- Prospects in the New Access Bank Plc
- NEM Insurance and its new investors
- Other stocks to watch
Seeing the value of your investments going down is not a pleasant sight and many investors stand confused wondering whether the carnage will stop or not. Bear markets are brutal when they hit. Ask any stock investor who fully invested in stocks earlier than the market crash of 2008. You relieve the pain from the bloodbath by vigorously pulling your lower lip up and over your forehead to shield your eyes from the ugliness. Fortunately, bear markets tend to be much shorter than bull markets, and if you’re properly diversified, you can get through without much damage.
We seem to be at a similar juncture of dilemma though not as severe as it was in 2018, investors are quick to ask how much more the market is going to look down before a meaningful reversal. Yes, we have seen intermittent gains but the much heralded political risk still very much subsists and the Nigerian Stock Market rapidly slides over the months, slightly went below 30,000 Index mark. The question that is still begging for an assuring answer is when exactly will be safe enough to begin to make fresh entry into the market again.
According to Aruna Kebira, a Stockbroker with Globalview Capital Ltd, the beautiful thing about the market right now is such that, at the current prices, anytime the market goes up the entire stock prices look up, it suggests they seem to have been beaten and bartered to obvious resistant levels.
Mallam Kasimu Garba Kurfi, who is the Managing Director/Chief Executive Officer, APT Securities and Fund Ltd, while responding to our team on the probable market upturn posits that what was witnessed in the market last week is enough to tell a fortune that whenever many are worrying overprices going down in the market, it gives opportunity to the long investors and bargain hunters to come in. He also Noted that Zenith went as low as 20 naira but it bounced back to close at almost 22 naira, gaining about 10%. The same applied to many other stocks like Oando which went as low as 4 naira but closed a bit higher, FBNH and many other ones too. As long as those stocks go down, they give opportunity for bargain hunters to come in and as soon as they come in it rebounds almost immediately. This is expected to continue in this form until elections are over when we anticipate the foreign investors will come in to the market and things will change for better.
At rare opportunities whenever the institutional investors are not in the market, we could see some rallies a few days but the rally does not last. For the rally to be sustained in the upward direction, we need the institutional investors and I do not see that happening until the elections are concluded free and fair and accepted by all.
Kurfi, advising existing and local investors said, investors should endeavor to set the rules of the game before entering the market especially in this era. ‘They should not have this notion that they must gain 100%or 50% but if they are contented with 10 – 20%, they will continue to make money. The era investors would gain 50-60% in the market is gone and may not return immediately now. Few weeks back, Jaiz traded as low as 41 to 42kobo but last week it went as far as 56kobo. If you had bought at 42 and sold at 56kobo, you would have made well above 20% profit. The truth of the matter is that most investors enter the game without setting the rules. Most have no rule of exit and the moment you don’t have rule of exit you will continue counting your loss. A serious investor should be decisive on when to exit either on winning or losing trade. Many tolerate a 150% loss instead of picking a 10 to 20% gains just because they lack the rule of exit. You just have to set your rules right, because if you allow the market to dictate your pace, you will keep on loosing. If you do not have rules the market will teach you the lesson.
Most people do enter the market when the party is over. You look at a stock gaining 5 to 10% and until it gained a substantial 20% before you entered, where do you expect it to get to in this current market? This is what most investors do and they keep on lamenting.
Rasheed Momoh was assertive when he professes hope for a bullish market on the long run. He said people are not only seeing the opportunity in the market but for the people that understand, they keep accumulating even as the noise of the bearish outlook fills the air. In his words, ‘this is when people actually make good money because if everybody is going bearish and some people are there accumulating those shares, by the time there is a change in trend, the market is going to go up. Though I agree it’s a bad market for now, but I see a lot of activities going on in the market. The volumes of trade on daily basis especially in the banking sector tell that something is happening. There are lots of people buying into the bad News.’
Rasheed also believes that going forward; the fundamentals are going to be good. The companies are still going to pay better dividend at least what they paid last year. He also noted that since the crash of the market in 2008, companies like Zenith has not paid lesser dividend till date and might likely pay higher this year.
STOCKS TO WATCH IN 2019:
It’s no longer news how political risk has prompted some investors to be more cautious about their outlook for stocks. But as earnings season ramps up over the next few weeks, corporations will get a chance to influence the market as they release their latest quarterly earnings/. Premise on their past fundamental we recommend the following stocks for a cautious watch.
ACCESS BANK PLC:
Benefits of owning Stocks of Nigeria’s Largest Bank
THE DENIAL AND OFFICIAL ANNOUNCEMENT:
It was denied when news unofficially broke last month via newspaper report of an intended acquisition of Diamond Bank Plc by Access Bank Plc. There was panic when a director in Diamond Bank Plc petitioned Central Bank of Nigeria two weeks ago leading to sharp decline in the stock price of Diamond Bank Plc on the floor of the Nigerian Stock Exchange. Incidentally, the denied merger/acquisition was also well stated in the petition. The official news of the marriage between these two financial institutions was well received at the market arena going by the price performances of both equities on Monday December 17, 2018 as Diamond Bank Plc led in percentage gains with a growth of 9.47% while Access Bank Plc was next with a growth of 9.40%. These equities also commanded unprecedented bid sizes for the trading session.
