The Nation Newspaper

Tag: analysts

  • Analysts to Fed Govt: institute fiscal reform for more revenue

    The Federal Government should institute fiscal reform to garner more revenue into its coffers, analysts at Afrinvest West Africa Limited, an investment and research firm, have said.

    In a report released at the weekend, it said the government needs a strong revenue boost and cost- containment strategies to improve its finances and enhance its contribution to the economy.

    The strategies to boost revenue, in the first term of President Buhari, fell short of expectations. This includes a whistle-blower policy, which helped in recovering looted funds and the Voluntary Asset and Income Declaration Scheme (VAIDs) that supported a broader tax net and N30 billion in receipts despite a target of N305 billion.

    Accordingly, the Federal Government’s revenue to Gross Domestic Product (GDP) only improved to 3.1 per cent in 2018 from a low of 2.3 per cent in 2017.

    “To achieve revenue targets, we believe there is a need for comprehensive fiscal reform. This would include action plans to improve the tax system and administration in a bid to drive efficiency by reducing costs and boosting collection. In addition, more transparency and accountability would be required by the citizens to encourage tax payments. The VAT increase being mulled given Nigeria’s lower VAT rate of five per cent when compared to peers represents a quick fix,” report said.

    However, this would not be a silver bullet as total VAT receipts for the entire country is weak at 0.8 per cent of GDP in 2018. Similarly, as two cities – Lagos and Abuja – account for 75 per cent of the Value Added Tax (VAT) receipts, the government should work on bringing more businesses into the VAT net rather than imposing more taxes on taxpayers.

  • Analysts pick Presco, Okomu for high returns

    Nigerian oil palm industry is poised for a boom and  two quoted palm oil companies, Presco Plc and Okomu Oil Palm Plc, have prospects to deliver considerable cash dividends and share price appreciation in the years ahead.

    In its report on the Nigerian oil palm industry, Afrinvest (West Africa) Limited said the Nigerian oil palm industry will witness continued growth in the years ahead with positive earnings and profitability of listed companies to improve at a faster pace over the forecast period.

    The 42-page report concluded that Presco and Okomu Oil Palm are expected to record significant price growth and capital appreciation in the years ahead, while providing annual dividend income for investors.

    The report noted that the two quoted companies have focused on expanding production, especially over the last three years by investing in increasing total land area under cultivation, expanding milling and refining facilities to meet up with expected additional output.

    “We hence expect both companies to record continuous revenue and profitability growth over our forecast period,” Afrinvest said.

    The oil palm industry, the report said,  is keenly positioned to soar further over the coming years as investments in expanding milling and refining capacity of listed sector players crystallise. Also, the sector, which has ridden on positive government support since 2015, based on oil palm import restrictions introduced by the Central Bank (CBN), has provided premium pricing opportunity for players. Similarly, the Federal Government posture towards supporting agriculture has enabled low cost capital expenditure financing by industry participants compared with other sectors in Nigeria.

    At Okomu Oil Palm, the report listed the growth factors to include enlarged plantation with oil palm and rubber trees on about 8,809 hectares and 1,989 hectares to mature within the forecast period expansion in milling capacity first from 60.0 FFB MT per hour in 2017 to 75.0 FFB MT per hour in 2019 and to 90.0 FFB MT per hour by 2021.

    Also, the management of Okomu Oil Palm has confirmed that ongoing investment in Extension II plantation will see a further increase in milling capacity to 120.0 FFB MT per hour hour in FY:2020 and to 150.0 FFB MT per hour by 2022.

    The report pointed out that the ongoing growth initiatives and favourable operating environment suggest strong growth in Okomu Oil Palm revenues and overall profitability as cost containment strategy continually delivers slow pace of expansion in costs of sale and operating expenses.

    According to the report, the business connectivity to Benin Electricity Distribution Company (BEDC) has led to significant moderation in Okomu Oil Palm’s operating expenses while its plan to power its plantations’ plants and factories through a steam turbine fed by empty fruit brunches (EFB) would support cost moderation.

