The Nation Newspaper

Category: Equities

  • Bank wins Oil & Gas award

    Bank wins Oil & Gas award

    The Project Finance Magazine, a publication of the Euromoney Plc, UK has adjudged Fidelity Bank Plc the winner of The African Oil & Gas Deal of the Year 2012. The bank said in a statement that the award recognises achievement and excellence in getting projects built, bought or refinanced.

    Fidelity alongside GTBank, Diamond Bank, Zenith Bank, and other International lenders and legal firms won the award with the $1.5 billion Syndicated Financing for the 2012 Drilling Programme of the Nigerian National Petroleum Corporation/ExxonMobil Joint Venture via their Special Purpose Vehicle RDP Funding Limited.

    This, the organisers said was the most interesting financing to emerge not only from Nigeria but also from the African upstream sector. “The $1.5 billion deal builds on the JVs earlier receivables-based deals, including the $600 million satellite field financing, which closed in 2005 and backed the development of live specified fields, and the $1.42 NGLII refinancing which closed in January 2011”.

    Whereas the satellite and NGLII financings related to discrete assets and will be ringfenced from the latest deal, the 2012 drilling programme financing is designed to back a more general programme of drilling at all the four oil mining leases that it owns. “All of these deals demonstrated that there was healthy bank appetite for uncovered commitments to the joint venture given the operational history”, Project Finance said.

    Receiving the award, Managing Director and Chief Executive Officer, Fidelity Bank Plc, Reginald Ihejiahi, said that the honour further demonstrated the bank’s commitment to the development of the Nigerian economy.

    Ihejiahi, who was represented by the General Manager, Operations, Sam Obijiaku, noted that Fidelity Bank has enhanced market competitiveness through improved infrastructure, quality service delivery system and increased nationwide spread.

     

    He explained that Fidelity Bank has garnered a great deal of experience from its past involvements in Oil and Gas contract finance and promised to deploy this wealth of experience in the development of the local economy

  • Q1: Foreign portfolio investment drops by N140b

    Foreign portfolio investment dropped by N140billion or 39.3 per cent in the first quarter of this year, a report by Financial Derivative Company has revealed.

    Also, foreign exchange sales at the Wholesale Dutch Auction System (WDAS) fell from $6billion in the corresponding period of last year to $3.9 billion this year.

    In its April Economic Report, the company noted that the pressure on the naira in the forex market will persist but continued Central Bank of Nigeria (CBN) intervention to protect the local currency will also continue.

    The report said the Sovereign Wealth Fund has a N1 billion start-up capital. He said that Nigeria will also borrow in 2013 to support its infrastructural and other capital projects.

    FDC said the monetary policy stance of the CBN has been tightening in spite of rising inflation, adding that the reserves was $49 billion in first quarter and would cover 13 months of imports and payments for the country.

    The firm said hot money in the economy is unofficially estimated at $11 billion adding that capital inflows have been trickling in after the earlier gush in late 2012. He said the decline in the inflation from a peak of 12.9 per cent to nine per cent in January before climbing to the current 9.5 per cent was due to base year effects even though the core inflation rate declined in February.

    “The major threat to price stability remains the fear of fiscal dominance and high powered money. The possibility of a supplementary budget and electioneering spending in a politically polarized environment is a clear and pre-sent danger to the explicitly stated objective of keeping inflation below 10 per cent,” he said.

    He said the markets have already discounted the interest rate as a nominal anchor, rendering it as an impotent benchmark.

    “The treasury bill auction rates have declined down to 9.2 per cent per annum. The Bond yields have gone the same way. This disconnection between the market and the benchmark is partly because of the impact of T/Bill maturities and the huge federal government disbursement of N888 billion and N400 billion capital votes last week. We expect the market to continue the trend of interest rates declining slowly until the next meeting in May,” FDC said.

    The report said the Monetary Policy Rate, the benchmark rate by which the CBN determines interest rate, has remained at 12 per cent since October 2011 when it was increased from 9.25 representing 275 basis points raise.

    It said, the CBN was advised to sustain its efforts at finding other innovative ways to unlock the credit market and stimulate the economy adding that despite implementation of the cashless policy, 90 per cent of transactions are still cash-based.

    According to the report, poor corporate governance practices, undue exposure to the capital market, oil and gas sectors, poor risk management, distress signs through the banks’ frequent resort to the inter-bank market and the Expanded Discount Window (EDW) were defining issues before the reforms. There were also matters relating to inadequate disclosure and lack of transparency about banks’ financial positions, making the reforms inevitable.

    Rewane said emerging markets also facing serious inflationary threats, which could much higher in 2012.

    Unsecured lines of credit for Nigerian banks to become more expensive to support trade finance. For Nigeria, raising new money from the Euro bond market will be more challenging. He said the gap between inflation and short term interest rates narrowed, thereby helping to stabilize the naira and reduce the rate of external reserve depletion.

  • Investors stake N298b on bonds, equities

    Investors stake N298b on bonds, equities

    Investors staked about N298 billion on equities and bonds as the equities market grappled with negative swings. Investors staked N24.63 billion shares on 2.28 billion shares in 28,170 deals last week. On the Over-the-Counter (OTC) bond market, where the Federal Government’s bonds are traded, investors staked N273.31 billion on 219.02 million units through 1,158 deals.

    The overall pricing trend was negative with the two main indices dropping by 2.10 per cent each. The All Share Index (ASI), the value-based index that tracks prices of all equities, slipped to 33,183.20 points while aggregate market capitalization of all listed equities dropped to N10.618 trillion.

    The financial services sector was the most active during the week, accounting for 67.70 per cent of total turnover with 1.54 billion shares valued at N14.42 billion in 15,660 deals. The conglomerates sector followed with 275.094 million shares worth N554.361 billion in 1,530 deals, representing 12.07 per cent of total turnover. The consumer goods sector placed third with a turnover of 138.015 million shares worth N7.719 billion in 4,820 deals.