Let’s take a brief but closer look at the content of the proposal and what it portends for the minority shareholders in both financial institutions.
THE PROPOSITION:
Firstly, for the over twenty three billion ordinary shares in Diamond Bank Plc, Access Bank is offering to pay, one naira per share. Please note that this is not necessarily a share buyback but an incentive. In other words, so long as you are a shareholder in Diamond Bank Plc, when this merger cum acquisition scales through, you will be entitled to one naira per share on the volume of shares you currently own in Diamond Bank. For example if you own a hundred units of Diamond Bank stocks, you will be entitled to the sum of One Hundred Thousand Naira.
Secondly, for every seven units of shares in Diamond Bank you currently own, you will get two units of Access Bank shares when the merger is consummated. That tells you eventually, there is not going to be Diamond Bank anymore. To know what quantity of Access Bank shares you will subsequently own, divide your current holdings in Diamond Bank by seven then multiply by two. For example, if you currently have a hundred thousand units of Diamond Bank shares, that will become twenty eight thousand, five hundred and seventy one units of Access Bank shares.
VALUE OF THE TRANSACTION:
The assumption is that the transaction is entered into on December 13, 2018 when stock price of Diamond Bank was 87 kobo on the floor of the Nigerian Stock Exchange while Access Bank stocks sold at N7.45. if you for example owned one hundred thousand units of Diamond Bank shares till December 13th, the worth would have been eighty seven thousand naira. With the acquisition and the emerging twenty eight thousand, five hundred and seventy one units of Access Bank shares after the conversion, your current worth will be two hundred and twelve thousand, eight hundred and fifty four naira. When the cash of one hundred thousand naira being proceed of the one naira per share of Diamond Bank that Access Bank will be paying is added, you stand to get approximately three hundred and thirteen thousand naira from your current investment in Diamond Bank. In other words, to the existing shareholders of Diamond Bank, there is bound to be approximately 260% premium on this transaction.
THE ATTRACTION TO EXISTING SHAREHOLDERS OF DIAMOND BANK SHAREHOLDERS:
- Diamond Bank Plc had not paid dividend in the last five years to its shareholders. Left on its merit as an independent stock, existing shareholders of Diamond Bank stands to remain with zero dividend in the next couple of years. Gaining 260% on stock of a company that had not been able to pay dividend to becoming shareholder of a company that had paid interim and final dividend consistently is a major advantage.
- The share price of Diamond Bank in 2018 had declined from the year high of N3.73 to 87k before the acquisition is announced. Having lost 77% from its year high, Access Bank Plc offering to acquire the bank at 260% above current price remains the best to happen to Diamond Bank investors in 2018.
CUT OFF DATE OF TRANSACTION:
Please note, there remain processes to be followed before the transaction is consummated. Even after the formal approval by regulatory bodies, court ordered meeting would be held. At that, cut-off date for the acquisition will then be when the court eventually sanctions the deal. By estimation this should be before mid year 2019.
WHO GAINS FROM SUBSEQUENT PRICE APPRECIATION?
The guide should be the terms of the acquisition. Seeing that whatever Access Bank proposes remains irrespective of whatever the price of Diamond Bank grows to become on the news of the deal, it suggests that every additional ten kobo growth in price of Diamond Bank reduces the percentage of return to the investor except if there is a proportionate growth in price of Access Bank Plc. Premised on this fact, where investors’ attentions should be focused is the stock of Access Bank Plc which in this case, is the acquirer that will remain in force at the end of the transaction.
To be specific, the stock of Access Bank Plc should be the preferred at this point. Investing in Diamond Bank stock at prices higher than 87kobo reduces the overall value of the acquisition.
THE NEW ACCESS BANK PLC:
There is no doubting the fact that a new ACCESS BANK PLC will emerge at the consummation of this acquisition as Access Bank Plc stands to become not only the biggest bank in Nigeria but also one of the biggest in Africa. Let’s see how this stands to play out.
ASSETS:
The worth of any organisation is primarily in its assets. Liabilities and deployment of the assets are other considerations though. The new Access Bank Plc will emerge with total assets in excess of N6.109 trillion. This figure is derived from the 2018 Q3 records of both financial institutions. While Access Bank Plc at the 2018 Q3 recorded total assets of N4, 555,172,579, Diamond Bank on the hands recorded total assets of N 1,554,928,244. This combination exceeds the total assets value of the previous Nigerian biggest bank in asset by almost 30%.
Truth about Diamond Bank prior to this transaction is the fact that the bank’s assets remain largely intact; the issue is deployment and ability to manage. In the case of Access Bank Plc, management is never an issue. The addition of Diamond Bank assets with Access Bank’s will definitely create more value to investors in the new Access Bank Plc.