    “PRESCO, which has chosen to specialise in the production of speciality fats and oil, RBD and PFAD, enjoys premium pricing on its products. We opine that the company’s profitability has been constrained by the weak capacity of its refinery and fractionalisation plant, which has a capacity of only 100.0 CPO MT/day. Our discussion with management revealed that expansion in the capacity of this plant to 500.0 MT/day would be completed in fourth quarter 2019 and hence presents an upsurge in output and company’s profitability above sector comparable,” Afrinvest stated.

    Presco is also expected to see oil palm trees on about 7,100 hectares, maturing within the forecast period to support the expanded refining capacity. Management of Presco said the sales of CPO will moderate to focus more extensively on sales of RBD and PFAD.

    “For the industry, we opine that there are attractive opportunities presented by current supply deficit within the sector and growing demand suggested by Nigeria’s rising population. We suggest that investors positioning in currently listed companies will offer an opportunity to earn impressive capital appreciation as well as consistent dividend payments.

    “Also, we believe that the industry is accommodative for additional listings by other smaller companies – Real Oil Mills Limited (owned by Flourmills Plc), Grand Cereal & Oil Mills Limited, Poko Oil Mills Limited, PZ Wilmar Limited and BUO Oil Mills (owned by BUA Group) – as well as stable and supportive for long term investments by new companies seeking superior return on investment,” Afrinvest said.

     

     

     

  • Analysts outline risks, benefits of SAHCO IPO

    Sky Aviation Handling Company (SAHCO) Plc has potential to deliver 28.44 per cent capital appreciation of the current price of its Initial Public Offering (IPO) but investor also must consider downside risks that may impact the performance of the company.

    Analysts at Cordros Securities Limited stated that SAHCO has strong potential to sustain growth in the years ahead given its exposure to long-term expansion of air traffic, improvement in macro environment, relatively under-geared balance sheet and its competitiveness enhanced by IATA Safety Audit for Ground Operations (ISAGO) registration.

    According to the investment analysis, a valuation shows a target price of N5.97 per share for SAHCO in the immediate future, representing an upside of 28.44 per cent on its IPO price of N4.65 per share.

    “We have valued SAHCO using a pure-Discounted Cash Flow (DCF) valuation methodology, evaluating the company’s assets across its ramp and cargo handling business, in addition to future investments. Our positive investment case for SAHCO centres on the fact that the company represents a long-term play on air traffic and aviation industry growth and benefits from high barriers to entry,” Cordros Securities stated.

    The report, however, identified key downside risks to include weaker-than-expected macroeconomic performance, susceptibility of operations to labour action, revenue downside from potential insolvency of some airline customers and regulatory risk.

    SAHCO is offering 406.074 million ordinary shares of 50 kobo each through an IPO at N4.65 per share. The IPO is an offer for sale, implying that the net proceeds of the IPO will go to the existing majority core investor in SAHCO, which is divesting partially to allow retail minority ownerships. Application list for the N1.9 IPO closes on December 19, 2018.

    SAHCO was privatised by the Federal Government in 2009. Sifax Group acquired the entire share capital of the company. The Share Sale Purchase Agreement (SSPA) however,, mandates the majority core investor to divest 49 per cent of the shares of the company to the general Nigerian investing public.

    The report noted that SAHCO has become somewhat of the ‘poster-child’ for privatisation, stemming from its incredible turnaround in performance in a short period since the government’s divestment.

    According to the report, management of SAHCO has stated its intention of sustaining the company’s impressive post-privatisation performance, listing key strategic goals to include expansion of revenue, cost control and reduction, customer satisfaction and stability and sustainability.

    The report pointed out that SAHCO has a positive long-term growth outlook citing the transformation in the Nigerian market, which appears to be promising for SAHCO.

    According to the report, Nigeria’s aviation market is the third largest in Africa. Although relatively cyclical, the sector has a recorded a 10-year GDP CAGR of 9.0 per cent, almost double the national GDP CAGR of 5.0 per cent. Nigeria has huge potential to become an aviation hub for Africa, using its natural advantages such as its central location on the continent, huge population and a growing middle class.

