The Nigerian Stock Exchange has done extremely well over the past year. Jaco Maritz asked Aledare Ayodele, an analyst at Cowry Asset Management Limited, about investing in Nigeria's stock market and his predictions for the year ahead.
How did the market perform over the past year?
All stakeholders in the nation’s stock market will for a long time remember 2007 as a year of many milestones. The market was hot, as stocks reached record highs. Many companies also came to the market either by way of listing or through initial public offerings, while many banks made return trips to raise more funds.
The year witnessed the highest growth in all market indicators. Total market turnover crossed the N1-trillion mark while the index crossed the 50 000 - landmarks that were celebrated by both the Nigerian Stock Exchange (NSE) and stockbrokers. Investors have staked over N1.9-trillion in over 100-billion shares compared to the 36.7-billion shares worth N470-billion in 2006.
Nearly all companies, especially banks have raised an unprecedented amount of money from the market this year through jumbo offers. United Bank for Africa Plc and Oceanic Bank International Plc, which accessed the market for above N50-billion each, realised more. First Bank of Nigeria Plc surprised all market stakeholders when its N100-billion hybrid issue enjoyed an unprecedented patronage. The bank got over N600-billion and had to refund some monies while most investors got less than half of what they demanded. Access Bank Plc, Fidelity Bank Plc, First City Monument Bank Plc and Afribank Nigeria Plc equally offered shares to raise funds. Non-financial institutions such as Japaul Oil and Maritime Services Plc and NAHCo also sought funds from the market. The floatation of mutual funds by banks continued this with Union Bank of Nigeria Plc and FBN introducing theirs.
The year also witnessed the influx of foreign investors to banks including Intercontinental Bank Plc, FCMB, and Zenith Bank Plc. Following the successful Global Depository Receipts (GDR) by GTBank Plc and the listing on the London Stock Exchange, many banks embraced this mode of fund raising. FCMB, Fidelity Bank and Diamond Bank Plc have sold their shares to foreign investors through GDRs.
As at 31 December 2007, 13 new companies had been listed on the NSE. They include, Dangote Sugar Refinery Plc, Continental Reinsurance Plc, Custodian and Alliance Insurance Plc, Staco Assurance Plc, International Energy Insurance Plc and Oasis Insurance Plc, Deap Capital Management & Trust Plc. Others are Airline Services & Logistics Plc, Ikeja Hotels Plc Red Star Express Plc Big Treat Plc and National Sports Lottery Plc. However, there were two de-listments. CFAO Nigeria Plc, one of the oldest conglomerates opted out of the NSE to operate as a private entity. Also, BHN Plc, a company that was into the sale and servicing of machinery, got de-listed after many unsuccessful restructuring exercises.
Will this growth continue or do you predict a slowdown or a correction in the near future?
Our market is an emerging market and growth prospects remain high. For the first half of 2008, we foresee a growth in excess of 25% for the Nigerian equities market owing to an anticipated growth in the GDP by 8%. Funds from banks’ excess shareholders’ funds, over N80-billion released insurance funds, N250-billion returned monies from the FBN oversubscribed hybrid offer, pension funds and inflow of foreign hedge funds should drive market indices to new highs in 2008. The Central Bank Governor recently stated his intentions to set limits on foreign equity holdings in Nigerian banks. It remains to be seen whether this development will temper interest in the banking sector going forward.
There is also room for the introduction of derivatives like futures, warrants and options. This will deepen the market and further push up the indices. The price earnings ratio of the entire market is still below 26X, an indication of the average pricing of our stocks, honestly, this is Africa’s investment hub.
