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Another Year of Losses for Stock Market Investors

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Stock Investors
  • Another Year of Losses for Stock Market Investors

The last trading day at the Nigerian stock market will be Friday, December 30, 2016. Going by the year-to-date (YTD) performance of the benchmark index, the Nigerian Stock Exchange (NSE) All-Share Index (ASI), the market will close the year on a negative note. As at last Friday, the ASI had recorded YTD decline of 7.5 per cent.

Considering the fact that only three trading days are left, it is very certain that the 7.5 percent decline already recorded would not reversed for the market to close the year with a growth.

This implies that for the first in many years, the nation’s stock market would be posting negative performance for three years in a row. The market had suffered a decline of 16.1 percent in 2014, 17.4 percent in 2015 and is now recording the third decline, though better than the two previous years.

Although the decline recorded 9n 2014 and 2015 depressed most prices of stocks and created an entry opportunity for investors, most investors stayed away due following economic headwinds. Lack of fiscal direction, declining oil prices, policy reversal by the Central Bank of Nigeria (CBN), naira devaluation and persistent liquidity challenge in the foreign exchange market combined to dash hopes of the market recovering in 2016.

NSE Early Optimism

At the beginning of the year, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema raised optimism that with greater clarity on policy direction, investors who had remained on the sidelines throughout 2015 would return to the market in 2016.

“This return is predicated upon return of investor confidence as a result of: effective implementation and communication of the government’s economic blueprint; credibility in monetary policy stance; relative stability in the macro economy (oil price stability above benchmark targets, increase in tax collection to gross domestic product among others) and improved security,” he said.

According to Onyema, the exchange would focus on executing its strategy in order to continue to provide a credible platform for financing the economy.

“To this end, we intend to intensify engagement efforts with the federal government. We have also prioritised three initiatives for 2016 aimed at achieving the exchange’s three strategic objectives of increasing the number of new listings across five asset classes, increasing order flow in the five asset classes operating a fair and orderly market based on just and equitable principles,” Onyema said.

He noted that state of the market created both challenges and opportunities for investors.

“We believe that taking a portfolio approach to investing provides the best risk adjusted alternative for participating in the capital market. As such, we want to ensure that the NSE provides a repertoire of products that will allow investors to create well diversified portfolios of uncorrelated asset classes,” he said.

However, the expectations of the NSE were not met as the market remained under pressure of weak demand for stocks from both domestic and foreign investors due to the economic challenges.

Unfavourable Policies

In the past the market was highly driven by foreign investors. However, the policy of the CBN that restricted forex and exchange volatility prior to June 20, 2016 discouraged most foreign investors. Unfortunately, domestic investors, who ought to have taken advantage of the low prices of stocks, were handicapped by reduced disposable income and high inflation. Besides, the increase in monetary policy rate (MPR) to 14 per cent swayed many investors to fixed income securities, making the equities market less attractive. Besides, the high rate of MPR shot up the cost of borrowing, a development an economist and Director General of the Lagos Chambers of Commerce and Industry (LCCI), Mr. Muda Yusuf, said was detriment to the capital market.

According to him, the tight monetary policy in form of high cash reserve ratio, liquidity ratio, MPR has led to an increase in interest rate and better returns on investment in the money market.

“This is a disincentive to investment in the capital market. High interest rate is not good for firms in the real sector, many of which are listed on the NSE. This has implications for Return on Investment (ROI) for those firms and by extension ROI on investment on those equities,” Yusuf said.

The negative impact of the monetary policies combined with naira devaluation led to poor results by many listed companies, a development that further discouraged investors from staking their funds on equities.
The foreign exchange losses that followed the devaluation of the naira affected the bottom-lines of many companies with some ending the nine months period with losses.

Regulatory efforts

Amidst the challenging environment, regulators in the capital market, the Securities and Exchange Commission (SEC), which is the apex regulator and the NSE, which is a self-regulatory organisation (SRO), made efforts to sustain investors confidence in the market by embarking on various initiatives. For instance, discovering that one of the reasons investors have stayed away from the market was frustration in having access to their dividends, SEC introduced the electronic dividend platform. Although the e-dividend was launched late last year, the commission embarked on public awareness campaign in this year in Abuja, Kano and Lagos.

According to the Director General of SEC, MounirGwarzo, e-Dividend platform will enable investors have direct access to their dividends.