    “As the second largest aviation ground handling service provider in Nigeria, SAHCO is well positioned to benefit from the expected long-term expansion of air traffic growth and demand for travel to, from and over Nigeria and the West African region. With respect to Nigeria air traffic trends, growth is expected to rebound after a more depressed period reflective of macroeconomic development,” the report stated.

    The Nigerian Bureau of Statistics (NBS) expects air traffic growth of 20 per cent for 2018 compared to 2017, on the back of improving business confidence, positive policy reforms – ease of doing business, visa on arrival – as well as development of infrastructure.

    “In our view, the Nigerian market is transitioning, from an economic standpoint – following three challenging years – and 2018 and beyond appear to be promising years for SAHCO to take advantage of. Firstly, we see economic growth benefitting from higher government and private sector spending, both riding on improved revenues from crude oil. Secondly, improved oil earnings should further improve FX liquidity and sustain stability, after the volatile era,” Cordros stated.

  • Analysts plead time for Visionscape

    Analysts have urged the Lagos State Government to allow Visionscape Sanitation Solutions more time to prove capacity in its municipality waste management contract.

    They said this is to implement the new integrated waste management policy encapsulated in the Cleaner Lagos Initiative (CLI).

    The scheme was designed to manage and dispose over 13,000 tons of waste generated daily in the state and provide a proactive response to containing the growing rate of waste generated by per persons, which is expected to increase from 1.2kg to 1.42kg in the next 15 years.

    On ‘TVC This Morning’, a television phone-in programme focused on social analysis, which was aired yesterday, Comrade Nelson Ekujumi, a public affairs analyst, and consultant economist, Joseph Egbeyindo, discussed the cleanliness of Lagos State in the context of the ‘Cleaner Lagos Initiative’.

    They said the mounting heaps of dirt across the state are attributable to the clog in the relationship among operators in the waste management ecosystem, not lack of capacity on the part of Visionscape Sanitation Solution.

    According to Egbeyindo, “there is fear among PSP operators that Visionscape has come to take away their means of livelihood, just as the Lagos State Waste Management Authority (LAWMA) holds the view that the newly appointed sanitation contractor has come to bite into its pie.”

  • Analysts cautious on equities outlook in second quarter

    Corporate earnings, macroeconomic performance, bargain value and election activities are major factors that will shape the performance of the Nigerian equities’ market in the second quarter of 2018.

    Market analysts were cautiously optimistic on the sustained positive performance of the market, after investors netted N1.38 trillion in net capital gains in the first quarter. Analysts, however, expected a relative quarter-on-quarter slowdown in the second quarter as preparations for Nigeria’s national elections gather momentum.

    Afrinvest Securities Managing Director, Mr. Ayodeji Ebo, said equities market performance in the second quarter will be a spillover of the first quarter and the emerging political environment in the second quarter.

    According to him, the pricing trend in the second quarter will reflect the earnings reports of companies for the first quarter as investors seek to outline the prospects for each company based on its early operational figures.

    “While we expect less activities relative to first quarter, Nigerian economic indicators remain strong, hence, should sustain investors’ confidence. As election activities kick in, investors may trade cautiously prompting more volatility in the equity market in second quarter relative to first quarter,” Ebo said.

    Cordros Capital stated that the improving macro-economic performance will positively impact the equities’ market in the medium to long term.

    “Still-positive macro-economic fundamentals continue to strengthen our medium-to-long term outlook for Nigerian risky assets, while lower prices of value stocks suggest likely bargain-hunting in the short term,” Cordros Capital said.

    President, Chartered Institute of Stockbrokers (CIS), Mr. Oluwaseyi Abe, said the commencement of the meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will give further direction to the financial markets. After a four-month delay due to protracted delay in confirmation of the new members by the National Assembly, the MPC began its first meeting this year between yesterday and today. It held its last meeting in November 2017.