    Transnational Corporation of Nigeria Plc, FBN Holdings Plc and Zenith Bank Plc were the three most active stocks with the three stocks pooling a turnover of 642.568 million shares worth N8.085 billion in 5,325.

    The retail bond market on the NSE recorded a turnover of 1,887 units of FGN bonds valued at N2.314 million in 20 deals.

    Dangote Cement recorded the highest loss during the week with a drop of N12.01 to close at N147.99.

     

     

  • First Registrars deploys electronic voting for general meetings

    Shareholders at their general meetings can now ensure seamless and more accurate voting as First Registrars Nigeria Limited broke new ground in innovation in the share registration industry with the operational launch of its electronic voting (e-voting) system.

    First Registrars showcased the trail-blazing e-voting device at the extra-ordinary general meeting of Honeywell Flour Mills Plc. The devices could be used for all voting at any general meeting including approval of resolutions, election of audit committee, board members election and other opinion polls.

    Several shareholders, shareholders’ associations and corporate executives have commended First Registrars for the innovation.

    Speaking on the initiative, managing director, First Registrars Nigeria Limited, Mr. Bayo Olugbemi, said the company was innovation driven and it would continue to pioneer market-based solutions that will give shareholders and client companies unparalleled advantages in the share registration industry.

    According to him, world-class technology and excellent customer services are the differentiating factors that position First Registrars as the leading capital market registrars company in the Nigerian capital market.

    He noted that against the previous constraints of manual voting, the advent of e-voting and telephone devices voting and poll processes at corporate meetings are now done seamlessly in a jiffy with the election results being projected live at such meetings.

    “We benchmark only the international best practices while setting the pace for others to follow in the Nigerian capital market – we are indeed the leader but will never be complacent,” Olugbemi said.

    The e-voting devices not only capture the head counts of voters, they also capture the number of units owned by them and in the case of shareholders with multiple share accounts; they can be linked to a single voting device. Poll results are displayed on the screen instantly after every poll for transparency while accurate reports are also available for audit purposes.

    Chairman, Honeywell Flourmills Plc, Dr. Ayoola Oba Otudeko commended the efforts of First Registrars in transforming the share registration industry through ground breaking innovations.

     

  • Equities rally to 19.35% as index hits new high

    •NSE signs MoU with Thomson Reuters

    Average year-to-date return at the Nigerian stock market rallied to 19.35 per cent yesterday as several equities jumped to new highest and the main index at the Nigerian Stock Exchange (NSE) set a new highest index level.

    The market opened bullishly with 56 advancers against 18 decliners. The All Share Index (ASI), the common index for all equities on NSE, gained 0.59 per cent to close at 33,511.63 points as against its opening index of 33,313.49 points.

    Aggregate market value of all equities rose correspondingly by N65 billion from N10.659 trillion to N10.722 trillion. The market performance was driven by widespread gains across the high, mid and small capitalisation levels.

    Mobil Oil Nigeria Plc led the advancers with a gain of N5.53 to close at N125.97. PZ Cussons Nigeria followed with a gain of N4.04 to close at N44.48. UAC of Nigeria added N3 to close at N53. Unilever Nigeria rose by N2.57 to close at N52. GlaxoSmithKline Consumer Nigeria chalked up N2.38 to close at N49.98. Total Nigeria gathered N2 to close at N143. Cadbury Nigeria gained N1.94 to close at N40.81. CAP rose by N1.68 to close at N35.42 while MRS Oil and Gas and Presco increased by N1.37 and 94 kobo to close at N28.79 and N27.90 respectively.

    The price rally underlined increased demand for equities as investors repositioned their portfolios ahead of the imminent start of the earnings season.

    Volume and value of activities improved by 8.63 per cent and 33.87 per cent respectively as investors staked N4.35 billion on 683.24 million shares through 7,299 deals.

    Investors appeared to be showing increasing preference for low-priced stocks. Banking stocks remained atop activity chart with a turnover of 363.69 million shares worth N2.42 billion in 3,015 deals. Insurance sector followed with a turnover of 147.93 million shares worth N108.19 million in 499 deals.

    Unity Bank was the most active stock with a turnover of 115.22 million shares worth N115.18 million in 340 deals.

    However, Flour Mills of Nigeria, which posted a disappointing third quarter report, led the losers with a drop of N3.99 to close at N76.01. Lafarge Wapco Cement Nigeria trailed with a loss of N2.20 to close at N72 while Guinness Nigeria lost N1.41 to close at N296.

    Meanwhile, the NSE has signed a Memorandum of Understanding (MoU) with Thomson Reuters to provide investor relations services to its listed companies as part of its value added services.

    With this initiative, investor relations’ solutions from Thomson Reuters will be available to the NSE’s listed companies.

    The NSE stated that Thomson ONEInvestor Relations will help companies manage their investors relations programme workflow, including monitoring market activity, understanding investor behaviour and managing investor outreach.

    Thomson Reuters’ investors relations websites will also ensure companies are delivering a high standard of disclosure, providing investors with quality and professional investment information.

    Managing Director, Africa, Thomson Reuters, Keith Nichols, said his company was delighted to partner with the NSE.

    “Thomson Reuters provides integrated solutions across the investor relations workflow and we look forward to help NSE’s companies comply with the regulatory requirements and effectively communicate with institutional and retail investors,” Nichols said.

    Executive Director, Business Development, Nigerian Stock Exchange (NSE), Mr Haruna Jalo-Waziri, urged listed companies to take advantage of this investor relations package to improve their visibility to the local and international investor community.

