donne4real | November 11, 2008
Here are the weekly reports from CSL Stockbrokers, FSDH, and Forte Assets.
CSL Weekly Report - Nov 07 2008 (33)
Forte Weekly Market Review November 07, 2008 (35)
FSDH Weekly Report - Nov 7th 2008 (22)
As jara, here is Express Discount’s analysis of the current state of the Nigerian Stock Market.
Express Discount - State of the Stock Market (Oct 2008) (15)
donne4real | November 3, 2008
Here are quarterly and monthly reports for Q3:
Lead Capital - Monthly Economic Review - Sept 2008 (16)
Lead Capital - Q3 2008 Economic Review (20)
FSDH - Q3 2008 Economic Report (Pt 1) (21)
FSDH - Q3 2008 Economic Report (Pt 2) (18)
donne4real | October 14, 2008
Meristem Securities has prepared a table with information on the major stocks on the NSE. Read here:
Meristem - Key Investment Stats for Selected Stocks (27)
This is Zenith Securities’ stock market report for last week. Happy reading!
ZSL - Weekly Report - Oct 10 2008 (21)
donne4real | July 15, 2008
Here are the analysis of the results for GT Bank, Flour Mills, and Unilever for their last quarters.
FSDH - Flour Mills Q3 Analysis (24)
FSDH - GT BANK Q1 Analysis (30)
FSDH - Unilever Q1 Analysis (57)
donne4real | June 10, 2008
If you have noticed, a lot of the companies coming to the market issue so many shares. I for one believe that it is a gimmick and tactic to raise more money. Here is a wonderful article from Proshare NG on the disadvantages:
Shun Companies with Overblown Issued Capital
It is now time for investors to begin to look at companies in relation with their share capital. This is very necessary because if investors really want to make capital appreciation, the quantum of the shares issued by the company is very important. Most of the companies that have low share capital have high value. For example oil companies like Mobil, Chevron, and one or two others in that sub-sector have very high prices because they have very small issued capital. None of these companies have more than 500 million shares in issue. The beauty of this is that whatever earnings they make; they will be in position to give good return. They can give N5, 00, N10.000 and therefore their prices are very high, some of them more than $2 dollars per share.
So, what do you do with a company that has high share capital? If the share is too large, managing it will be a problem and it makes share appreciation so difficult. Recently, one of the insurance companies listed 28 billion ordinary shares on the Nigerian Stock Exchange (NSE).This is too large and in fact, the largest in the history of NSE. The implication of this is that if the company wants to pay 10 kobo dividend, the company will have to pay N2.8 billion. The question is what will be its gross earnings, what is its earnings per share and what will be the dividend declared? Definitely, such companies with large issued share capital may find it difficult to do well in rewarding investors.
How do they go about it? They have to manage that share. How do they manage that share? One of the traditional ways of managing it which is allowed by the law is share reconstruction, and that is why the market witnessed many of it after banking consolidation. Share reconstruction is very important because for the share to make sense for the shares to have value, for investors to make capital appreciation, a company must have low share capital.
Look at the cases of Bank PHB, Access Bank. At a time their share capital was so large and by the time they reconstructed, for instance Access Bank which was less than N3.00 and the moment it reconstructed at 2 to 1 today we are talking of N18.00. So, you see it makes over 200 per cent gains as they reconstructed it to N6.00. If they left it at N3.00, it would take long time to be able to reach N10.00. Therefore, it is good for companies with over blown issued share capital to go into share reconstruction.
The issued of share reconstruction is a troubled one because there is no proper enlightenment about it. Most Nigerian investors are always interested in the volume that is why you see that any time a company declares bonus they go for it even if the price is over blown they will go for it because they believe in volume. But share reconstruction can reduce the investors holding though investors will not like this. It makes sense not to want to reduce their holdings because they believe over a long period when the company is performing well they will make share appreciation.
What we are telling investors is that by reducing the volume of shares through reconstruction does not mean reducing the value. Take for instance all the companies that went through share reconstruction, today they are happy. Take the case of Bank PHB, they reconstructed their shares at three to one and moved from less than N3.00 to around N16.00. Today, we are talking of over N20.00. If you take three, at N3.00 it will give you N9.00 today it is over N20.00. Investors have made more than 100 per cent. Investors have not lost the value but the quantity.