    Abe noted that with the delay, investors in the money and capital markets have been denied the current policy direction on the Monetary Policy Rate (MPR), cash reserve ratio, liquidity ratio and asymmetrical corridor as they affect investment decision on the activities in the money and capital markets.

    “The MPC is supposed to drive activities both in the money market capital markets as the two markets are inversely related. The inability of the MPC to meet since the beginning of the year has a major drawback on our market.  What it means is that there are no policies that the market can react to. Policy announcements by the MPC drive the economy,” Abe said.

    According to him, the impact of policy decisions by the financial authorities and the government should ginger activities in the capital market.

    Economist and Head, Investment Research and Advisory, SCM Capital, Mr Sewa Wusu, said the current macro-economic environment is supportive to a positive outlook for the equities market.

    “Despite the fact that the market has failed to respond to some of the impressive results released so far, I still think the outlook for second quarter looks positive. Most stocks are trading at their lows and that presents an attractive entry point for the second quarter. The only downside risk will be the election cycle,” Wusu said.

    Network Capital Limited Managing Director, Mr Oluropo Dada said lack of policy direction can bring about distortions and uncertainties in the financial markets.

    FSDH Merchant Bank noted that although Nigeria’s Gross Domestic Products (GDP) growth rate improved further in fourth quarter 2017 at 1.92 per cent from 1.40 per cent in third quarter 2017, the recovery is still very fragile, thus additional monetary policies are required to stimulate a broad-based growth.

    FSDH pointed out that the increase in the crude oil price and favourable crude oil production in Nigeria have increased capital inflows and also led to favourable trade balance.

    “FSDH Research, however, recognises the vulnerabilities of the Nigerian economy to the adverse movements in the crude oil prices, thus the need to stimulate other non-oil sectors to reduce these vulnerabilities,” FSDH stated.

    Analysts at FSDH added that Nigeria recorded the highest Foreign Portfolio Investments (FPIs) inflows in 2017 during the last quarter, which implied improving confidence on the short-term outlook of the Nigeria economy.

    “FSDH Research believes the inflation rate may drop to single digit mid-year, while the exchange rate should remain stable in the short-term. Therefore, there is a need for monetary policy easing to boost credit creation and stimulate economic growth,” FSDH stated.

    Investors in Nigerian equities had ended the first quarter of this year with a net capital gain of N1.38 trillion, sustaining the upswing that had seen quoted equities with net capital gain of N4.36 trillion in 2017.  A strong start in January and February helped the market to moderate a running downtrend in March and sustain the positive quarter-on-quarter performance of the Nigerian equities market.

    Nigeria’s sovereign equities index-the All Share Index (ASI) of the Nigerian Stock Exchange (NSE), indicated average year-to-date return of 8.53 per cent for Nigerian equities in the first quarter, implying that an average investor has earned some 8.53 per cent nominal return on investment over the past three months.

    The first quarter performance places Nigerian equities on the trajectory to sustain the bullishness that had dominated transactions in 2017 and in line with double-digit return projections by many reputable investment firms. Nigerian equities closed 2017 with full-year average return of 42.30 per cent, ranking within the top 10 best-performing equities across the world. Aggregate market value of quoted equities closed 2017 with net capital appreciation of N4.36 trillion.

    Aggregate market value of all quoted equities closed the first quarter of 2018 at N14.993 trillion as against its year’s opening value of N13.609 trillion, representing a net increase of N1.384 trillion or 10.17 per cent. The ASI also rose from its 2018’s opening index of 38,243.19 points to close the first quarter at 41,504.51 points, representing average gain of 8.53 per cent. The difference between the ASI and aggregate market value was due to supplementary listings of shares.

    Nigerian equities had in January 2018 hit all-time high market capitalisation of N15.3 trillion while the ASI had risen to 43,041.54 points, its highest index points since October 2008. The market, however, showed a slowdown in March with average month-on-month decline of 4.21 per cent. The downtrend in March was due largely to profit-taking transactions as investors turned to monetise accrued capital gains.