     

  • 2013: Stakeholders forecast another robust year

    2013: Stakeholders forecast another robust year

    With the average return of 35.4 per cent last year, investors look forward to continuing recovery of the stock market. But how far will the bullish run go? Taofik Salako speaks to investment experts on the outlook for the capital market in 2013

    The stock market witnessed impressive recovery last year with average full-year return of 35.4 per cent. This implied accretion of some N2.44 trillion in capital gains to investors in 2012. The All Share Index (ASI), the common value-based index that tracks changes in prices of quoted companies, closed 2012 at 28,078.81 points as against its opening index of 20,730.63 points for the year.

    Aggregate market capitalisation of all quoted equities also rose from its opening value of N6.533 trillion to close the year at N8.974 trillion, indicating capital gains of N2.441 trillion. Besides its primary importance as the benchmark index for the Nigerian Stock Exchange (NSE), the ASI doubles as the country index for Nigeria and rightly indicates the competitiveness of equity returns.

    With equities within the best-return bracket of the global stock market returns for 2012, both Nigerian and foreign investors have their eyes on the market in the New Year. Will the stock market sustain its bullish run? Will equities still make double-digit returns in 2013 atop the 35.4 per cent in 2012? How will the secondary market performance impact on the dormant primary market? How will the balance of funds play out between the equities market and fixed-income market? What are the intervening variables that may mitigate market performance? These and many others are the concerns of the investing public.

    The outlook suggests a robust performance for the stock market in 2013, although market pundits are divided on the extent of returns in the New Year. Across a broad spectrum of the investment management industry, market pundits and advisors appear to agree that the market would post positive return again this year. From FBN Capital to Sterling Capital Markets, GTI Securities, FSDH Securities and Investment One Financial Services (formerly GTB Asset Management Limited), among other leading investment services companies, previews show strong potential for continuation of the upswing.

    But how far will the market go? A more optimistic view suggests stronger performance than 2012-above 35.4 per cent return. However, more cautious view implies good double-digit return but below 2012 return. Cautious conservative expectation appears to provide surer benchmark for return in 2013.

    Analysts agree that market performance would be driven largely by improving fundamentals of quoted companies, especially in largely undervalued sectors such as banking and insurance sectors. There appears to be unanimity about the pole position of the banking sector as a major driver of the market in 2013. While consumer goods and other manufacturing stocks that have provided significant leverage for the market in recent years may need to provide further fundamental supports to create headroom for price appreciation, most analysts said investors would easily see the locked-in values in financial services companies given earnings guides for the year ended December 31, 2012.

    But there are major red flags to watch out for: foreign dominance, negative counterbalance effect from global economic challenges especially from the United States and Greece-induced Eurozone and Nigeria’s macroeconomic stability.With foreign investors accounting for nearly two-thirds of turnover on the Nigerian Stock Exchange (NSE), slight or massive sales orders from foreign portfolio managers and investors-either due to profit-taking or deficit financing and rebalancing, will have corresponding effect on the market. But this could be mitigated by the expected changes in the pension funds investment guidelines, which are expected to increase portfolio allocation to equities. Increasing local participation from returns-lured investors may also provide some support, although the impact could be negligible in case of massive divestments by foreign investors.

    Head, Equity Research FBN Capital Mr Olubunmi Asaolu, said: “We have a positive view on both equities because of banks and fixed income. In the near term, equities should be supported by banks, particularly because of the attractive dividend yields in that sector.

    “We see another year of gains for the NSE but do not expect the magnitude of gains this year to be on par with the 35.4 per cent gain of 2012. For a much stronger run in equities, earnings growth in the consumer names in particular will have to recover strongly – we struggle to see that kind of scenario at this point. Fixed income should continue to be supported by tailwinds in the form of inflation moving in the right direction and foreign offshore flows into the FGN bond market, helped by Nigeria’s inclusion in the JPM Government Bond Index, and a similar index for Barclays this year. There is also the possibility of a cut in the benchmark rate.”

    Managing Director, GTI Securities, Mr. Tunde Oyekunle said: “We have a positive but cautious outlook for 2013 in both primary and secondary market. The primary market is likely to witness few listings. The secondary market will thrive on fundamentals, most especially the banking stocks with above average performance. The year will also witness recovery from some insurance stocks, which are back to profitability and positioned to pay dividend. However, since more than 60 per cent of market transaction is dominated by foreign funds, necessary caution should be taken in anticipation of the Eurozone debt crisis and likely impact of the fiscal cliff of US. We as a company would aim at increasing investors’ education through research and market intelligence to our clients.”

    Head, Research and Investment Advisory, Sterling Capital Markets, Mr Sewa Wusu, said : “Given the level of performance in 2012, the capital market is expected to witness another impressive performance this year. Performance will be driven more by strong macroeconomic environment, good corporate performance and companies’ fundamentals. We are of the opinion that expected monetary policy easing in 2013 should induce investment switch to further favour stock market. Overall, market is expected to record stronger growth in 2013, and this time the growth will be more driven by sound macroeconomic environment, strong fundamentals and good corporate performance.”

    FSDH Securities said: “The economic reform in the country presents a huge opportunity for the banks operating in the country. The Central Bank of Nigeria and other regulators in the financial market have taken proactive steps to implement a number of policies to make banks focus on their core banking business, develop specialisation and safeguard the banking system.

    “Investment analysts at FSDH Securities said relatively low prices, good dividend outlook and emerging financing opportunities that may boost banks’ incomes stand banking stocks in good stead as toasts of investors this year. This will significantly impact on the overall market performance, one-third of market capitalisation.

    “According to analysts, the drivers of investment in banking stocks in early 2013 would include good dividend payment expected from the 2012 business year and attractive valuation of banking stocks as banks are still trading at very low multiples.”

    Managing Director, Investment One Financial Services Limited (formerly GTB Asset Management Limited), Mr Nicholas Nyamali, said: “Nigeria’s attractive double-digit yield environment has been instrumental to the attraction of offshore investment into the bond space. With continued offshore demand coupled with local demand, bond yields may likely trend towards single-digit. This yield compression will lure both foreign and local investors to enhance their total return by increasing their exposure to equity risk. However, for yield on fixed income instruments to move into single-digit territory, the appetite for bond instruments will need to remain elevated.

