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Stocks: Analysts Predict Bearish Trading This Week

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Nigerian Exchange Limited - Investors King
  • Stocks: Analysts Predict Bearish Trading This Week

The Nigerian equities market is expected to see more of bearish trading this week despite the negative trend that pervaded the market last week.

Sell pressures prevailed in the market last week as investors began profit taking activities on stocks that have been trading at high prices following the recent bullish run.

“We expect trading activities in the coming week to mirror that of the week past albeit at a moderated level. A positive close is not unexpected as we envisage pockets of bargain-hunting in the week following this week’s significant loss,” analysts at Meristem Securities Limited said.

Following weeks of consecutive gains in the Nigerian Stock Exchange, the Exchange’s All-Share index declined significantly by 4.99 per cent, to settle the year-to-date return at 19.53 per cent last week.

Also, volume traded and market turnover declined by 15.53 per cent and 23.30 per cent, respectively. Neimeth International Pharmaceuticals Plc emerged the top performer last week, after the counter advanced by 44.12 per cent to close at N0.98. Contrarily, Transnational Corporation of Nigeria Plc was the top underperformer during the week after it shed 23.12 per cent.

For the banking sector, in what was a negative week for the market in general, there were severe profit taking activities on all, but one of the sector’s counters. “We expect the sector to close in line with the general market mood this week,” the Meristem analysts said.

In the week, as expected, the agric sector halted its gaining streak following the sell pressure on Okomu Oil Palm Plc, which resulted in a week-on-week loss. The analysts envisaged continued sell sentiments this week as investors take profit on the sector major players, having recorded significant gains in the past weeks.

The consumer goods sector recorded continued sell pressures on stocks which had recorded significant gains in the past weeks. This week, it is expected that the sector’s performance would in line with general market sentiments.

After weeks of closing in the green zone, profit-taking activities dominated the health sector stocks last week. However, trickles of bargain-hunting were witnessed among the less popular counters in the sector. Given the recent market mood, the analysts did not rule out a continuation of these buy pressures. Nonetheless, speculators may cash in on the gains recorded due to the companies’ weak fundamentals.

For the industrial goods sector, the Meristem analysts said despite the positive sentiments in the sector evidenced by the market breadth, it closed underwater. “We attribute this loss to the share price decline of the sector’s heavyweights (Dangote Cement Plc and Lafarge Africa Plc). We expect the profit taking to continue this week,” they added.

Mixed sentiments were witnessed in the insurance sector last week as indicated by the sector’s breadth, and according to analysts, the sector’s activities this week would be largely dictated by the general market mood.

For the oil and gas sector, they stated, “We attribute the loss last week to the decline in the share prices of the sector’s heavyweights. We also note the positive sentiments towards Conoil Plc following the release of impressive results alongside dividend declaration in the week. This week, we expect the sector to close positive.

Activities in the services sector mirrored the general market last week as profit taking on a lot of counters prevailed. This week, analysts expect the performance of the sector to remain in line with the market.

Commenting on the this week’s market expectations, analyst at Vetiva Capital Management Limited said, “Given the sustained negative market sentiment at last week’s close – indicated by the widely negative market breadth on Friday and through the week – we expect bearish trading to extend into this week.

For the fixed income market, barring any aggressive mop ups by the Central Bank of Nigeria, the Vetiva analysts foresee increased demand in the Treasury bills market, spurred by the Federation Account Allocation Committee injection and the anticipated N236bn Open Market Operation maturity this week, though the bond space should remain mixed.

The bond market opened last week on a slightly bearish note, with selloffs observed on select tenors even as trading activity in the space remained relatively muted. The bearish sentiment persisted till midweek when the monthly bond auction was conducted.

At the auction, the Debt Management Office offered N140bn and eventually sold N99bn across the five-year, 10-year and 20-year tenors at respective stop rates of 16.1900 per cent, 16.1900 per cent and 16.1965 per cent – lower than secondary market levels.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Banking Sector

Guaranty Trust Holding Plans N500 Billion Share Offering

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Guaranty Trust Holding Company Plc (GTCOPLC) has announced plans to raise up to N500 billion through a new share offering, according to a preliminary prospectus filed with the Securities and Exchange Commission (SEC).

This move aims to support the company’s ambitious growth and expansion strategy.

GTCOPLC’s proposed offering will involve the subscription of ordinary shares of 50 kobo each, although the exact number of shares and the price range are yet to be determined.

The offering includes a concurrent filing of a preliminary universal shelf registration statement, allowing the company to issue various types of securities, potentially raising up to $750 million in multiple currencies.

Purpose of the Offering

The funds raised from this offering will primarily be allocated towards:

  1. Business Growth and Expansion: GTCOPLC plans to invest significantly in technology infrastructure to enhance its current operations. Additionally, the company intends to establish new subsidiaries and make selective acquisitions of non-banking businesses.
  2. Recapitalization of Guaranty Trust Bank Limited: Part of the proceeds will be used to strengthen the capital base of its banking subsidiary.

Target Investors and Structure

The offering is structured to attract both institutional and retail investors. It will be divided into two main tranches:

  • Nigerian Tranche: An institutional and retail offering aimed at eligible investors within Nigeria.
  • International Tranche: A private placement targeting qualified institutional buyers outside Nigeria.