    Sectoral analysis showed that most investors in Nigerian equities ended the first quarter with positive returns. Investors in industrial goods and banking stocks were ahead of other investors. The NSE Industrial Goods Index recorded the highest quarter-on-quarter return of 10.96 per cent. The NSE Banking Index followed with a return of 9.49 per cent. The NSE Insurance Index rallied average gain of 8.41 per cent. The NSE Oil and Gas Index appreciated by 4.90 per cent while the NSE Consumer Goods Index posted a modest return of 0.21 per cent. The NSE 30 Index, which tracks the 30 most capitalised companies at the stock market, posted a three-month return of 7.30 per cent.

    With the performance in the first quarter, investors have earned net capital gains of N5.744 trillion over the past 15 months. With this, Nigerian equities have technically recovered what they had lost in a three-year period between 2014 and 2016. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015 and N604 billion in 2016.

    However, the three-month performance was moderated by a running downtrend in the last month of the quarter as investors lost total net value of about N557 billion in March. The peak of the earnings season failed to sustain the bullish start that had dominated transactions in the first two months of the year.

    Benchmark indices at the Nigerian Stock Exchange (NSE) showed a market-wide downtrend in March, despite the release of most audited reports and accounts and dividend recommendations in March. Investors appeared to have shifted from dividend expectation in the early week of the month to sustained profit-taking selloffs, momentarily ignoring the steady improvements in corporate earnings of all the major quoted companies and increases in dividend payouts.

    The ASI  dropped from the month’s opening index of 43,330.54 points to close March at 41,504.51 points, representing average month-on-month decline of 4.21 per cent. Aggregate market value of all quoted equities also declined from its month’s opening value of N15.550 trillion to close the month at N14.993 trillion, indicating net capital depreciation of N557 billion.

     

  • Analysts see February inflation rate declining to 14.75%

    February inflation figure is likely to drop to 14.75 per cent from 15.13 per cent in January, analysts at Financial Derivatives Company Limited said yesterday.

    The analysts said they are expecting a sharp fall in year-on-year headline inflation to 14.75 per cent for February 2018, after a steep decline from January’s inflation of 15.13 per cent.

    Apart from being the 13th consecutive monthly drop in inflation, the rate of decline has increased from the previous month’s deceleration of 0.24 per cent.

    “Our forecasting methodology is based on a simple regression model and empirical analysis, spiced with some qualitative reasoning. We expect month-on-month inflation to increase to 1.01 per cent (12.82 per cent annualized),” they said.

    The analysts disclosed that during the month, certain price moderating factors were noticeable. These include a decline in most global commodity food prices like sugar and rice and to a limited extent, the stability of the exchange rate within the N362/$-N363/$ band.

    Also observed was ample forex supply and exchange rate stability, which continued to taper imported inflation. “Reduced naira liquidity in the system as the average opening position of banks dropped by 38.63 per cent to N173.78 billion long in February. Marginal expansion in production levels – evident in an increase in FBN Primary Manufacturing Index to 54.7 from 54.6 in January 2018, reflecting a soft inventory build-up by manufacturers in February,” they said.

    There was also improved power supply from 3,690 Mega Watts per hour in January to 3,937 Mega Watts per hour. However, there was one price propelling factor which had a limited impact on inflation. This was the lingering fuel scarcity in the country.

    “Although inflationary pressures were subdued in the month of February, we are likely to see a reversal in the trend in the coming months. As the first quarter ends and the Easter celebration approaches, business activities are likely to pick up and trigger a further build-up of inventory and inflationary pressures,” they said.

     

  • Analysts pick UBA, Access Bank, five others as stocks to watch

    Investors looking for high returns on investment should consider a diversified portfolio of leading companies in the banking, healthcare, consumer goods, financial services and industrial goods sectors.

    Analysts at GTI Securities said seven companies including United Bank for Africa (UBA), Access Bank, United Capital, Fidson Healthcare, Flour Mills of Nigeria, Dangote Cement, Lafarge Africa and Zenith Bank should be on investors’ watch list.

    GTI Securities, which stocks to watch had successfully achieved 95 per cent of indicated targets, premised its analysis on corporate earnings and market information.