    “The level of foreign investors in our markets reflects the level of confidence in the system and the superior risk adjusted returns relative to other developed and frontier markets. However, a strong dominance by foreign investors will make the local market susceptible to volatility from the global financial market space. Our bond and equity markets direction may then be strongly influenced by global events. Furthermore, unforeseen political or economic shocks could also make our market unattractive, which could trigger capital repatriation.

    “We have meanwhile, in recent time seen renewed efforts from market regulators in the direction of clearer policies, reforms and initiatives all geared towards boosting local players’ confidence and market depth. We expect that more of these reforms, initiatives and sensitisation will further boost local participation. The forbearance package for stock broking firms, removal of stamp duty and waiver of VAT on stock market transactions are also clear initiatives aimed at attracting local players and investors back into the equities market. In addition, on-going reforms in the pension space, if it pulls through, will increase pension fund administrators participation in the stock market.”

     

  • Stocks that made the market

    The Nigerian stock market posted average full-year return of 35.4 per cent, equivalent to capital gains of N2.44 trillion in 2012. Notwithstanding the widespread gains and exceedingly positive overall market situation, only 29 stocks recorded above-average returns. ‘Equities Watch’ had pinpointed 11 of the best-performing stocks. Taofik Salako reviews the initial investment guides and highpoints of the stocks that made the market

    The Nigerian stock market rounded off 2012 atop the global returns’ table.

    With average full-year return of 35.45 per cent, equities outperformed market pundits’ estimates and overwhelmed returns by other securities. The All Share Index (ASI), the common value-based index that tracks changes in prices of all quoted companies, closed 2012 at 28,078.81 points as against its opening index of 20,730.63 points for the year. Aggregate market capitalisation of all quoted equities also rose from its opening value of N6.533 trillion to close the year at N8.974 trillion, indicating capital gains of N2.441 trillion. Besides its primary importance as the benchmark index for the Nigerian Stock Exchange (NSE), the ASI doubles as the country index for Nigeria and rightly indicates the competitiveness of Nigerian equity returns.

    Globally, Nigerian equity return ranked seventh on global return scale as average capital gain on equities in Nigeria significantly exceeded returns in all advanced markets of Europe and America. Full-year percentage changes in global stock indices tracked by the Wall Street Journal (WSJ) indicated that Venezuela posted the highest return of 302.8 per cent. Egypt recorded the highest return of 50.8 per cent in Africa. Nigeria followed Egypt on the returns table, far ahead of South Africa, which posted 22.7 per cent. The significance of Nigerian return is in the context of the global returns, especially in key world financial centres, which look toward emerging markets to bolster portfolio performances in matured markets. The Dow Jones Global Index indicated global average equity return of 13.7 per cent for 2012 while another global index-The Global Dow, posted a return of 10.7 per cent. Average return in United Kingdom stood at 22.5 per cent while France, Germany, Japan, Russia and China posted average return of 15.2 per cent, 29.1 per cent, 22.9 per cent, 10.5 per cent and 10.9 per cent respectively.

    Equities provided the best returns among Nigerian securities. With inflation rate at 12.3 per cent and the Monetary Policy Rate, the benchmark interest rate set by the Central Bank of Nigeria (CBN),at 12 per cent, equities were the only investments with real adjusted return in 2012 considering the cost of fund and time value of capital. Fixed-income rates were substantially below equities’ returns and in most cases, negative in real terms. Three-month tenor deposit rate of banks stood at 8.94 per cent, 91-day Nigerian Treasury Bill (NTB) carried return of 11.7 per cent while average monthly prime lending rate stood at 16.51 per cent.

    But notwithstanding the relatively high return indicated by the overall market position, the bullish rally in 2012 was highly concentrated on about one-ninth of quoted stocks. More importantly, the bulls followed Equities Watch’s trails during the year. Most of the stocks picked out for upside potential dominated the top gainers’ list while stocks and sectors marked for doubtful and negative outlook ended on the downside. Cadbury Nigeria Plc, which was first spotted with a year-to-date return of 26.3 per cent and further reinforced in a second piece when it posted 46.8 per cent, rallied through the year to close with a full-year return of 154.4 per cent. Nestle Nigeria was trading at a high of N486.70 when it was cited as a market leader and rallied to close the year at N700, posting a return of 57.1 per cent. Equities Watch had noted when Nestle Nigeria was at a peak of N577.50, that “stability of earnings and returns and sense of corporate security may still take Nestle Nigeria to a new level.” “Besides, in a market still characterized by uncertainties and questions about corporate governance, Nestle Nigeria’s overall image of stability and consistency will continue to be major attraction. The compact nature of the outstanding shares of the company and the preponderance of buy-and-hold retail investors that see the stock as their nest eggs will also continue to mediate the share price fluctuation, making it resistant to downtrend. Most investors holding the free float shares don’t easily sell off. As a consistent dividend-paying stock, Nestle Nigeria provides cushion against the downturn at the secondary market. With recent huge investments in new factory and innovations, the company appears to have operational supports to drive fundamentals and by extension, market consideration,” the September 2012 report had noted.

    Presco was trading with a year-to-date return of 26.6 per cent in March when Equities Watch concluded that dividend expectation for the 2011 business year would provide further impetus for capital appreciation. “Most investment pundits believe Presco, and other well-positioned agricultural stocks, could leverage on government’s focus on agriculture and domestic capacity building to improve returns. Already, incentives aimed at encouraging farmers included low-interest intervention funds and reduced tax and tariffs. These incentives fit into Presco’s long-term growth plan, a synchronization that encourages investors’ optimism about future returns,” another June report stated. Presco rallied to close the year with a gain of 96.1 per cent.