“Once the e-dividend is in place, the issues surrounding stale dividend warrants will be a thing of the past, similarly, the challenges of travelling from one place to another to deposit dividend warrants would be completely eliminated. This process would eliminate all challenges associated with payments of dividends in our markets,” he said.

He added that the quantum of unclaimed dividends in the market would be reduced.

“This is because unclaimed dividends are an off-shoot from dividends of small stakeholders who have been unable to claim them,” Gwarzo said.

Also, before now, less than 20 per cent of investors had dividends posted directly to their accounts. Investors suffered from inefficiencies of the warrant and postal systems, which contributed to the growth of unclaimed dividends. However, SEC’s partnership with the CBN and the Nigerian Inter-Bank Settlement System (NIBSS), to develop the e-dividend mandate system has changed the narratives.

Investors can now pay dividend warrants into savings accounts while over 1.6 million accounts have hooked to the e-dividend platform, just as over 1.4 million accounts have been attached to BVN.

Another positive development during the year was the increased in dematerialisation of share certificates.

Less than 40 per cent of share certificates were dematerialised as at June 2015 after 20 years of the introduction of Central Securities Clearing System (CSCS) Plc.

However, SEC set up a committee to fully focus on dematerialisation, which has resulted in the dematerialisation of 98.7 per cent of share certificates has been fully dematerialised.

Similarly, the commission introduced the Direct Cash Settlement(DCS) that will enable investors to receive proceeds of the share sales directly into their own accounts.

Currently, payments are made into broker’s account before being remitted to be investor, a system that opens doors for abuse and infractions.

Substantial number of complaints received from investors involved delayed or no remittance of funds from the brokers. In order to address the complaints the commission set up a committee and the DCS would fully become effective April 1, 2017.

On the part of NSE, it has deepened products offering, providing a repertoire of products that will allow investors to create various portfolios. The exchange has become a multi-asset class exchange offering exposure in equities, fixed income, Exchange Traded Funds (ETFs-Golds, Bonds, Equities, real estate, REITs among others.).

The NSE introduced ETFs in 2011 and they have increased to eight ETFs.

“The existence of ETFs in our market is beneficial to retail and institutional investors, as ETFs offer a direct and inexpensive way to attain diversified exposure to an index, commodity, sector or region. Aside diversification and tradability, ETFs also offer additional benefits of low expense ratio as compared to mutual funds and increased liquidity, and can be used to execute different investment strategies,” Onyema said.

And in a bid to broaden and deepen the Nigerian capital market, the NSE partnered ETFs, issuers, Vetiva Fund Managers Limited, Lotus Capital Limited and Stanbic IBTC Asset Management, to organise the 2016 NSE Exchange Traded Funds Workshop last November.

Also, the NSE intensified efforts around market data services by organising the inaugural market data workshop in in collaboration with Independent Software Vendors (ISVs) and Market Data Vendors (MDVs) in October.
The aim of the workshop was to increase awareness on the critical role of market data in making sound investment decisions on both the buy and sell sides.

After two years, the NSE recorded a fresh listing as The Initiates Plc was listed on the Alternative Securities Exchange Market(ASeM). Equally, the exchange listed the N6.295 billion Series 1:7-Year 18.50 per cent Fixed Rate Bond Due (2023) under the N50.000 billion Wema Funding SPV Plc Debt Issuance Programme.

The 2016 was also memorable for the NSE as it hosted the Speaker, Yakubu Dogara and capital market committees of the House of Representatives and Senate to an interactive session.

It also hosted Vice President Yemi Osinbajo to an interactive session with listed companies and capital market operators with a view to addressing the headwinds in the capital market.

During the year, the NSE also revised its listing and trading fees for securities listed and traded on its Fixed Income Market. Under the revised fee structure, the NSE no longer charge trading fees on fixed income traded on its platform. The initial flat listing application fees of 0.15 per cent for all bond types has been replaced with variable listing application fees.

As part of efforts to further provide timely information for investment decisions as well as enhance the protection of investors in the capital market, the NSE introduced enhanced Compliance Status Indicator (CSI) codes on the ticker tape for listed companies.

Under this initiative, the exchange tags all listed companies with a three character code that indicates the compliance status of the listed company at any particular point in time. This compliance code will enable investors to make informed decisions whilst ensuring a transparent market guided by timely information.