The way we handle share reconstruction is what bothers the market. If it is handled in matured manner, nobody will be worried about it. You have the shares in the system and the next day, you reduce the value and you take your share in the system, there would be no problem. International Energy Insurance handled it well and investors were happy, because the next day you stated to trade your holdings.
But in the situation whereby a company goes through share reconstruction and now decided to withdraw your holding that is already in the system only to issue a share certificate which you may not see in the next three to six months, even some up till now you have not got in the case of the Sterling Bank. This is not encouraging. That is why shareholders see it as rubbing them of their immediate benefit. Why should I have my shares dematerialized only to be told that I have to wait for my share certificate for long time. That is not good for the market. What we are encouraging is that companies should go for share reconstruction but it should be allowed as it was before. If your shares are in the system it should remain in the system, by doing this the share is liquid and investors will reap immediate benefit.
There is another way to it that is allowed in the developed markets but our law does not really encourage it and that is share buyback. This is another way of doing share reconstruction. Instead of reducing shareholders’ holding, a company can buyback its share. In the developed market, you see that Coca-cola does that a lot, and today it enhanced its value by over 200 percent. Go to the New York Stock Exchange you will see the price of Coca-cola going so high.
This is a very good idea that has worked in the developed market why can’t it work here with us. One of the shareholders body, Independent Shareholders Association of Nigeria (Isan) organized an international conference on it last week in Abuja and it is very good. It is very friendly with investors as they are not losing their value. Secondly, it helps the market instead for the market value to keep crashing to below the market value share buy-back can prevent that. I hope the legislature will give it all the necessary support to make it work.
donne4real | May 28, 2008
The Nigerian Stock Exchange (NSE) recently issued directives stating that "any company seeking to be listed by introduction on the NSE shall make 10% of its outstanding shares available on the day of listing for market making". This was to prevent the undue price appreciation and manipulation. They also directed that "the quantum of shares to be transacted before prices could be moved in either direction shall be 100,000 units".
In lieu of this development, UBA Capital Market conducted a research on the effect of this rule studying 17 stocks that had been listed on the NSE over the last year. Here is an excerpt of their report and findings.
On Wednesday, April 23, 2008, the Nigerian Stock Exchange (NSE) directed that any company seeking to be listed by introduction on the NSE shall make 10 percent of its outstanding shares available on the day of listing for market making. The need to ensure liquidity and prevent undue price appreciation arising from trading interference was cited as the primary consideration for the directive. Meanwhile, the NSE had earlier directed that the quantum of shares to be transacted before prices could be moved in either direction shall be 100,000 units.
We believe the NSE’s position was informed by the prevalence of rampant and substantial capital gains recorded by newly listed equities within a short period of listing on the exchange. According to the NSE, the prices of such stocks soared regardless of their fundamentals – and liquidity – which gives a general impression that the stock prices are being manipulated.
In our assessment of the new rules, we considered 17 stocks that were listed on the NSE over the last 52 weeks. On the whole, the basket of stocks increased by 104.19 percent within a month of listing on a cumulative daily volume of 2.8mn units.
Effectively, 65 percent of these stocks doubled within a month of listing while 82 percent recorded capital gains in excess of 50 percent within the same period. The foregoing underscores the fact that when companies are listed by introduction, the shares are not readily available to the public but held in the hands of a relatively few number of individuals and corporates, especially for companies that have done private placements. Therefore, the subsequent scarcity of the shares upon listing drives up the price regardless of the company’s fundamentals.
Here is the report: Review of NSE Guidelines (25)
donne4real | May 27, 2008
Find below FSDH’s analysis of the Q1 results for Mobil PLC.