    At the onset of First Bank of Nigeria’s comeback bid in May, when the bank was with a year-to-date return of 18.1 per cent, Equities Watch had noted that improved fundamentals would impact further on the market consideration. By August when First Bank’s year-to-date return was 46.6 per cent, Equities Watch had noted that “with this year’s high just barely above the intrinsic book value, the bank appears still substantially undervalued” and that “from earnings to dividend and historic pricing outlooks, most counts tilt in favour of the bank.” First Bank closed the year with 76.6 per cent capital gain.

    In March through to July, Equities Watch had cited United Bank for Africa (UBA) Plc as a promising stock. “With its restructuring into pan-African financial services holding group, operations in 19 African countries and major global financial centres, qualitative balance sheet and expansive deposit base, UBA is a stock to watch,” the March report had pointed out. By July when interim reports had formed consistent growth pattern, it was noted that “there is strong tendency for the emerging fundamentals to set new ceiling for the share price”. UBA closed within the top-four banks with a full-year return of 76.1 per cent.

    Access Bank came under focus in May when its year-to-date return was 41 per cent. “With strong fundamentals, many analysts expect Access Bank to further unlock many growth opportunities from its recent business combination exercise while sustaining its intrinsic aggressive internal growth strategy. It’s this outlook that is driving the equally aggressive positioning by farsighted investors in the equities of the bank,” it was noted. Access Bank closed with full-year return of 88.5 per cent.

    In September, when Sterling Bank was trading with a year-to-date return of 52.5 per cent, Equities Watch had noted that while Sterling Bank opened then at its highest price so far, the share price still represented significant discounts to the recent historic highs. “With continuous improvements in earnings over the period, the share price appears to be more sentimental than fundamental, and it may be opportunity for discerning investors,” it was pointed out. Sterling Bank closed 2012 with a full-year return of 71.3 per cent.

    Other stocks spotted by Equities Watch including Transnational Corporation of Nigeria, UAC of Nigeria and GlaxoSmithKline Consumer Nigeria closed with substantial gains. DN Meyer had closed with a moderated return of 44.9 per cent, in line with the cautious note on the fundamental supports for the then jumpy market price. With one in every two stocks on the top 20 gainers list on the upside watch list of Equities Watch, the equity intelligence report provided reliable guide for investors in 2012. And that is the promise for this year, and always.

     

     

     

     

  • Will power project redeem Transcorp’s image?

    Will power project redeem Transcorp’s image?

    The recent announcement of Transnational Corporation of Nigeria (Transcorp) Plc as one of the successful bidders for power generation companies being privatised by the Federal Government may further consolidate the conglomerates recovery, writes Taofik Salako.

    The emergence of Transcorp Consortium as the highest and preferred bidder for the Ughelli Power Plc, one of the five power generation companies under privatisation in the unbundling of the Power Holding Company of Nigeria (PHCN), has seen a spike in demand for the shares of the conglomerate at the stock market. Transcorp consortium had offered $300 million for the Ughelli Power Plc. The Transcorp consortium included companies such as Wood Rock; Symbion Power LLC, USA; Medea Development; PSL Engineering and Control and Thomassen Services and Contracting Company. They had all been prequalified by the NCP. Within the consortium, Transcorp is the dominant Nigerian company and ostensibly the anchor for the consortium. Besides, it probably has the dominant role among the three quoted companies in the entire process.

    With the market agitating for the inclusion of listing on the Nigerian Stock Exchange (NSE) as part of the conditions for the emerging power companies, the red alert for possible windows for wider investors’ participation in the power companies was high.

     

    Changing fortunes?

     

    Another streak of bullish rally would see Transcorp consolidating its position atop the return table at the NSE. Already, with a subsisting year-to-date gain of about 68.4 per cent, the conglomerate has mostly showed strong performance. While Transcorp had recorded a negative year-to-date return of 8.77 per cent or a loss of N1.3 billion within the three months ended March 31, 2012, the second quarter had seen significant capital appreciation as the conglomerate released early fundamentals and forecasts for 2012. At 57 kobo per share, Transcorp had opened this year with a market capitalisation of N14.71 billion but it ended the first quarter with market value of N13.42 billion at 52 kobo per share, around its lowest value per share of 50 kobo. At today’s opening price, Transcorp’s market value stands at about N24.8 billion.

    But it still has a long way to go to redeem its hopes and promises. For most non-insider investors in Transcorp, it has been a long waiting for any form of return or recuperation-cash dividend, bonus share or capital appreciation. Incorporated in 2004, Transcorp was touted as the next frontier of African investment and Nigeria’s investment vehicle in the global economy. Its vision was to become the largest and most successful Africa-based conglomerate while the mission was to drive Africa’s integration into the global economy by becoming a Nigerian-based multi-national conglomerate with between $5 billion and $10 billion annual revenue and market capitalisation of between $30 billion and $60 billion within five to seven years. As a conglomerate, Transcorp’s interests span agriculture, energy, real estate, hospitality and trade and commerce. All these were woven around enticing returns to shareholders.

    More than five years after it raised several billions of naira from investors with a promise to be the pride of shareholders, Transcorp has still yet to find neither the fundamental stability nor the technical appreciation to deliver any commensurate return. After a railroaded application and waiver that exempted Transcorp from the required minimum operational years and audited accounts, the conglomerate was listed in November 2006. The share price leapt from a low of N6 per share to close the year at a high of N9.71. However, realities soon set in. Transcorp closed 2007 at N3.14 per share, seven kobo above its lowest market consideration of N3.07 during the period. Thus, rather than the high hopes of a global multinational return, Transcorp returned full-year loss of 67.7 per cent to shareholders in its first full year on the stock market.

    By the time the capital market caught the cold from global financial and economic crises and domestic assets bubble in 2008, Transcorp had stripped to nominal value. In 2010, the conglomerate spiraled from a high of 57 kobo to close at a low of 50 kobo. In 2011, the company traded within a range of a high of N1.82 and a low of 50 kobo and subsequently closed at 57 kobo per share. But for most part of this year, the stock has shown tendency towards the bull rather than the bear. Although it had slumped to a low of 50 kobo, it has largely hovered around 100 kobo mark in the past six months.

