Performance of equities on the floor of the Nigerian Stock Exchange in the past two months has been very impressive. Big caps stocks appreciated in their share prices by an average of 25%. In fact, Nigerian Breweries within two months appreciated in share price by 100%. In a chat with Mallam Garba Kurfi, Managing Director of APT Securities Limited, the Capital Market expert gave deep insight on the market performance and recommendations for profitable returns. Excerpts:
Let me first congratulate you on your re-election as National Council member of the Nigerian Stock Exchange. May God grant you necessary wisdom and understanding to a great performance.
Can you briefly explain the roles of National Council of the stock exchange in the development of our capital market and your role as a member in the council?
The National Council of NSE is the governing council of the Nigerian Stock Exchange. What it means is that whatever strategy the NSE intend to implement, they need the decision of the council. The same thing apply with the disciplinary action. If any dealing member commits an infraction. There are of various stages as regards disciplinary measures; at a lower level, the management can deal with it. But if it goes up to a higher level, the council will have to sit down with their disciplinary body, review the case and give their position. If any dealing member is not satisfied with that, then the only option is that, he has to go to Investment Securities Tribunal (IFT). Whatever the council decides, dealing members has to abide with it. The same thing with membership; nobody can become a member of NSE without the approval of National Council of the Nigerian Stock Exchange.
The capital market in the last few months has shown tremendous performances, in your own review what are the intrigues or activities that led to this?
When the index case of COVID-19 appeared in February, the market out of fear by investors reacted to see what would happen. Out of that fear, the market came down. In March, the All Share Index loss as high as 24%. When you combine the loss in 2019 and 2018, it is over 34%. In April, the market gained almost about 9%. In May, it gained almost about 10%.
The losses we incurred gave opportunities to the investors to go into the market and take advantage of the market. That is what happened. You can see that in the All Share Index, year to date, the loss is less than 6%. The reason is because of the recoveries of the market in April and May. That is for the All Share Index. I can tell you some individual stocks gained as high as 100%. I’m aware that Nigerian Breweries was trading at N22 in March. As at June 5, the share price reached N44; that makes it 100%. The same thing applies to Dangote Cement, trading at N116 but went as high as N150. BUA Cement traded as low as N28 and now trading at N40.
Q1 results came out beating expectations, which specific company or companies’ performance caught your traction.
Most of our quoted companies have their accounting year end in December. So if you look at it, this is the period for the corporate actions. So corporate actions also triggered good performance of equities plus the first quarter result.
The Q1 result of most of the company did not show the impact of COVID-19 because the covid-19 effect came towards the last week of March. So what we can say is that our Q1 result is a normal result. All these results plus the lower prices of the stocks triggered the performance of the market for the month of April and May. They all add value to the good performance of the market in the last two months.
In performance, you look at the big caps. The big caps are the one that controls more than 60% of the total market capitalization.
Dangote Cement went as low as N116 and went as high as N150; that is about 28%, and that is good.
MTN is a big cap stock. It traded as low as N94, yet it went as high as N120. If you are at N94, and you got out at N120, you get 27.6%.
Nestle traded as low as N776, but it is currently trading at N995. If you enter a trade at N776 and come out at 995, that is a gain of almost about 30%.
BUA Cement has about 1.35 trillion market capitalisation. It traded as low as N28 and went as high as N42. From N28 to N42, that is a gain of N14, that is 50% gain.
Guaranty Trust Bank moved from N16 to N26. That is N10 gain. N10 out of N26 is N62.5%.
Nigerian breweries traded at N22, it went as high as N44, that is 100%.
The very few stocks mentioned above constitute not less than 60% of the market capitalization. If 50% of the capitalization gained significantly, why don’t you see where we are?
We are in the last month of the second quarter of the year 2020, the period when many businesses experienced shutdown across sectors. Can you give us an analytical view of what Q2 financial reports will look like when released?
There is no doubt, the Q2 report will show the total effect of Covid-19 because this is the period that covers most of the time businesses were closed. We have no doubt, the Q2 result will be very far below our expectation. But don’t forget, the Q2 will soon end and we will enter the 3rd Quarter. So definitely, when the result comes, the market is likely to also react. So we anticipate the market will go down because of the poor result. By the time the third quarter result comes, when the market has started recovering and begins to look up. Those losses may likely be recovered in the last quarter.
Even if the economy is foreseen that is likely to close in recession. We are anticipating the market may likely recover from its losses, compared to what the market declared in 2018 and 2019. Year 2020 could also be in the negative for the capital market.
In terms of the Q2 result, we are expecting them to all perform below expectation because it will show the effect of covid 19. The only exception is the banks because most of the banks make their money from lending. Therefore the impact of covid 19 in the banking sector will be less compared to that of the manufacturing sector; but all other sector including Insurance will have poor Q2 results.
What is your comment on the recent CBN rate cut?
Already the MPR has gone down to 12.5%. We are expecting further reduction by the MPC.
When the interests are very low, investors moves to the capital market. So we from the capital market will benefit from it.
What are your recommendations on stock investment this season and probably post covid 19 pandemic?
My recommendation is just take your profit. The market has gone up; most of the stocks have gone up. By the time the second quarter result comes. They are likely to go down. When they go further down, you can take another advantage. Honestly I hardly recommend stocks, except the very few ones that have there year end in April like Guinness; their third quarter result is nothing to write home about, so their final year result is not going to be better. My advice is that, take advantage of the market, take your profit.
What is your advice for those who probably are in doubt about the viability and profitability of the stock market?
Those who are in doubt will continue to be, but those who are optimistic will continue to make their money. I am just telling you that a stock gained 100% in two months. If that’s the normal situation, do you gain 100% in two months. I have mentioned that the big caps gained an average of 25% in two months. If you take your money to the bank, you get 5 to 6 percent per annum. You are getting 25% in two months from stocks, where else can you make that kind of money? Those who are doubting the profitability of the capital market can continue to do so; but those who are optimistic, have gained and are already taking their profit.