Listing and Trading

GTCOPLC has also filed an application with the Nigerian Exchange Limited (NGX) to list and admit the new ordinary shares for trading on the NGX Official List.

The company anticipates opening the offering by July 2024.

Financial Strategy

The universal shelf registration will enable GTCOPLC to issue a variety of securities over time, with a total value of up to $750 million (or its equivalent in Nigerian Naira).

This approach provides the company with flexibility to raise capital in different markets during the programme’s validity period. The current proposed offering will be the first issuance under this new programme.

Regulatory Compliance

GTCOPLC emphasized that this notice does not constitute an offer of securities for sale in the United States or to U.S. persons, as defined under Regulation S of the U.S. Securities Act of 1933.

The offered shares have not been, and will not be, registered under the U.S. Securities Act or any state securities laws, and cannot be sold in the United States without proper registration or an applicable exemption.

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Loans

China Maintains One-Year Policy Loan Rate at 2.5%, Avoids Excessive Liquidity

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China’s central bank, the People’s Bank of China (PBOC), has decided to keep the key interest rate steady for the tenth consecutive month.

On Monday, the PBOC announced that the rate on one-year policy loans, known as the medium-term lending facility (MLF), will remain at 2.5%.

This decision aligns with the forecasts of a Bloomberg survey, reflecting the bank’s priority to maintain financial stability amid a fragile economic recovery.

The central bank also took measures to manage liquidity, withdrawing a net 55 billion yuan ($7.6 billion) from the banking system.

This action aims to prevent excessive liquidity, which could lead to further depreciation of the yuan. By maintaining a cautious stance on monetary easing, the PBOC underscores its focus on currency stability over lowering borrowing costs.

This move comes as China grapples with mixed economic signals. While exports exceeded expectations in May, inflation rose less than anticipated, and factory activity saw an unexpected contraction according to an official survey.

Despite these challenges, the PBOC’s restraint reflects a strategic choice to prioritize the strength of the yuan, even as calls for a rate cut grow louder.

Last week, the onshore yuan weakened to its lowest level since November, driven by a wide interest rate gap between the US and China.

The PBOC’s decision to hold rates steady is seen as an effort to prevent further devaluation of the yuan, which remains a “powerful currency” according to financial authorities.

Sufficient market liquidity has also influenced the central bank’s decision to refrain from outright rate cuts.

This is evidenced by the declining borrowing costs of popular debt instruments, such as one-year AAA-rated negotiable certificates of deposits, which have dropped to around 2%, compared to the MLF’s 2.5%.

The influx of funds from savings to wealth management products and other higher-yielding assets has bolstered the financial system’s liquidity, allowing the PBOC to adopt a more conservative stance.

China’s economy has experienced a patchy recovery, with government bond sales accelerating to boost infrastructure spending amidst a prolonged property slump.

Despite these efforts, the central bank remains cautious, opting for stability over aggressive monetary easing.

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Banking Sector

Fidelity Bank Launches N127.1bn Public Offer and Rights Issue on June 20

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Fidelity Bank Plc, Nigeria’s sixth-largest bank, is set to open its public offer and rights issue to investors on Thursday, June 20, 2024.

In preparation for this significant financial event, Fidelity Bank will host a “Facts Behind the Offer” presentation at the Nigerian Exchange Group (NGX) on the same day.

This presentation is expected to provide detailed insights into the bank’s strategy and the opportunities presented by the public offer and rights issue.

Under the rights issue, Fidelity Bank will offer 3.2 billion ordinary shares of 50 kobo each at N9.25 per share. These shares will be available to existing shareholders in the proportion of 1 new ordinary share for every 10 ordinary shares held as of January 5, 2024.

In addition to the rights issue, the bank will also offer 10 billion ordinary shares of 50 kobo each to the general investing public at N9.75 per share. This dual approach is part of the bank’s comprehensive strategy to raise a total of up to N127.1 billion.

The acceptance and application period for the rights issue and public offer will commence on Thursday, June 20, and close on Monday, July 29, 2024.

This timeline provides investors ample opportunity to participate in the bank’s capital expansion.

Fidelity Bank has engaged Stanbic IBTC Capital as the lead issuing house for the combined offer. The joint issuing houses include Iron Global Markets Limited, Cowry Asset Management Limited, Afrinvest Capital Limited, FSL Securities Limited, Futureview Financial Services Limited, Iroko Capital Market Advisory Limited, Kairos Capital Limited, and Planet Capital Limited.

These firms will play a crucial role in managing the offer and ensuring its success.

The bank’s initiative to raise N127.1 billion is seen as a strategic move to bolster its capital base and ensure compliance with the CBN’s revised capital requirements, which were introduced on March 28, 2024.

This capital raise is expected to enhance the bank’s capacity to support its growing customer base and expand its operations across Nigeria and beyond.

In recent years, Fidelity Bank has demonstrated robust financial performance and growth, positioning itself as a key player in Nigeria’s banking sector.

The successful completion of this public offer and rights issue will further solidify its standing and enable it to pursue new opportunities in the competitive financial landscape.

Investors and stakeholders are keenly anticipating the outcome of this capital-raising exercise, which is poised to mark a significant milestone in Fidelity Bank’s journey toward sustained growth and stability.

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