     

    The fundamentals

     

    Transcorp recovery is also related to changes in the fundamentals of the company. While its performance on the secondary market mirrored its historic false start, the resurgence is also an indication of the prospective yields, especially given the low consideration of the stock. Transcorp had posted a loss of N9.1 billion within the eight-month period ended December 2006. In 2007, loss after tax stood at N8.93 billion while investors contended with net loss of N6.70 billion in 2008. It broke the cycle in 2009 with a net profit of N1.2 billion.

    But recent audited and interim fundamental reports of the conglomerate have shown stable and reassuring positive outlook, allaying fears that had built up over years of mindboggling losses. Audited report and accounts for the year ended December 31, 2011 showed that turnover rose from N13.93 billion in 2010 to N14.08 billion in 2011. Profit before tax and exceptional Item stood at N3.5 billion as against N4.1 billion in 2010. After exceptional item, profit before tax dropped from N6.91 billion to N3.5 billion. Profit after tax closed 2011 at N4.67 billion as against N5.39 billion in 2010.

    Unaudited report for the first quarter ended March 31, 2012 showed appreciable improvement in profitability, raising prospects for shareholders’ earnings this year. While turnover dropped marginally from N663.81 million in first quarter 2011 to N514.84 million by first quarter of 2012, profit before tax closed the first three months of 2012 at N610.12 million compared with N399.07 million in comparable period of 2011. Profit after tax also improved from N319.26 million to N518.61 million.

    By the second quarter ended June 30, 2012, profit before tax had romped to N1.05 billion as against N684.01 million in comparable period of 2011. Profit after tax also increased to N939.93 million as against N547.21 million in corresponding period of 2011. However, total revenue dropped from N1.25 billion to N1.25 billion, indicating the fact that the bottom-line was driven majorly by financial management than operations. Net finance income, after deducting finance expenses, stood at N747.12 million in 2012 as against deficit of N127 million in 2011.

    In recent time, the board of the company estimated that profit after tax would be about N1.51 billion by the third quarter ended September 30, 2012. With total income expected at N2.66 billion, profit before tax was projected at N1.77 billion for the period.

     

    Hopes on the horizon?

     

    Increasingly positive fundamentals are expected to redirect investors’ perceptions about the prospects of the conglomerate. Just as the emergence of the conglomerate as a core investor in a power generation company. Often cited in relation to the boom in the telecommunications sector, most analysts perceive the power firms as cash cows that would not only generate power but significant returns for investors. The monopolistic nature of the system and centrality of the success of the privatisation to government’s transformation agenda confer enormous advantages on the power companies.

    Transcorp is also pushing for growth on other frontiers. Speaking recently on prospects of the conglomerate, chairman, Transcorp, Mr. Tony Elumelu, said the conglomerate has commenced the execution of its expansion plans to fully utilise the massive unutilised land on its Transcorp Hilton Abuja site and roll out new hotels across major economic centres in Nigeria such as Lagos and Port Harcourt.

    According to him, the conglomerate took several significant steps in its key sectors of agri-business, energy and hospitality – that would no doubt see Transcorp taking its rightful place as a key player in the economic development and transformation of Nigeria. He outlined that Transcorp’s agribusiness subsidiary, Teragro Ltd, has the annual capacity to process 26,500 metric tonnes of oranges, mangoes and pineapples, turning them into juice concentrate that will be supplied to ready-to-drink juice manufacturers in Nigeria and beyond.

    “This plant will contribute tremendously to increased employment, the utilisation of local produce, as well as serve as a domestic supply substitute for indigenous manufacturers. I am excited and optimistic about Nigeria’s coming of age. Now is the time to become fully engaged in transformational investments that create economic prosperity and social wealth by increasing employment and enhancing the quality of life for all Nigerians,” Elumelu said.

    President, Transcorp, Mr Obinna Ufudo, said the company has fully embraced and enthroned the highest level of global best practices and governance standards in our operations and businesses.

    “Our major priorities now are creating value for our stakeholders as well as making profits for our shareholders, and we believe very strongly that the foundation that we are laying, and our hard work, will lead to dividends being paid by the end of this financial year,” Ufudo said.

    Besides, Transcorp had recently caused the revision of the terms of partnership in its Oil Processing License 281 (OPL 281) in Nigeria. The revised terms were said to be as a result of a change of control in Transcorp as the conglomerate sought to fully take responsibility for the operation of the block in its bid to become a leading Nigerian indigenous oil and gas upstream company with production.

    The company is optimistic that the power generation deal would be a win-win situation for Nigerian consumers and its investors. “We are going to let Nigerians know that a Nigerian company can lead a foremost Nigerian sector,” Ufudo enthused shortly after Transcorp was declared a winner.

    Such a win as the leader in the much-needed electricity sector will surely make Transcorp a winning stock. There however, still remain points of caution. A similar announcement of preferred bidder for the Nigerian Telecommunications Limited (NITEL) proved to be a mirage, with the telecoms company still writhing in the pangs of the inconclusive deal. Transcorp was also a party in the NITEL saga. But then, leadership has changed at the conglomerate and the financial clout of the new board appears adequate to cover a $300 million deal. Even as it finalises the power deal, there appears to be more wind in the wing to propel Transcorp to a new high.

  • Honeywell Flour Mills: not as profitable

    Honeywell Flour Mills: not as profitable

    Honeywell Flour Mills Plc’s outward performance showed modest growth in key performance indicators but the underlying indices showed a less profitable, highly geared and less liquid company.

    Audited report and accounts of Honeywell Flour Mills for the year ended March 31, 2012 indicated modest growth in sales and profitability as management reined in operating expenses and finance costs to counterbalance the visibly negative impact of high input costs.