    UBA had recorded a well-rounded performance in the third quarter of 2017 as growing market share and improving efficiency led to significant improvements in gross earnings and profitability.

    Key extracts of the interim report and accounts of UBA for the nine-month period ended September 30, 2017 showed that gross earnings rose by 26 per cent while pre and post tax profits grew by 33.2 per cent and 23 per cent respectively.

    UBA’s gross earnings rose to N333.9 billion in third quarter 2017 as against N265.5 billion reported in corresponding period of 2016. Group’s operating income stood at N236.9 billion in 2017 compared with N183.3 billion recorded in the corresponding period of 2016, representing a 29.3 percent growth.  Profit before tax jumped to N78.3 billion in 2017 as against N58.8 billion recorded in the similar period of 2016. Profit after tax grew from N49.5 billion in 2016 to N60.9 billion in 2017.

    The balance sheet showed that while the group closed the third quarter with total assets of N3.77 trillion, a year-to-date growth of 7.6 per cent, the bank prudently grew net loans to N1.6 trillion, a 6.0 per cent year-to-date growth in the loan book. Group’s shareholders’ fund grew by 13.3 per cent to N507.6 billion in 2017 while the annualised return on average equity stood at 18 per cent.

    Access Bank in December 2017 launched a new five-year plan that aims at making the bank Nigeria’s foremost bank in the next five years.

    The new plan is the latest in a series of transformative strategies that have resulted in sustained growth. From 2013 to November 2017, Access Bank has increased its total assets at a CAGR of 18 per cent and delivered shareholder returns of 90 per cent. The bank has also grown its customer base from 90,000 in 2002 to over 8.0 million in 2017 and in the same period opened 351 new branches.

    The new five-year strategy is expected to accelerate this growth story to position Access Bank as the leading Nigerian bank by 2022.

    The new strategy has six strategic levers including digitally led, retail banking growth and consolidation in wholesale markets, customer focused, analytics-driven, with robust risk management, strong global collaboration in key gateway markets and the creation of a universal payments gateway.

  • Court remands Boko Haram computer analysts, spiritual head in prison

    Three suspected Boko Haram members yesterday appeared before a Koton-Karfe Chief Magistrate Court in Kogi State for allegedly belonging to the terror sect.

    Arraigned were  Abdullahi Audu, Bashiru Yahaya and their spiritual head, Ahmed Momoh.

    The pleaded not guilty.

    Prosecuting counsel Mohammed Abaji, told the court that the defendants were arrested in June by security men.

    Others are at large,he said.

    Abaji stated that investigation and analysis of their telephone numbers revealed that they were not only members of the sect but had also carried out repairs of the terrorists’ computers.

    The prosecutor also said the defendants had carried out repairs of other electronic components owned by the insurgents and used them for their nefarious activities.

    According to him, the third defendant, Momoh is the spiritual head of the gang mandated to prepare ‘’charms/Ruqya’’ for members of the group and their families, before and during operations.

    Abaji prayed the court to take cognizance of the grave nature of the allegations by dismissing the oral application brought by the defendants.

    He said their actions were contrary to section 97(1) of the Penal Code Law and Belonging to Terrorists’ Group.

    The prosecutor also said the defendants had allegedly violated Section 4 and Section 5 of Terrorism (Prevention) (Amendment) Act, 2013.

    Chief Magistrate  Levi Animoku, in his ruling, ordered the three accused to be remanded at the Federal Prisons, Koton-Karfe, saying that the allegations against them was grave.

    Animoku said the activities of members of the terrorists’ group had terminated many lives in the country, adding that the crimes the defendants were accused of were heinous and carried high penalties.

    He said: “Notwithstanding that bail is a constitutional right guaranteed the accused persons, the presumption of innocence is not absolute. Bail is not easily granted in this kind of offences. So, bail is refused.

    “The defendants shall be remanded at the Federal Prisons, Koton-Karfe, Kogi.”

    The case was adjourned to  September  28 for mention.