SHAREHOLDERS FUNDS:
Technically speaking, shareholders’ fund is what is left in a company’s assets after its liabilities have been imputed. A company might not be generating profits and might even be carrying loads of debts, so long as its assets are adequate to cover, its going concern tendency remains in force.
Diamond Bank really had not deployed its assets well enough to generate profit but to a large extent, its assets should be adequate enough to carry its liabilities hence, as at 2018 Q3, its shareholders funds have not been depleted to a negative level but a record of N221,615,478.00. Of course there are debts burden but these are to an extent within the capabilities of its assets. In the case of Access Bank Plc, 2018 Q3 records show shareholders’ funds of N472, 683,141.00
A back of the envelope analysis will show that the new Access Bank Plc will create a total equity or Shareholder’s fund N 694.3billion. That stands to be the highest in the industry.
CURRENT PRICE PERFORMANCE OF ACCESS BANK PLC:
The seeming apathy leading to declining price is unfounded because status of Access Bank Plc at Q3 of 2018 is far superior to current price hence; purchase of Access Bank Plc stock at current price for long term hold is a bargain.
Of course, the concerns as regard eventual outstanding shares in issue particularly after the proposed rights by Access Bank Plc could make short term investors hold back but huge outstanding shares in issue is not always the problem in equity investing but the overall worth of the very company with the huge outstanding the shares in issue and the company’s share holding structure. In this case, except if a major shareholder in either company eventually divests, the anticipated huge outstanding shares do not portend significant danger because the float will largely remain within limit and curtailed.
Others, in anticipation of the large shares in issue are of the opinion that there might be a share reconstruction. It should be clearly stated that Access Bank Plc is not strange to share reconstruction but between the period when its shares were last reconstructed and now, price of the bank’s stock had largely remained above the reconstruction price. This thus suggests that even if the shares of the new Access Bank Plc are reconstructed, the possibility of price sustainability above the reconstructed price is higher.
There are also the fears that Diamond Bank Plc has little to contribute to the growth of Access going forward, more so as there might be some hidden negative figures that might lead to write offs in the books of the new Access Bank Plc. The potential negative impact and consequences of such will lead to decline in basic ratios and financial performances of the new Access Bank Plc. Truth is that verifiable assets of Diamond Bank Plc, on the face value, are not incapable of providing enough cover for such undeclared toxic assets. It is also doubtful that current Executive and major owners of Diamond bank Plc who also will ultimately become owners of Access Bank Plc shares would throw integrity into the dustbin by covering up toxic assets of the bank. Evidently, the new Access Bank Plc board will comprise of some existing board of directors of Diamond Bank Plc. In a nutshell, seeing that the coming together of the two financial institutions is not a winner-takes it all scenario, possibilities of cover up by Diamond Bank Plc is slim.
In view of the foregoing, Diamond Bank stock price, because of the N3.13 valuation by Access Bank Plc will remain active and attractive with lots of short term opportunities, investing in Access Bank Plc stock at current price remains potentially the best opportunity in the Nigerian stock market for 2019. It is however for medium to long term investors.
NEM INSURANCE PLC:
With almost 30% of its existing shares in issue currently being taken off some existing shareholders by a new investor, current price decline in the stock of NEM creates potential advantage for discerning investors in 2019.
Closing 2018 at about N2.70 price after a growth of 62.7% in 2018, a year when the market lost over 17% was more than good enough for the investors in NEM. The loss of over 36% since the year 2019 began is enough to create panic and makes investors further shed the stock. It should be noted that price shed when basic ratios remain intact is only a great opportunity to invest and hold.
At current price, NEM is almost at the price level with which it started 2018, seeing that its shares remain concentrated in the hands of investors that might not easily sell; the stock remains one of the best to watch out for in 2019.
VITAFOAM PLC:
Because of the 25kobo dividend and 1 for 5 bonus that is still ongoing with a closure date of 15th of February, 2019.
Current Market Price: N 4.5
Highest Price 52wks: N4.99
Lowest Price 52wks: N2.71
CCNN
Based on its nine months financial performance of CCNN for the period ended 30th September, 2018.Cement Company of Northern Nigeria (CCNN) has an Improved Capacity, Higher Profitability and Upgraded Valuation
One key development in the cement company is its merger with the Kalambaina Cement Company Limited.
Market Price at Earnings Release: N25.30
Current Market Price: N19.45
Highest Price 52wks: N32.00
Lowest Price 52wks: N10.90
Intrinsic Value: N45.27
WEMA BANK
If you see wema bank below 60 kobo or at 50kobo it will be a good buy. This bank has a good growth of about 0.3kobo in their quarter 3 earnings
Current Market Price: N0.60
Highest Price 52wks: N1.54
Lowest Price 52wks: N0.50
Fidelity
Current Market Price: N 1.94
Highest Price 52wks: N4.33
Lowest Price 52wks: N1.51
FCMB
Current Market Price: N1.7
Highest Price 52wks: N3.65
Lowest Price 52wks: N1.32