Tags: analysis
donne4real | May 22, 2008
Here is a great article by Godfrey Obioma on the why you should own insurance stocks:
Why insurance stocks should be your long term choice
by GODFREY OBIOMAAn investor who had taken positions in insurance stocks early in 2007 and sold them late in the year or even early this year made a harvest through capital appreciation. That was because many insurance stocks rallied on the injection of capital through the consolidation exercise and perception that the sector would follow the earlier trend in the banking industry. At the end of the February deadline, many short term investors had rode on the back of the euphoria to anticipate a roller coaster trend. But the story has changed. Investors are now more interested in fundamentals, like earning and profitability. Except for a few, results coming in from that sectors, are not too impressive to drive up prices appreciably. Although there have been improvements, discerning investors think it is not yet uhuru for speculators.
The insurance market in Nigeria is small with low growth . About 70 percent of premium is distributed between marine, general accident and motor insurance policies.. A study by Afrinvest West Africa shows that gross premium increased just by 17.5 percent between 1996 and 2005 and 15.3 percent between 2003 and 2007. The company estimated total market size of N98.8 billion (US$844 million) in 2007. Penetration is low, in the insurance market, with lowest level of market depth in the life insurance product. Afrinvest research shows that of the 20 million people in formal and informal employment across the working population, less than 1million currently hold personal insurance policy.
Compared to banking , securities market and asset management business, the insurance sector is slow with very low inflation adjusted growth in the last 10 to 15 years. To address these problems, .the Federal Government, in September 2005, announced new minimum capital requirement . According to National Insurance Commission ( NAICOM),, the capital requirement for life insurance was increased from N150 million to N2 billion; general insurance , from N200 million to N3 billion while reinsurance was hiked from N350 million to N10 billion.
There is however silver in the horizon as the consolidation exercise has strengthened many insurance companies, created a lot more confidence in the sector. Besides, the economic reform which has boosted economic activities , is expected to drive increase in insurance business. while the increase in bank lending would enhance corporate and industrial insurable assets and gross premium..
Following the consolidation exercise, insurance companies have grown their shareholders funds. Leadway Assurance, for example , has shareholders fund of N9.4 billion; WAPIC Intercontinental N9.3 billion; A11CO N5.9 billion; Niger Insurance N5.5 billion; Gold link N5.4 billion; and Mutual Benefits N4.0 billion.
On the floor of the stock exchange, many insurers have demonstrated strength as their market capitalisation are fairly okey. WAPIC Insurance has market capitalization of N53.5 billion, Goldlink N48 billion; Niger Insurance N37.0; LASACO N34.9 billion, International Energy Insurance N34.9 billion and Cornerstone N30.5 billion..
Insurance companies have some of the highest price earning ratios showing high investment returning period. Notwithstanding, a number of them , are matching the record of banks in this area. The companies with some of the lowest PER are Prestige Assurance with 27.9 billion multiples; NEM Insurance 27.9; International Energy Insurance ;WAPIC Intercontinental 31.8 and Royal Exchange Assurance 35.1.
In terms of gross premium, Leadway has N5.7 billion; WAPIC Intercontinental Insurance N3.2 billion; Niger Insurance N3.1; AIICO N3.0 ; Cornserstone N2.7 billion; Royal Exchange Assurance N2.4 billion; Mutual Assurance N1.9 billion and Staco N1.7 billion.
The new capital levels and mandatory local content policy as well as the compulsory group life assurance under the pension Act are also expected to stimulate growth in the sector.
There are strong indications that some underwriters are tilting towards non insurance businesses like stock market investment, real estate, and oil and gas, which, although detract from , the objective of instilling professionalism in the sector, may on the long run grow bottom-line and investors’ returns.
With so much money pooled by insurance companies, the continuing economic reforms and opportunities for growth in earnings, the market is very bright for insurance stocks and long term investors are likely to reap the good returns.
Proshare NG has a great report on the Implications of the Share Price Movement Rule that was just effected by the Nigeria Stock Exchange (NSE). The main point of the rule is that a trade of at least 100,000 units of a stock is required to be able to move a stock price.