Stakeholders’ Comments

Commenting on the performance of the market, the Managing Director of APT Securities and Funds Plc, Garba Kurfi, said the market has never in the past 25 years experienced three consecutive years of decline. He added that the daily turnover has reduced to about N1 billion from a peak of N10 billion in 2008.

“Most of the stocks are in their lowest prices of over 15 years or even more. The foreign investors that used to patronise the market with over 50 years turnover have moved elsewhere. However, once the recession is over, hopefully, by next year, the market will also improve,” Kurfi said.

In his opinion, the Managing Director of Highcap Securities Limited, Mr. David Adonri, the market has declined in 2016 and the primary market, where capital is formed has been dormant.

“As the economy moves out of the stagflation, the market will recover,” he declared.

Also expressing their views, shareholder activists cited various reasons for the lackluster performance of the market. Some of them even rated the regulatory bodies, saying how their actions and inactions affected the market.

In the views of a founding member of Nigeria Shareholders Solidarity Association (NSSA), Alhaji Gbadebo Olatokunbo, the market is always the reflectors of every nation’s economic indicators and since we are in recession, we couldn’t have performed better. He noted, however, that we may be on the way out of the woods.

Although he said speculative trading had taken the back seat, the truth is that we still refuse to take stock and learn from our past mistakes. While SEC has introduced some initiatives that would help restore investor confidence and drive growth in the market, Olatokunbo said one of the regulator’s undoing is its non-acknowledgement of domestic investors/shareholders as part of the stakeholders in the industry.

“We were never consulted on any policy being made for the interest of capital market in order to serve as a guard to the formulation of such policies, but we were expected to comment on what had been concluded as new policy,” he said.

He added that apart from SEC, NSE and Financial Reporting Council (FRC) and most regulatory agencies adopt the same attitude towards the Nigerian citizens whom they are supposed to protect.

According to him, there is the need to be more concerned on the protection of investors on risk management to their wealth in the companies.

“Companies shouldn’t get approval to be quoted and then goes to bed on ROI. No company without proper planning on returns should be quoted while their exit should be based done in a way that investors are protected,” he said.

The shareholder noted that initial pricing of companies being listed on the NSE should not be too high so that more domestic investors can embrace them.

“SEC should focus more on how to solve the problems of unclaimed dividends while the NSE should stop behaving like headmaster without responsibility to the pupils with the delisting of companies without recourse to the interest of shareholders. SEC and NSE should not forget that they stood sureties for the companies before the involvement of the investing-public. Therefore, they must work out risk management issues with quoted companies before and after quotation in the interest of shareholders,” Olatokunbo said.

In the opinion of Mr. Adeniyi Adebisi of Independent Shareholders Association of Nigeria (ISAN), the stock market has lived up to its major characteristic of price fluctuation, noting that in 2016 the market experienced more of ‘downs’ than ‘ups.’

“This is the year the retail or small scale shareholders qualify more to be described as an endangered specie. We have had more sellers than purchasers of shares thereby depleting the ranks of this vibrant class of players in the capital market. There has been nothing of note to persuade big and foreign investors to come back to the market since the collapse that followed the pre and post 2008 boom. No thanks to the officially declared economic recession which is yet to show any signs of going away,” Adebisi said.

According to him, the regulators – SEC, CBN, NSE, FRC, and even the Corporate Affairs Commission had more than enough attention from corporate bodies they are regulating, shareholders’ groups and the National Assembly.

“This attention has severely put the regulators on their toes and this situation is likely to continue for a long time to come. It is perhaps the beginning of good things to happen to the capital market,” he said.

However, Adebisi decried that despite various spirited efforts being made by the relevant committees of the National Assembly, SEC and recently the Capital Market Correspondents Association of Nigeria, to ‘deepen’ the capital market, it is not likely that much will be achieved along this line.

“This is largely because the present administration of President Muhammadu Buhari has not come up with any clear cut economic policy which investors can take cue from besides the rather nebulous declaration on ‘diversification of the economy,” the ISAN boss stated.

The newly elected Chairman, Ibadan Zone Shareholders Association of Nigeria, Mr. Eric Akinduro said the year started with hope and aspirations from investors particularly for the local investors but due to the current recession market came down below expectations.

