that an oscillator has reached a lower bound." Such a situation is generally interpreted as a sign that the price of the asset is becoming undervalued and may represent a buying opportunity for investors."
Aside from the under-listed, also on the list of undervalued stocks are Japaul Oil & Maritime Services, 52.66 per cent discounted at last weekend's N4.51 each; Associated Bus Company, 42.06 per cent at N2.39; PlatinumHabib Bank, 38.78 per cent at N15.33 per share; Dangote Sugar Refinery, 38.24 per cent at N21.04; among others.
Costain (WA)
Stockbrokers at UBA Global Markets lists stocks considered undervalued to include Costain (West Africa), which they say, going by weekend's closing price of N14.52 each, is trading a discount of N17.99 or 55.33 per cent. The construction company, which last week had Price/Earnings Ratio of 77.95 was rescued from the brink by Shoreline Energy International, a new core after it reported a disappointing performance in the full year ended December 31, 2006. Turnover for the period slumped by about N1.10 billion or 49.86 per cent from N2.21 billion in the corresponding period of 2005 to N1.11 billion. Loss before and after tax within the period slumped farther by a significant N1.20 billion or 430.00 per cent to N1.48 billion from N280.75 million. Expectedly, the directors could not recommend a scrip or cash dividend for the period.
The core-investor has gone ahead to make it a conglomerate of some sort, as it followed up with the acquisition of majority 60 per cent stake in Quality Inspection Testing Certification Limited (QITC) a subsidiary of Nigerian Ropes Plc, which engages in the provision of quality driven inspection and testing services in conjunction with relevant certification covering drill stem; rig components and lifting equipment for the construction, gas and oil filed services industry.
The acquisition is said to compliment the group's existing interests in Schlumberger Testing and Production (Nigeria), while further consolidating its drive into the oil and gas services industry in the Gulf of Guinea.
According to Kola Karim, chief executive officer of Shoreline Energy International, "inspection, certification and quality management services are going to play an increasingly important role in the oil, gas and construction industries in Africa. This acquisition positions us well to exploit the growth we are seeing across the gulf of Guinea and further cements our place as an integrated solutions provider with the infrastructure and energy sectors."
Shoreline Energy, a leading infrastructure and energy group focused in sub-Saharan Africa has grown rapidly in recent years through acquisition. Some of the recent acquisitions also include ABB Electrical Systems (Nigeria) and Schlumberger Testing and Production (Nigeria).
Access Bank
The report also presents Access Bank as one stock that is relatively cheap at last weekend's N10.87 each, as it hit a new year low, after moving farther away from its high of N25.50, thereby representing a discount of about 43.51 per cent, at Friday's price. It is believed that judging by its present and future prospects, especially against its latest performance and the fact that some other efforts including the forage into other African countries would soon begin to yield fruits.
According to its audited result for the full year ended March 31, 2008, the Aigboje Aig-Imoukhuede-led management reported robust jumps in all measurement indicators, using its equally significant shareholders' fund valued at about N172 billion.
The bank's gross earnings for the period at N57.99 billion grew by N30.11 billion or 107.99 per cent previous year's N27.88 billion, while profit before tax stood at N18.84 billion, up by N10.80 billion or 134.32 per cent from previous year's N8.04 billion. Profit attributable to shareholders for the period rose from N6.08 billion, growing by N9.77 billion or 160.69 per cent to N15.85 billion. Following this, the directors got the blessing of shareholders at its annual general meeting to distribute a total of N10.5 billion as dividend, representing a dividend per share of 65 kobo per share, an improvement over previous year's 40 kobo be distributed to holders of the bank's 16.37 billion ordinary units of 50 kobo.
The 2008 result further translates price earnings ratio of 18.73, earnings yield of 5.3 and net profit margin of 27.33 per cent (which means that the management was able to convert 27.33 kobo of every Naira earned as income to profit, considered as one of the best in the industry), as against previous year's 21.82 per cent.
Aside from the profit and loss account, the bank also recorded impressive growth in total assets and contingents, as it jumped to N1.2 trillion, up by 194 per cent from N408.7 billion in previous year's.