Here is the analysis:
Implications of Share Price Movement Rule
About three weeks ago The Nigeria Stock Exchange (NSE) came out with new rules regarding the price movement on the exchange. The new rule has it that as against 15,000 that was required for stock-brokers to trade to be able to move a stock price either up or down, they will have to trade 100,000 units to be in position to do so now. The NSE also said that any company was coming to list through introduction must has been roundly praised by the market.Also, the Securities and Exchange Commission (sec) has been receiving praises for investment six companies and consequent suspension of two of them on the allegation of price manipulation of their shares. The Nigeria Stock Exchange (NSE), where the companies were listed was not pleased with the way sec carried out the suspension of the two stocks from the market activities
The suspension created some kind of bad blood between the two authorities before the situation was managed in the interest of the market. Now, the issue of unbridled price movement on the exchange is said to have had a direct bearing on the action of the apex capital market regulator and many market analysts believe action of NSE at coming out with the new rules would not have been contemplated had it been that sec did not wield the big stick.
The Implications of the new NSE rules on the market
Mallam Kasimu Kurfi, managing director and chief executive officer of APT securities and Funds limited said: ’’Let me start by emphasizing that this is one of the good developments in the market .This step shows that the regulatory authorities are up and doing and this is a welcome development for the market. I have to take you back to 1975. At that time, the maximum a stockbroker could add to any stock was 20 kobo.By 1997, our stocks started to hit N70.00. Oando hit N70.00 and one begins to wonder that a stock of N70.00 what would 20 kobo price movement mean to it. Twenty kobo is not up to one percent. So, at that time the regulatory authority changed the rules and the rules and percentage was introduced to it. By 1997, five percent was the maximum a stockbroker can move a stock up or down. That was a welcome development because at that time, a stock of N70.00 if you are talking of 5 percent that stock would increase by N3.50 in a day as against 20 kobo before.
Then let us look at the way it was with the volume. Initially, you could move the price of any stock by any quantity. By 1997, the regulatory authority ensured that you could not move the stock price by any quantity. Before that is done, the quantity should be reasonable. It must be a minimum of 5,000 but later it was moved to 15,000 and currently, the regulatory authority has come out with a new rules which says you can’t move any stock if the total volume are bidding or offering is not up to 100,00 units.
The beauty of this kind of rule is that it ensures there should be a reasonable quantity to move the price up or down. Therefore, this would ensure that stocks should not be punished unnecessarily and the stocks will not be over priced and those junk stocks and penny stocks may not hold sway again. This is so because most of these penny stocks’ total issued share capital is not up to 100 million and, therefore, the quantity traded is minimal.
One will begin to ask question on why a stock keeps on gaining 5 per cent and the quantity traded is just 15,000. It was like that because that was the rule. Once a stock can trade 15,000 units, it can move upward or downward. But the funny side of it is that the stock will be trading only 15,000 and be gaining 5 per cent and other brokers will be watching .A client will tell you buy me this stock and you cannot get it. However, with this new development, a stock can only move up or down with a minimum of 100,000 thousand units. This will bring liquidity to the market because what we are saying is that those stocks that are very scarce will neither go up or down; they’ll be stagnant and nobody rule is the way it affects private placement.
It is a common knowledge that most of those companies that went for private placement come to be listed on the exchange by introduction. You find that immediately after listing, the price keeps rising because the quantity is not there. It is almost drying up very scanty until the price triples before you begin to see some quantity coming in. Now, the NSE says no.
If you are coming by introduction, so be it, but on the day you are going to be listed, you must offer 10 per cent of your issued share capital and that will make the stock liquid and that will make stockbrokers to be able to get enough quantity and you will see the most of the investors who want to buy it even from day one, will get it.
How Stakeholders See The New Rule
Faruk Umar, the president, Association for the Advancement of the Rights of the Nigerian Shareholders, said the actions of the NSE in that direction are quite in order.He said that these companies have learnt to carry out private placement and then list the shares on the Exchange as a way of increasing the share prices of their stocks. ’’It has become a tradition among these companies to come to the capital market for fresh funds they raised previously. This will stop some of them who do that merely for price increase from moving share prices any how,’’ he said.
He supported the decision of the Exchange that any company coming to the Exchange for listing should make 10 percent of the shares to be listed available for trading as a matter of fact. Umar said the NSE is right in stopping companies from accessing the capital market for fresh funds twice in a year. ‘’I also support the regulation that 15,000 units will no longer be enough to make a stock move its price. The 100,000 units peg by the Exchange is quite in order because it has become easy for the operators to raise 15,000 units as they want. It is however, not very easy for the stockbroker to immediately raise 100,000units just to change share price, ‘’he said.
