Daily Independent (Lagos)
Kingsley Ighomwenghian
30 June 2009
analysis
Lagos — Reminiscent of the bearish days that characterised most of last year until March this year, the Nigeria's stock market suffered heavy setback last week, as the basic indicators of the Nigerian Stock Exchange (NSE), unlike in recent weeks, closed crimson red coloured. A review of the indicators showed that a significant 102 stocks suffered losses, compared with previous week's 67, leaving only 12 on the flip side, down from 56 on that side of the table a fortnight ago.
Overall, the market lost about N706.212 billion, just as the All-Share-Index suffered a 3,096.64 basis points or 10.71 per cent decline from previous week's 28,910.19 points. This is just as activities in other investment outlets, especially the fixed income securities, remain heavy, indicating a flow of funds across more secure, even if less rewarding instruments such as the sovereign bond instruments as represented by the Over-the-Counter trading in Federal Government of Nigeria Bonds on the NSE.
Unlike in the previous weeks when downslides in both indicators were blamed on profit-taking by anxious investors, last Monday's report by a national business daily in the maiden interview by Sanusi Lamido Aminu Sanusi, Governor of the Central Bank of Nigeria (CBN) about the audit of banks' exposure to the stock market, as well as the oil and gas sector of the economy, is believed to have spike a different genre of profit taking, as investors and banks sell down to cover up their gaps.
Explaining further, AbdulRasheed Momoh, an equities' analyst at TRW Stockbrokers Limited (a member of the Nigerian Stock Exchange), in his report to clients at the weekend, blamed the decline on "pressure by banks to minimise margin loan losses as well as panic sale by other investors, who are said to have reacted to the decision of the Central Bank of Nigeria to audit the loans."
Most investors, he continued, are apprehensive of the new CBN Governor's policy direction, amidst a statement by his predecessor in the twilight of last year that margin facilities account for over 70 per cent of the NSE's equities' capitalisation. The worse hit in the resurgent slide seems to be banking sector, as represented by the NSE banking sector index, which last week suffered a 13.73 per cent slump, followed by the 8.84 per cent fall in the NSE-30 index made up of the market's biggest companies (by market capitalisation), most of which incidentally are banking stocks. The banking sub-sector alone, according to some analysts, contributes a significant 65 per cent of the exchange's market value, such that whatever impacts negatively or positively will definitely rub off on the market.
CBN Governor's Interview
Sanusi, in the interview granted Financial Times of London, a fortnight ago, in South Africa, hopes that market induced consolidation would further reduce the number of players in Nigeria to only about 15 from the current 24 that are products of the regulatory induced mergers and acquisitions of Nigerian banks.
He also spoke on the ongoing on-sight banking examination that would span between six and eight weeks, targeted at banks' asset quality and capital audits. The audit exercise, he told Financial Times during the interview, will then break down the banks into three.
"We would want to break them into the banks, which are really marginally affected by the margin loans thing. The second category - and that would be the largest number - would be banks, who have some margin loan exposure, but who have enough capital to deal with it, who really have not exhibited any kind of liquidity pressure in their balance sheets. The third category would be those banks, which seem to have a strong liquidity problem and may be even in a solvency problem. And then with those banks we've got to work out a strategy, and frankly it's not yet fully worked out... There are a number of options. These are a number of models, which have worked. The strategy for communicating it and the remedial steps that need to be taken- all of that will have to be worked out," he explained further."
The CBN boss spoke of plans to achieve macroeconomic stability by implementing market-based policies that will lead to lower inflation rates, thereby stimulating economic growth. At the current 24 per cent lending rate, which he admits is high for the real sector of the economy, he believes that it is challenging to lower inflation rate, interest rate and having a strong exchange rate at the same time. Low interest rate, he believes, is far more fundamental than a strong exchange rate.
Momoh, in his analysis of the market's performance last week, noted that the indicators suffered sharp losses from its opening to Friday's closing bells, returning to its level on March 19, when the index closed at 25,400 points level where the market is likely to find support.
Biggest Laggards
Stocks in the petroleum products marketing sub-sector came out best at the end of last week's bargain hunting exercise, with Total Nigeria, for example, chalking 9.06 per cent to close at N169.05 each; while Mobil Oil Nigeria grabbed 4.54 per cent to N117.99, while Oando and African Petroleum lost 3.76 per cent at N85.65 and 3.02 per cent to N99.79. Both Oando and AP seem to have been pushed into the red by their 450 kobo and 521 kobo declines respectively on Friday.