    But while the mid-line cost-cutting strategies resulted in modest outward performance outlook, the company’s underlying fundamentals were not impressive. With decline in average profit-making capacity, productivity, overall cost-efficiency, negative working capital and lower liquidity as well as weakening financing structure, the beyond-the-surface balance sheet and profit and loss performances counteracted the modest outward growth, reflecting a largely weak overall performance assessment.

    However, the company’s expansive investments in new production capacity and technologies expanded the balance sheet. A double in long-term assets added a half to total assets. The company increased cash payouts by 15 per cent just as net assets improved by 11 per cent. But the increase in cash payout far above the net earnings growth impinged on future dividend sustainability rating. At current market consideration, the net book value of the company meanwhile, suggests undervaluation, opening up potential headroom for two-sided returns from expected consolidation of operational performance and related capital appreciation.

     

    Financing structure

     

    Honeywell Flour Mill relied substantially on bank loans to finance its expansion plan, reflecting the economic-wide financial leverage faced by growing companies as the capital market totters after a grueling recession. While total assets grew by 54 per cent, total liabilities doubled by 101 per cent; driven mainly by nearly a triple in bank loans. With these, the debt-to-equity ratio spiked from 39 per cent in 2011 to 93 per cent in 2012. The proportion of equity funds to total assets dropped from 52 per cent to 37 per cent. Current liabilities/total assets ratio stood at 44 per cent in 2012 as against 38 per cent in 2011. The proportion of long-term liabilities to total assets meanwhile, stood at 63 per cent in 2012 compared with 48 per cent in 2011.

    Total assets had increased from N29.14 billion to N44.94 billion. Fixed assets grew by 120 per cent to N27.71 billion as against N12.57 billion while current assets inched up from N15.67 billion to N16.33 billion. However, total liabilities doubled from N14 billion to N28.14 billion. Current liabilities grew by 78 per cent from N11 billion to N19.6 billion while long-term liabilities shot up by 185 per cent from N3 billion to N8.52 billion.

     

    Efficiency

     

    Average number of employees increased by 15 per cent from 656 persons in 2011 to 757 persons in 2012. Staff costs improved by 11 per cent to N882.8 million in 2012 compared with N795.29 billion in 2011, indicating average cost per head of N1.17 million in 2012 as against N1.21 million in 2011. Following same pattern, average pre-tax profit per head dropped from N5.36 million to N4.84 million. With high top-line cost, the overall cost efficiency reduced during the period. Total cost of business, excluding finance charges, amounted to about 91 per cent of total turnover in 2012 as against 89 per cent in 2011.

     

    Profitability

     

    Honeywell Flour Mills showed a two contrasting profit outlook- modest growing outward profit, loss figures and declining underlying profitability and returns. On the surface, total sales grew by 12 per cent while pre and post tax profits braced 7.8 per cent decline in gross profit to post 4.2 per cent and 8.4 per cent growth respectively. Beyond the surface, gross profit margin declined from 21 per cent to 17 per cent. Average pre-tax profit per unit of sale slipped from 10.3 per cent to 9.6 per cent. While actual cash payout showed 15 per cent increase, underlying returns on equity and total assets slipped from 16.5 per cent and 12.1 per cent in 2011 to 16.1 per cent and 8.2 per cent in 2012 respectively. This also reflected in dividend cover, which shifted from 2.38 times to 2.27 times.

    Group total sales had increased by 11.8 per cent from N34.06 billion to N38.07 billion. The group witnessed appreciable growths across its business segments. The main business segment of flour milling saw 9.8 per cent increase in sales from N27.56 billion to N30.26 billion. Noodles and pasta business improved sales from N6.5 billion to N7.8 billion. Cost of sales spiraled upward by 17 per cent to N31.5 billion as against N26.9 billion in previous year. Gross profit thus slipped from N7.12 billion to N6.57 billion. Total operating expenses dropped by 6.2 per cent to N3.11 billion as against N3.32 billion, driven mainly by reduction in distribution expenses from N2.27 billion to N1.88 billion. Administrative expenses increased from N1.05 billion to N1.27 billion.

    While non-core business incomes decreased slightly by 7.2 per cent, the company halved its interest expenses to boost the bottom-line performance. Non-core business income dropped from N823 million to N764 million. Interest expense however, dropped by 50 per cent from N1.12 billion to N559 million. With these, profit before tax inched up from N3.52 billion to N3.66 billion. A further slight decrease in taxes helped net profit after tax growth to 8.4 per cent at N2.70 billion in 2012 as against N2.49 billion in 2011.

    The company distributed N1.19 billion as cash dividends to shareholders for the 2012 business year, representing 44 per cent of net earnings. It had distributed N1.03 billion or 41 per cent f net earnings in 2011. Per share analysis showed basic net earnings per share of 34 kobo in 2012 as against 31 kobo in 2011. Dividend per share improved from 13 kobo in 2011 to 15 kobo in 2012. Net assets per share also improved from N1.91 in 2011 to N2.12 in 2012.

     

    Liquidity

     

    The liquidity position of the company weakened considerably in 2012 with negative working capital and less financial coverage for probable risks. Current ratio, which indicates financial agility by relating current assets to relevant current liabilities, nearly halved from 1.42 times in 2011 to 0.83 times in 2012. The positive ratio of working capital to total sales of 13.7 per cent in 2011 reversed to -8.6 per cent in 2012. The proportion of debtors to creditors dropped from about 72 per cent in 2011 to 59 per cent in 2012.