According to Mr. Gbenga Idowu, national coordinator shareholders united front the new rule would impact the market positively. On whether it would have negative effective on the Emerging Market sub-sector where many indigenous sponsored companies play as most of them do not trade as much shares that would help their price grow, he said that if they have been performing well everybody would be patronizing them and they would not have been focusing too much on the issues of capital whereas what they should be focusing on is how to improve on the quality of their products. This would make their product acceptable and invariably that will make their stocks acceptable to Nigerian investors. The rule is for the good of the market in whatever way it affects any sector, the players should brace up to the challenges”, he said.
The Genesis of The New Rule By The NSE
It was February this year that sec announced that it has begun investigations into the activities of six companies over allegations of price manipulation and other sharp practices aimed at ripping off investors. It gave the names of the affected companies as African Petroleum Plc (AP); Big Treat Plc; Afroil Plc; First Aluminum Plc; Capital Oil Plc; and IPWA Plc.It vowed to deal decisively with any operator found culpable of price manipulation or insider dealing. Was a criminal offence in the capital market and urged them to always operate within the confines of the rules to ensure transparency and integrity of the market.Mr Lanre Oloyi, head of media of sec said: “The decision of the suspension of trading on Afroil Plc and Capital Oil Plc was a fall out of the investigation recently conducted on these two companies, due to observed astronomical rise in the share prices and the fact that they were not rendering necessary statutory reports.
“The investigation established that during this period they were not in business, as there was no activity whatsoever in their premises,”said sec. The commission said the suspension was to protect the investing public. It said its investigations showed that Afroil accessed the capital market in 1993, through an initial public Offer (IPO) for subscription of 165 million ordinary shares of 20 kobo, at 40 kobo per share. The offer was undersubscribed by 42.26 per cent or 69.73 million shares, which were warehoused for subsequent disposal on the exchange .
It said between 2001 and 2006, the company was wound up by a Federal High Court Lagos order, dated March 30,2001 following its inability to pay its debts, pursuant to the provisions of the CAMA 1990. But the winding up order was vacated in March 2007, following the decision of KS Fund Managers Limited (one of the creditors) to take over the responsibility of paying other creditors, while the company was returned to KS Fund Managers. The warehoused shares of the company were in custody of the company’s management.
For instance, a stock brokerage firm sold 20 million units of the warehoused shares from April 19 2007 to December 6, 2007 at prices ranging from N2.20 TO N6.47, while another firm sold nine million units between December 21, 2007 and January 24, 2008 at the price range of N9.12 to N13.76 per share. Even during the investigation of the company. It was discovered that a new mandate order was given by the company management requesting the sale of another 11 million units,”SEC said. According to the commission, the sale of the company’s warehoused shares within this period is quite anomalous, as it ceased to be a going concern between 2001 and June 2006 while it returned to going concern status on March 3, 2007.
“The commission, therefore, noted the actions of the management of Afroil Plc as acts of insider dealing and price manipulation, and therefore, a breach of rule 110 of the commission’s Rules and Regulations. In addition, the manner of the sale of the company’s warehoused shares was a total breach of the provisions of Rule 70(2) of the commission’s Rule n Regulations, which states that warehoused shares be sold en-bloc, while the broker renders periodic reports on it, “sec declared. The commission said the investigation revealed that the investigation revealed that capital oil plc has similar antecedents with Afroil plc. The only exception is that no evidence was discovered to prove that capital oil went into liquidation but the company was not in active operation and only occupies an obscure office accommodation in Ikeja, Lagos.
Tags: analysis
donne4real | May 20, 2008
Analysis of the Zenith Bank Q3 Results and UBA’s Q2 Results by FSDH Securities .
UBA Q2 Results Analysis (33)
Zenith Q3 Results Analysis (38)
Tags: analysis, company results, results
donne4real | May 12, 2008
Market Sentiments for the Week Ended May 9th, 2008 as prepared by Meristem Securities.