“However it is the reflection of the economy. Idle funds are not in pockets of investors coupled with non- payment of salaries to workers. Quarterly reports of companies, apart from few are not attractive. Their exposure to forex is very high and the losses recorded on forex is really affecting their performances. However, Nigerian capital market is still very promising when you consider the equity prices particularly companies that are less in exposure to forex and importation of raw materials,” Akinduro said.

Also commenting, Mr. Oderinde Taiwo of Proactive Shareholders Association of Nigeria said the nation economy, which is crude oil dependent experienced a decline due to a fall in price of crude oil in the international market and this impacted negatively in our capital market by experienced bearish run throughout the year with market capitalisation drop from about N13 trillion about N9 trillion.

“Two, Nigerian capital market was over regulated by the regulatory authorities, especially the code of corporate governance compliances. Among them is the FRC’s code of corporate governance that is under debate by the capital market stakeholders. To me these regulations will make some companies to delist from our market because our country’s regulatory templates are gradually becoming risks themselves,” he said.

Taiwo added that the inability of governments at the federal, state and local government level to meet their financial obligations such as non-payment of salaries, contractors, among others also affected the market directly and indirectly.

“Therefore, there’s investor apathy in the market. But I believe the year 2017 will be better than the year 2016 because of the lessons we have learnt as stakeholders,” he said.

To Mrs. Bisi Bakare of Pragmatic Shareholders Association of Nigeria, the market performed poorly due to the economic recession, poor financial results of most companies and investor apathy.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Banking Sector

Unity Bank Forecasts N380.815 Million Profit for Q3 2021

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Unity bank - Investors King

Unity Bank Plc on Friday predicted profit after tax of N380.815 million for the third quarter (Q3) ending September 30, 2021.

This represents a decrease of N162.3 million year-on-year when compared to the N543.14 million recorded in the same quarter of 2020.

The lender projected gross earnings of N10.890 billion for the quarter while interest income was expected to hit N7.204 billion.

Interest expense was estimated at N5.351 billion for the period. Unity Bank puts net revenue from funds at N1.853 billion in Q3 2021.

Other incomes were expected at N3.686 billion and impairment for credit loss was projected at N885.663 million in the quarter under review.

The bank forecasts net operating income at N4.653 billion and puts operating expenses at N4.237 billion.

Profit before tax was projected to hit N416.191 million in the quarter, below the N590.4 million achieved in the same quarter of 2020.

Unity Bank’s Cashflow Projections for the Third Quarter Ending September 30, 2021 (₦)

Net cash provided by operating activities 1,720,815,055

Net cash flow provided by/(used) in investing activities (260,034,996,531)

Net cash flow from operating and investing activities (258,314,181,476)

Net cash used in financing activities 258,694,996,531

Net increase/(decrease) in cash and cash equivalents 380,815,055

Cash and cash equivalents, beginning of period 107,494,314,017

Cash and cash equivalents, end of period 107,875,129,072

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Finance

Ecobank Raises US$350 Million Tier 2 Sustainability Notes

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Ecobank Transnational Incorporated (“ETI”), a Lomé based parent company of the Ecobank Group listed on Nigerian Exchange Limited, announced it has successful raised US$350 million Tier 2 Sustainability Notes.

This represents the first ever Tier 2 Sustainability Notes by any financial institution in Africa.

The lender disclosed in a statement signed by Adenike Laoye, Group Head Corporate Communications/Chief of Staff to the Group Chief Executive Officer, Ecobank.

According to the bank, the Tier 2 issuance is the first to have a Basel III-compliant 10NCS structure outside of South Africa in 144A/RegS format and will be listed on the main market of the London Stock Exchange. The bond, which matures in June 2031, has a call option in June 2026 and was issued with a coupon of 8.75 percent with interest payable semi-annually in arrears.

The lender said an equivalent amount of the net proceeds from the notes will be used by ETI to finance or re-finance, new or existing eligible assets as described in ETI’s Sustainable Finance Framework, available at https://ecobank.com/group/sustainability-financeframework on which DNV has issued a Second Party Opinion.

Speaking on the issuance, Ade Ayeyemi, Group Chief Executive Officer of ETI, stated: “This is a landmark issue for Ecobank, and indeed the success of this first Sustainable Tier 2 issuance is testament to our clear strategy, solid positioning across the pan-African banking space as well as our deliberate and long term focus on sustainable initiatives. We are particularly pleased with the diverse orderbook which reflects the confidence investors have in Ecobank to deliver on our commitment to sustainable financing.”