  • Nigeria’s economy resilient, say analysts

    Nigeria’s economy is still Africa’s number one, notwithstanding the 30 per cent drop in the currency last month knocked almost $150 billion off its Gross Domestic Product (GDP).

    South Africa, which has regained second place after overtaking Egypt, is closing the gap, although its economy also shrank with the   weakening of the rand. The gap between both economies has narrowed to $60 billion from $170 billion at the end of last year.

    The International body said the economy could contract, even as Renaissance Capital Limited’s analyst, Yvonne Mhango urged the government to address the sundry economic issues facing the country.

    Last month, with the CBN’s forex  policy,  the naira depreciated after a 15-month currency peg curbed investment and contributed to a 0.4 percent contraction in the economy in the three months through March.

    According to the IMF, the four-month delay in passing the record N6.1 trillion ($21.6 billion) budget, meant to stimulate growth  by spending on roads, ports and electricity generation, will reduce its efficiency.

    The administration’s vision to diversify the economy which relies on oil for more than 70 percent of revenue, has not translated into big investments, and infrastructure to support local manufacturers doesn’t exist yet, according to Mhango.

    She regretted that not much has been heard enough on how the government planned to improve and make the business environment more conducive. She added in a statement that there has been little color on fiscal policies to drive the growth agenda.

    Nigeria is facing a revenue squeeze as oil earnings fail as a result of militancy. The naira peg at 197-199 per dollar, compared with an unofficial exchange rate of 340 per dollar just before the currency was allowed to float, caused fuel shortages for months as businesses struggled to access foreign currency to place orders.

    “It is not sufficient to focus on going from a de facto peg to a flexible regime,” IMF’s Resident Representative in Nigeria, Gene Leon, said.

    “The authorities need to be announcing at the same time how the change affects fiscal policy, how is it impacting inflation, balance sheets of corporates, balance sheets of the banks, and how the increased fiscal receipts allows the undertaking of development,” he stated in a statement.

  • Analysts pick construction, banking stocks for high returns

    Investors looking for considerable returns on investments should consider a portfolio of leading building and construction and banking stocks, analysts at GTI Securities Limited have said.

    A model portfolio built by GTI Securities included Julius Berger Nigeria Plc, Dangote Cement Plc, Zenith Bank International and Guaranty Trust Bank Plc.

    According to analysts, Julius Berger will benefit from the expansionary budget of the Buhari administration as government opens opportunities for huge construction contracts and the repayment of outstanding debts owed to construction firms.

    “The market share of Julius Berger will boost its chances in 2016,” analysts stated, referencing such major contracts as the Lagos-Ibadan Expressway that government had awarded to the company and had included in the 2016 budget for completion.

    The analysts’ stock recommendation noted that Zenith Bank as a top tier lender will still maintain good earnings in spite of not so impressive first quarter 2016 results because of emerging opportunities for the bank in 2016 as a result of its market share.

    The report stated that Guaranty Trust Bank has been well positioned for growth because of its size, historical cost management strategy and emerging opportunities in the economy.

    It noted that Dangote Cement controls about 80 per cent of the cement market in Nigeria and has made major in routes into other African countries and thus will benefit from expansionary government that focuses on rebuilding infrastructure.

    Analysts however pointed out the adverse impact of what they described as “inconsistent or a lack of clear policy direction of the Central Bank of Nigeria (CBN) on foreign exchange”, noting that this could mitigate the performance of the market in the immediate period.

    “However, the consideration that a lot of good company stocks are already trading at unprecedented lows is an incentive for investors to gravitate towards the market and position themselves in stocks with strong fundamentals and growth prospects based on our current economic realities,” GTI Securities stated.

    According to analysts, while there are downside risks to the stock recommendations, the upside expectations are convincing enough to hold that these stocks will hit expected target prices.

    “We urge our investors to speculate with a great deal of caution especially those whose buy decisions are mostly driven by historical trends and performances without serious considerations to company fundamentals.  The market is still volatile in the short term and can reverse gains without any warnings. We are however confident that the longer term outlook is cautiously optimistic,” GTI Securities stated.