Against All Odds

• 50 Top Equities that had stood above losses
• Real Sources of Market Decline
• Short Term Possibilities

On a general note, every attempt of at least a temporary recovery of the market had been resisted more especially in the last one month thus leading to an unprecedented eleven straight sessions of losses in the All share Index of the Nigerian Stock Exchange which stood at 40,992.97 at the close of trade on May 16, 2018 and closed at 36,816.29 at the close of trade on June 01, 2018. Within these eleven straight sessions in question, stretching between Thursday May 17, 2018 and Friday June 01, 2018, the main index declined by a whopping 10.19%. This period remains outstandingly the most bearish so far in the year as Month by Month performances in the year so far had generated at the worst case, a loss of 7.7% in May 2018.

At the close of market session on June 01, 2018, the market in the year had recorded a total of fifty-eight (58) sessions of losses against forty-six (46) of gains- that is even when few days of marginal performances are counted as gains for the market.

On Month by Month basis, the Nigerian bourse had only recorded a one month of positive performance. This was in January when it recorded a 16% growth as the All Share Index closed the month at 44.343.65 on January 30, 2018 from a close of 38,243.19 on December 29, 2017. The months of February to May had seen the market shed all the gains of January. At the close of trading session on May 31, 2018, with the All Share Index standing at 38,104.54, the Year to Date loss was 0.36%. The fact that it has taken four straight months before the market eventually wiped off the entire gains in January suggests that the market, in actual fact resisted the losses but had to just cave in as the sell pressures consistently mounted.

As the bear session seems persistent, below is the list of top fifty equities that had so far in the year performed far above the market by holding forth to the gains though shaken by the strength of the bear.

But what are the factors that had sustained the prices of the stocks on the list above in a turbulent market?

• VALUE: Evidently, the market still largely recognises value and remains with it. The list above is a pointer to the fact that prices at the close of 2017 were attractive in a number of these leading performers and by far were inferior to full year earnings as contained in audited reports that were later released, dividend payout and subsequent first quarter earnings. CCNN, Beta Glass, Caverton, Fidson, Eterna, NEM and some others fall into this category.

The inherent lesson is that value, when detected early is a critical success factor in equity investment. At that, the price being paid at any point in time for a stock should be in proportion to expected earnings and in some cases, cash dividend payout though this might be relevant to the Nigerian market as improving earnings alone might just suffice in some other markets across the globe.

• MAJOR HOLDERS: A cursory analysis of major holders of stocks in the companies on the bear-resisting list shows that most of them are being held by local investors and as a matter of fact, retail investors while some of them enjoy the benefits of major shareholders that will not quickly sell to take profit.
• CCNN: For example, of the roughly 1.2billion shares of Cement company of Northern Nigeria, only three investors are holding over 1billion units thus leaving a float of less than two hundred thousand units to be scrambled for as float in the open market. At that, even if the performance of such a company is not so encouraging, the probability of sharp decline is slim.
• BETA GLASS: The same could also be said of Beta Glass where Frigoglass alone holds about 62% of its equities. This added to the fact that the total outstanding number of shares of the company is just about five hundred million units makes the float in the market low hence, bear-resisting price.
• CAVERTON: Above 70% of Caverton’s 3.35billion shares are being held by corporate institutions that will not sell thus leaving a little float in the market. In the face of improving performances, it is certain that price will still largely be sustained.
• FIDSON: The strategic investments in World Health Organisation- (WHO) approved infrastructure to position the company’s products for global patronage alone should be enough for the buy and hold of Fidson’s stocks at any price but then, the movement from five kobo to 20kobo dividend from improved earnings of 71kobo from 21kobo are other key factors. Fidson has just 1.5billion shares in issue. Of these, it is certain that between 40 and 50% are being held by individuals and institutions that will not be willing to sell.
• Eterna, Wema, Ikeja Hotel and a host of others are equally supported by the shareholding structure and shares in issue.

SIGNALS FROM BEAR STOCKS:

• IMPACT OF NSE’ 20 KOBO PRICE RULE: It is true that foreign institutions are bailing out of the Nigerian market but these foreign institutions are not in any of the first seventeen stocks on the bear-stocks list above. Notably, these are set of stocks that would have remained at par value but are not liquid. A general review of such equities shows that while, a number of them are currently dwelling on the least sellable price, some touched the bottom and made a U-turn back up though still to hit the par value. Evidently, the activities so created by the new price rule whereby many of these hitherto docile stocks are now on the activities’ chart mostly as losers are all part of what had over the months strengthened the bear. It could be argued that impacts of those stocks on the market might not be weighty but truth is that they do have impact on the overall performance of the index and indeed the market.

Please note, the 20 kobo minimum price rule might not be favourable to the index but on general market activities, the rule is one of the best to have happened to the market in the recent times. A few of these equities now shun good results to the market and technically, their prices had adjusted proportionately while those without commensurate results still remain at the 20 kobo bottom level.

• HOW BAD IS THE EXIT OF FOREIGN INVESTORS? From the last reports released by the Stocks Exchange, it will appear that the notion that the market is declining in response to exit of foreign investors from the Nigerian market is mere assumptions as figures till April clearly showed that the exit and entry of these same said foreign investors are more or less at par. From the list of losers above, seeing that decline in prices of stocks with foreign investors patronage are rather insignificant than major, it therefore suggests that the exit has been largely curtailed by almost equal strength of local institutional investors. A quick check on the prices of Zenith, Guaranty, Access, StanbicIBTC and a few others with sure presence of foreign investors tell the story of either marginal loss and in few of them, positive returns Year to Date.

• POOR PERFORMANCE: Please take a look at some of the stocks listed below and explain why their prices should rise in a sane market? The list include, Daar communications, WAPIC, Meyer, RT Briscoe, Champion, Guinea insurance and host of others in that category. These are companies that will rarely release their results not to talk of any improvements in the reports. These are companies without cash dividend payout to investors spanning five years and above.

It is evident that except in few, price decline of those that are in actual fact declining are justified and are only presenting the Nigerian market as rather being rational.

POSSIBILITIES:

• FOREIGN INVESTORS’ EXIT: The sure bet of current exit/entry positions of foreign institutional investors will be ascertained when Nigerian Stock Exchange May report hits the market expectedly in about another week hut then, you sure can’t eat and have your cake at same time. In other words, so long as prices of stocks where foreign institutional investors hold sway had only declined marginally, as these equities fall into the hands of local institutional investors that most probably will not be selling for same reason as their foreign counterpart, the market is bound in due course to become stable.
• QUARTERLY REPORTS: The Nigerian economy had shown resilience, performances of quoted and listed companies are largely improving at least till the first half of 2018. If this is sustained in the other quarters beginning second quarter, normalcy is expected to return to the market bringing with it, a measure of price growth. Please note, equities’ prices of companies that will release poor earnings will sure remain down or even be more battered.
• POLITICAL ANALYSIS: The fears of 2019 general elections, coming a year into the elections are not founded. Those that promote such fears are also not friends of the country. Exiting a market on such shows lack of confidence in the quality of stocks where they have investment.

FINAL ANALYSIS:

• Sustainable price regime will never be experienced in the Nigerian market until Nigerian stocks are concentrated in the hands of Nigerians. Overseas travelling, road shows and promo of the Nigerian market by Managers of the market are mere jamboree with extreme temporary impacts on the market. The road shows should be done within Africa; the drive should be to educate Nigerians on the local market.
• A market operating in an ecosystem with unstable currency will also not be stable. Do you desire to know when the market will bounce back? Keep your eyes on the Naira against its peers across the globe.
• Elections will come and go and Nigeria will remain and so the market.