Investor interest for this Sophomore Eurobond issue was global, including United Kingdom, United States, Europe, the Middle East, Asia and Africa, achieving a 3.6x oversubscribed orderbook, of over US$1.3 billion at its peak.

The transaction was anchored at the start by Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (“FMO”), a Dutch development bank, with a committed US$50 million order. The notes saw significant demand from asset managers from Europe on opening (including the UK) demonstrated by a number of large tickets.

Overall, investor interest was global including accounts from the United States, the Middle East, Africa and Asia.

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Banking Sector

CBN Debunks Report on Planned Nationalisation of Unity Bank

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Unity bank - Investors King

The Central Bank of Nigeria (CBN) has denied planning to nationalise Unity Bank Plc as alleged by an online news medium.

Reacting to the report, the Acting Director, Corporate Communications Department, CBN, Osita Nwanisobi, described it as, “fake news” and should be discarded in its entirety.

He said: “The report is fake news. There is no iota of truth in it.” He added that the public should disregard such news.

The report had claimed that the apex bank’s target examination of Unity Bank showed that the Tier 2 lender is in ”grave financial condition”, with Capital Adequacy Ratio (CAR) and Non- Performing Loans (NPL) ratio that breached prudential standards.

However, analysts note that just last month, the CBN’s Monetary Policy Committee ( MPC) noted in the communiqué it issued at the end of its meeting that the banking industry is in good health.

According to the communique: “the Capital Adequacy Ratio (CAR) and the Liquidity Ratio (LR) both remained above their prudential limits at 15.8 and 38.9 per cent, respectively. The Non-Performing Loans (NPLs) at 5.89 per cent in April 2021, showed progressive improvement compared with 6.6 per cent in April 2020.”

Unity Bank’s audited FY’ 2020 results showed improved performance in key parameters. For instance, the Bank’s gross loans portfolio increased by 92.9 per cent to N206.2 billion in 2020 from N106.9 billion in 2019.

The bank’s total assets rose by 67.90 per cent when compared with N293.05 billion achieved in the comparative period of 2019. Also, the lender posted gross earnings of N42.71 billion compared with N44.59 billion recorded in the comparative period of 2019, reflective of its business and economic realities of the time.

Its customer deposit portfolio grew by 34.4 per cent to N356.62 billion in 2020, up from N257.69 billion posted in the corresponding period of 2019. Profit after tax stood at N2.09 billion, while profit before tax was N2.22 billion during the year under review amidst the tough macroeconomic environment where it operated. Its net operating income rose to N25.46 billion from N23.21 billion in the corresponding period of 2019, representing a 9.71 per cent increase.

This is even as the net interest income recorded a significant jump, as it rose by 7.60 per cent to N17.75 billion from N16.49 billion in the corresponding period of 2019.

Furthermore, the bank sustained the growth momentum demonstrated in its 2020 full year earnings as it recorded an impressive performance of 43 per cent in both profit before and after tax in Q1 2021.

The Bank’s unaudited Q1 results show that the retail lender profit before tax (PBT) grew by 43 per cent to N784.3million from N550.1 million recorded in the corresponding period of 2020.

The profit after tax (PAT) for the period, which also grew by 43 per cent stood at N721.5million compared to the N506.1million recorded in Q1 2020.

As an outcome of increased focus on supporting local enterprises and industry, the asset portfolio also showed significant growth in loan book of 76 per cent as net loans and advances to customers increased to N223.2 billion, from N126.6 billion recorded in the corresponding period.

The total assets of the bank for the period showed an appreciable growth of 42 per cent to close at N521.5 billion, from N366.8 billion in the corresponding period of 2020.

The balance sheet of the bank had been considerably de-risked with the non-performing loan (NPL) ratio of near-zero per cent, which it has consistently maintained over time. With this, the bank ranks topmost in risk management assessment.

The bank recorded gross earnings of N11.5 billion, representing a marginal decline of three per cent when compared to N11.9billion posted in the corresponding period of 2020.

The bank has assuredly intensified its recapitalization efforts by the recent updates the lender provided to the supervisory authority and significant mileage is currently being recorded as part of its corporate transformation and renewal programmes.

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