COWRY ASSET MANAGEMENT'S HOT STOCKS FOR 2008:
| STOCKS |
COMMENTS |
| Access | Strong growth potential |
| FCMB | Projected earnings per share is N1.01; trading below intrinsic value |
| Guaranty | Impressive six months result; current price affected by GDR price |
| Crusader | Set to hit the market for a public offering |
| Lasaco | Very impressive nine months results; supplementary listing may take its toll on the stock on the short term; long-term value is is bright |
| Platinum | Good at current market price |
| Cornerstone | N4-billion escrow proceeds should boost its working capital |
| Law Union | Impressive nine months result |
| Aiico | Expected to soar post-offer trading |
| University Press | Projected price is N15.00 |
| Beta Glass | Impressive nine months result |
| Skye Bank | Good hybrid offer price and also good at market price |
| Afribank | Good below the bank’s recent offer price of N25.00 |
| Fidelity | Good for long term investors; a share reconstruction may be inevitable |
| MBenefit | Attractive at N4.00 |
| UAC-Property | Good below N22.00; a N26.00 stock on the long-term |
| Wapco | For long-term investors; one of the 13 companies approved by the federal government to import bulk cement - this should boost earnings going forward |
| Oceanic | Currently the largest bank in Nigeria by capital base (above $2-billion); forward earnings per share looks set to remain above N1.00; good at below N27.00 |
| Zenith | May claim the position as the biggest in Nigeria post-hybrid offer allotment |
| Vitafoam | A N13.00 stock; an industry leader |
| Deap Capital | Dividend of 13 kobo and bonus of 1 for 2, closure date is 21 February 2008 |
| Neimeth | Soaring profit; expansion-driven firm; set to visit the capital market for fund raising; good below N5.00 |
| C&I Leasing | Holds high future value; may hit N13.00 on the medium term |
| Chellarams | Turnover and bottom lines expected to skyrocket |
| Dangote Flour | 12 months target price is N30.00 (December 2008) |
| RTBriscoe | Strong brand; 6 months target price is N35.00 |
| UBA | UBA Prestige and UBA partnership with Chinese bank expected to boost earnings |
What is the process for foreigners to invest in NSE-listed shares and what are the fees involved?
Foreign investors intending to buy shares on the NSE need to adopt the following procedures under the new legislation.
The total fees for foreigners and locals are the same. Total transaction charges on the buy side is 2.36% while sell side is 2.67%.
What effect has the US sub-prime crisis, the fear of an American recession and problems in the rest of Africa had on the NSE?
The NSE is somewhat insulated against foreign markets. The global market crisis has not in any way affected our market, probably due to the fact that only two of our companies are listed on the LSE. We also do not have direct access to overseas funds. Instead hedge funds managers seek solace in our market when there is a major global crisis. Ironically the crisis in Kenya has been a blessing in disguise for our market. This is because funds may have moved to our market - in the past month the All Share Index touched 60 000 points.
The NSE has a number of branches throughout Nigeria. What is the point of having more than one branch?
The point of having more than one trading point is simple - stock brokers all over the 36 states in Nigeria do not have to travel down to Lagos to trade. Resident brokers in each state can stay right where they are to trade in shares. It was all aimed at bringing the market to the Nigerian populace, less than 5% of the population are currently actively involved in the stock market. Brokers can also interact on the trading floor, exchange market sensitive information and foster unity. All the branches are online real-time.
There have recently been complaints about long delays in the issuance of share certificates. Is this a real problem and how is it being addressed?
Delays in the issuing of certificates has been an issue. The Securities and Exchange Commission was able to address the issue by directing the phasing out of share certificates issuance by 31 December 2008. Going forward, there'll be e-public offers, e-dividend lodgments, and e-crediting of investors' account post-public offering.
What benefits are expected from the recapitalisation of brokerage firms and when is the recapitalisation deadline?
The recapitalisation deadline for brokerage firms is 31 December 2008. Fully capitalised firms should boost investors' confidence in operators. Brokers will also be able to increase their proprietary trading. Capitalised funds will eventually trickle down to the market which will stimulate the activities on the floor and market growth. Firms’ underwriting capacity and liquidity position will also improve.