Unlike the NSE banking index, the FSDH banking index suffered a 15.66 per cent decline, as against previous week's 2.99 per cent, due to losses by stocks like Zenith Bank, which lost 22.51 per cent to N13.08, following investors desire to take profit after qualifying for the interim bonus approved for distribution at the bank's extra-ordinary general meeting held on June 2, 2009, with effect from June 5. Bank PHB also lost 22.50 per cent amidst fears that its recent bid to acquire Spring Bank may have suffered a setback, going by the report of a Ministerial committee headed by Remi Babalola, Minister of State for Finance, which has been submitted to President Umar Musa Yar'Adua. The report is expected to be passed to the CBN Governor for action. Afribank Nigeria shed 22.21 per cent, closing at N7.39, amidst the retrenchment of about 530 workers, of the cadre of Principal Managers and below, coming less than one year after a previous exercise that led to the laying-off of several working of between Assistant General Managers and General Manager levels. Oceanic Bank International also dropped 22.12 per cent to N6.69, from its year-to-date high of N12.05; followed by Intercontinental Bank's 19.44 per cent slump to N10.07; Stanbic IBTC Bank Nigeria lost 16.69 per cent to N7.04; Skye Bank, 14.76 per cent to N6.12); Union Bank of Nigeria, 14.42 per cent to N16.26; United Bank for Africa, 10.87 per cent to N12.30; Access Bank 9.28 per cent to N8.21; First Bank of Nigeria 9.10 per cent to N19.99); and First City Monument Bank, 8.85 per cent to N7.93 each.
Continuing, FSDH Securities, in its analysis, noted losses recorded by manufacturing companies during the week, led by Dangote Flour Mills, which shed 22.54 per cent to N9.14; Flour Mills of Nigeria, 18.36 per cent to N22.86; Ashaka Cement, 16.12 per cent to N12.70; UAC of Nigeria, 14.63 per cent to N35.00; Unilever Nigeria, 14.32 per cent to N12.50; Nigerian Bottling Company, 14.18 per cent to N20.39; Julius Berger Nigeria, 13.71 per cent to N29.34; and UACN Property Development Company, 12 per cent to N16.64; while Nigerian Breweries closed 8.26 per cent leaner at N50.00.
In a review of the year to day situation, however, analysts at Cashcraft Asset Management Limited noted that some stocks still offer returns on investment despite the deep cut in their prices last year, leading this pack is building materials manufacturing giant and member of the Dangote Group- Benue Cement Company, which has recorded 140.28 per cent returns, emerging best in this regard, after closing at N43.00, representing a robust capital appreciation from its year opening price of N18, representing a growth of about N25.00. The growth in share price may not be unconnected mainly with the 2008 full year result submitted to the NSE, indicating that sales income soared by N10.98 billion or 200.62 per cent to N16.453 billion from previous year's N5.473 billion. Profit before tax at N4.933 billion, was better by N3.063 billion or 163.79 per cent than its N1.87 billion a year earlier, while net profit rose from N1.252 billion in 2007, up by N2.892 billion or 230.99 per cent, to N4.144 billion, out of which the directors offered to distribute one new share for every four held by the shareholders.
OTC Market
There was increased patronage of the FGN Bonds at the secondary (OTC) market, where investors exchanged a total of 328.45 million units valued at N334.352 billion in 1,927 deals, compared with the 250.8 million units exchanged for N257.482 billion crossed in 1,396 deals during the previous week's session. The 6th FGN Bond 2012 Series 1, was the most active of the 27 traded out of the 42 available FGN Bonds during the week (measured by turnover volume), accounting for 46.4 million units valued at N48.345 billion in 447 deals, followed by the 4th FGN Bond 2010 Series 4, which accounted for 24 million units valued at N22.092 billion in just four deals.
Some Still Posted Returns
According to information available on Cashcraft Asset Management's website, Premier Paints followed on the top 25 best companies in terms of returns, with 107.58 per cent; while Northern Nigerian Flour Mills recorded 77.30 per cent. PZ Cussons closed year-to-date better by 64.77 per cent; Smurfit, 37.97 per cent; May & Baker, 36.63 per cent; GTBank, 35.89 per cent; Northern Nigerian Flour Mills, 33.33 per cent; Glaxosmithkline Consumer, 27.38 per cent; Nigerian Breweries, 26.81 per cent; Access Bank, 26.03 per cent; Guinness Nigeria, 25.63 per cent; Oando, 11.09 per cent; Dangote Sugar Refinery, 7.10 per cent; and Union Bank, 6.97 per cent, among others.
Conclusion
Amidst the share price declines, analysts advise that investors stick to stocks with good quality blue-chip stocks only for a short-term, while booking profits as soon as the market recovers from the oversold state.
At a time of bear run like this, analysts at FSDH want investors to take advantage of "select opportunities in some stocks that have good fundamentals and that are marginally affected by the banks' exposure in the capital market and oil & gas. We advise investors to take a medium to long term position in the following stocks that have good fundamentals and that have prospects for growth in the medium to long term."
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