There are strong indications and positive gestures that the stock market is on the path of transition from stability to recovery as all market performance indices inched up throughout the week ended Friday May 9, 2008. Market capitalization of listed equities bounced by 6.06 percent to stand at N12.12trn (US$2.0bn). The entire market reported positive and appreciable returns of 5.74 percent as The Nigerian Stock Exchange (NSE) All-Share Index (ASI) leapt by 574 basis points to close higher at 62,518.07 points. Activity level rose substantially as volume and value of equities traded jumped up by 44.1 percent and 56.4 percent respectively over the previous week’s statistics.
Market was buoyed by activities in key sectors- such as banking, insurance, building materials, food & beverage and conglomerates as a few companies in these sectors released outstanding period and full year results accompanied by stimulating corporate benefits. Market watchers and investments experts are optimistic about an imminent resurgence and thereby reassure investors of ‘goodies’ ahead in coming weeks. They however admonish market participants to look beyond only speculative positioning and give more consideration to value investing across all investment horizons.
Banking stocks rekindled investors’ hope as they topped performance charts all through the week. The sector performance was propped up by trading in shares of Zenith Bank, UBA, Oceanic, First Bank, Afribank, Ecobank, Access, Intercontinental Bank, and Diamond Bank Plc. There are strong beliefs that quite a few of the stocks above are trading below their intrinsic values and sentiments support a good entry for momentum traders and proactive investors at current pricing. A segment of market commentators opines that another incentive for investors is the anticipated corporate benefits of banks like First Bank; Access Bank; Union Bank Plc (UBN), Afribank Nigeria Plc; Stanbic IBTC; Skye Bank Plc and Wema Bank Plc- all having their FYE March 30, 2008 and Intercontinental Bank Plc- FYE February 29, 2008; GTBank Plc – February 29, 2008. Meanwhile, Ecobank was also sought after by investors as it went on bid soon after lifting off technical suspension as a result of the termination of the Bank’s merger talks with Sterling Bank Plc.
In the insurance sector, activity level was probably fueled by the release of full year corporate results for the FYE December 31, 2007in favour of Custodian and Allied Insurance Plc, Nem Insurance Plc; Linkage Assurance Plc. There are strong sentiments that the further activities in insurance stocks will substantially be shaped and propelled by their full year 2007 results, anticipated corporate rewards and their first quarter results for the period ended March 31, 2008. We are of the opinion that a peer analysis of fundamentals of insurance companies remains a critical factor for consideration in screening out value stocks for short to medium term investment horizons.
Our analysis reveals that a couple of insurance stocks are trading at outrageously high price compared to their trailing multiples which calls for caution for investors to avoid further diminution in portfolio value. As at date, average pricing in the sector gravitates to N5 while the sector’s EPS and P/E hover around N0.13k and 53.5 xs respectively. Insurance stocks emerged from the recent market hiccups and correction to record appreciable daily gains that have ignited investors’ aspirations about the prospects of the sector in the post consolidation era. Although market analysts agree that with an average industry PE of 53.5x, most insurance stocks lack fundamental strength to justify their current pricing as well as sustain their momentum, the industry’s prospects seem bright enough to douse any negativity priced into insurance equities.
Building materials sector was also amongst dominant sectors in activity during the week ended. Trading in shares of Cement Company of Northern Nigeria Plc (CCNN) arouse market participants’ curiosity as the stock recorded maximum capital appreciation for almost 5 days to close the week at N19.60k against N17.01k it opened the week on Monday May 5, 2008. Market rumours have it that the recent surge in the stock price may not be unconnected with an impending corporate decision. On the other hand, a group of analysts expresses that stocks in this sector are currently trading at ridiculously cheap prices due to operational challenges raging from energy to equipment refurbishment facing all cement manufacturers in the country. Industry experts opine that this phase of operation is momentary and a recovery is near.
Market commentators applaud the authority of over a new regulation on share price movement. They also assert that going forward, bullish run will substantially be moderated as the authority of The NSE has come up with a new regulation such that before there could be movement in stock price, a minimum of 100,000 units must be traded. This is contrary to the hitherto 15,000 units, which some participants said was partly responsible for abnormal share price appreciation most especially amongst penny stocks which are less liquid in terms of volume available for trades.