     

    Governance and

    structures

     

    Honeywell Flour Mills Group consists of Honeywell Flour Mills Plc, the parent company and its wholly-owned subsidiary- Honeywell Superfine Foods Limited. A member of the Honeywell Group, a Nigerian conglomerate with widely diversified interests in manufacturing, oil and gas and financial services sectors, Honeywell Flour Mills became a public limited liability company in 2008 and its shares were quoted on the Nigerian Stock Exchange (NSE) in 2009. It currently has some 28,000 shareholders. However, latest shareholding analysis showed that three shareholders accounted for 88 per cent equity stake. Siloam Global Services Limited holds 75 per cent equity stake. First Bank of Nigeria holds a separate 7.0 per cent equity stake while it also jointly with BGL Securities Limited JSA holds 6.0 per cent equity stake.

    Dr. Oba Otudeko, who chairs the board of directors, holds 15.72 per cent equity stake through his 21 per cent indirect stake in Siloam while his son, Obafemi Otudeko, a non executive director, holds 7.2 per cent stake through 9.6 per cent indirect stake in Siloam. Obafemi is an executive director of Honeywell Group. The board and management remain stable. Mr. Folaranmi Odunayo still leads the executive management as executive vice chairman and chief executive officer.

    The company has complied largely with code of corporate governance and best practices with appropriate board committees and management structures to ensure effective oversight and decision-making.

     

    Analyst’s opinion

     

    Honeywell Flour Mills faces the tough challenge of blending the spiraling global input costs with the sluggish domestic purchasing power, without necessarily undermining returns to shareholders. Perhaps the greatest challenge to the company is the common industry issue of the Federal Government cassava initiative. Basically, government plans to 40 per cent substitution of cassava flour in wheat flour. Consequently, the government has increased duty level on wheat grain by 15 per cent, raising effective duty rate to 20 per cent. The Flour Mills Industry lobby group is engaging the government on the substitution, which may dramatically impinge on the industry performance if fully implemented under the current scenarios. Also, new fiscal measures on sugar import taking off January 1, 2013 will also likely have indirect slowdown impact on the industry. Import duty and levy on raw sugar will be 10 per cent and 50 per cent respectively while refined sugar will attract 20 per cent duty and 60 per cent levy.

    There is also obvious need to deleverage the company, possibly through equity issue, to stave off negative impact of existing and deferred finance costs.

    Meanwhile, Honeywell Flour Mills could mitigate adverse operating environment with synergies and scale from its expansion drive. Its mill expansion will add 62 per cent to production capacity from 1,610 metric tonnes to 2,610 metric tonnes per day. The state-of-the-art facility and other complements such as the 30,000 metric tonnes storage silos are expected to enhance the creativity and productivity of the company, two key attributes in a largely monotonous industry.

    Overall, there is still reasonable basis to be optimistic about the future outlook of the company, although the tough operating environment calls for cautious assumptions.

  • Sterling Bank grows net profit by 64%

    Sterling Bank grows net profit by 64%

    Sterling Bank Plc continued its impressive performance in the third quarter almost doubling its gross earnings recording a 64 per cent increase in profit after tax.

    Interim report and accounts of the bank for the third quarter ended September 30, 2012 showed substantial growths across key performance indicators, improving prospects for considerable improvement in dividends for the current business year.

    The report indicated 92.6 per cent growth in gross earnings, underlining the success of the bank’s bank-focused business strategy. Interest income doubled by 109.9 per cent while net interest income jumped by 84 per cent. Profit before tax thus rose by 58.5 per cent.

    Sterling Bank grossed N50.74 billion by third quarter 2012 as against N26.35 billion recorded in comparable period of 2011. Interest income leapt to N39.56 billion in 2012 compared with N18.85 billion in corresponding period of 2011. While interest expenses increased from N8.97 billion to N21.37 billion, net interest income also nearly doubled from N9.88 billion to N18.19 billion. Non-interest income increased by 49 per cent to N11.2 billion as against N7.5 billion. Altogether, operating income rose by 78 per cent from N15.9 billion to N28.3 billion.

    With these, profit before tax jumped from N3.01 billion to N4.77 billion. After taxes, net profit distributable to shareholders increased from N2.74 billion to N4.49 billion. Earnings analysis showed earnings per share of 29 kobo for third quarter 2012 compared with 22 kobo in similar period of 2011. At current share price, the net earnings indicated strong double-digit returns for Sterling Bank. It should be recalled that the outstanding issued shares of Sterling Bank had increased in the last quarter of 2011 following issuance of scheme shares to shareholders of the defunct Equitorial Trust Bank, which Sterling Bank had acquired last year.

    Besides, the report showed strong and quality balance sheet with growing deposit base and increasing lending activities underpinned by reduction in the proportion of non-performing loans to total loans 4.8 per cent in December 2011 to 2.4 per cent by September 2012. Customers’ deposits increased from N392.05 billion to N433.98 billion. Loans and advances similarly improved from N164.3 billion to N229.43 billion. Total assets also rose to N564.06 billion from N504.72 billion.

    Commenting on the results, managing director, Sterling Bank Plc, Mr. Yemi Adeola, said the results reflected the continuing success of the bank’s strategic growth initiatives as it continued to draw benefits from the seamless integration of Equitorial Trust Bank.

    According to him, Sterling Bank has been well positioned to capture emerging growth opportunities with customer-centric approach to financial services and products.

    “In line with our forecast, loans and advances grew by 23 per cent to N229.4 billion on the back of our enhanced presence in the corporate banking space. We also grew customer deposits by 13 per cent to N434 billion and added over 22,000 retail accounts. Despite the 400 basis points increase in Cash Reserve Ratio in July, we recorded a 70 basis points reduction in cost of funds to six per cent,” Adeola said.

    He said the performance of the bank showed its underlying strengths, pointing out that the increase in cost-to-income ratio was as a result of one-off merger related expenses.

    He noted that the growth in loans and reduction in non-performing assets were in line with the bank’s objective to grow risk assets as the economy rebounds while focusing on quality growth..

    He assured that directors of the bank were confident they would sustain the performance.

    “In the last quarter of the year, we will consolidate on the progress made thus far and sustain our drive towards building our retail deposits with a view to achieving our corporate goals for year-end,” Adeola assured.