The bank said "the outstanding growth in its balance sheet was demonstrative of the underlying growth of public confidence in its franchise, which was aided by effective deposit mobilisation strategies and the development and introduction of innovative and solution-based financial products."
The 2008 result, according to the statement, has reinforced the Access Bank's impressive five-year unbroken triple digit growth history across key performance indices. By this performance, the bank said it has surpassed its revised forecast for the year.
"Equally worthy of note is the positive impact of the bank's successful public offer with shareholders fund now worth N172 billion, representing a 508 per cent growth over the prior," the bank said.
Among the various factors at play in Access Bank's high growth story and success are innovative business strategy, high capitalisation, good management, focus, among others, the statement added.
Lasaco Assurance Leads Peers
After sever bashing from all sides over the past several week, analysts believe several stocks in the insurance sub-sector have fallen to a point where their market prices no longer reflect their true and fair value, just like several others in the market.
For instance, the report by UBA Global Markets Limited shows that aside underwriters like Lasaco Assurance, which has become 50.77 per cent undervalued, NEM Insurance is down 44.05 per cent; Goldlink Insurance, 43.8 per cent, Sovereign Trust, 40.26 per cent; Cornerstone Insurance, 38.89 per cent; and International Energy Insurance, 37.91 per cent. Most of these stocks have since submitted performance score-cards and even recommended a s dividend. There are those who however contend that the number of shares outstanding in the name of these stocks have become unjustified, when benchmarked against their earnings capacity, hence the need for a reconstruction or buy back by the board.
Also, analysts at FSDH Securities also believe that Prestige Assurance at current price also present a good buy opportunity at last Friday's 797 kobo closing price, considering its PE ratio of 21.99.
Directors of the company recently projected that its gross premium income for current year end could hit princely N3.1 billion, from which profit attributable to shareholders of N816 million for the year ended December 31, 2008.
This indicates an increase of about N840 million or 37.16 per cent, just as the net profit is projected to grow at a slower pace, rising by N177.90 million or 27.87 per cent over the figures at the end of the 2007 full year. This means that the management should work harder to pay more than the 20 kobo dividend paid at the end of last financial year. A further breakdown of the result indicates that the management hopes to convert 26.32 kobo of every Naira earned within the period to profit, a slide when compared with previous year's 28.23 kobo per Naira.
The latest result by Lasaco Assurance for the year ended December 31, 2007, showed that despite relatively lean growth in premium income, profit before and after tax recorded significant growth, the directors proposed a dividend of eight kobo from earnings per share of 9.25 kobo to be distributed at the AGM.
Gross premium stood at about N1.838 billion, growing by N238 million or 14.87 per cent from previous year's N1.60 billion. Profit before tax increased to N861.01 million, representing a rise of about N506.76 million or 100.57 per cent over the N225.312 million reported in the corresponding period of 2006, while profit attributable to shareholders jumped by N506.76 million, representing a more robust 295.74 per cent improvement on the N171.35 million reported in 2006.
Oceanic Bank Reports Biggest Indicators
The un-audited result for the fourth quarter presented by Oceanic Bank International a fortnight ago, has failed to stem a decline in its share price. The result which was submitted along with a notice of the directors' intention to adopt the uniform year end suggest by and later suspended by the Central Bank of Nigeria, showed gross earnings income of about N160.99 billion for the period ended September 30, 2008 . This represented a significant N86.058 billion or 114.84 per cent rise from the N74.936 billion reported in the corresponding period of last year. Of this amount, pre-tax profit improved by about N29.23 billion or 127.08 per cent from N23.007 billion to N52.23 billion, just as net profit for the period stood at N41.236 billion, representing an increase of about N23.69 billion or 135.13 per cent from N17.537 billion in the previous nine months, representing a net profit margin of about 25.61 per cent, a slight growth when compared with the previous 23.40 per cent.
Analysts at FSDH believes that Oceanic Bank at weekend's N19.64 per share is recommended, as it present an opportunity for profit to those who have medium to long-term horizon, as it is projected to rise to about N37.27, just as its PE ratio currently stands at 11.64.
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