Every investment is made against an expectation, what people do as basis of their investment in equities is to look at past performances. The fact that one company did well before in the past is not a guarantee that the company will always do well. So what we should do is to make the past the basis and then forecast into the future because you are not buying to sell in the past. Your investment is being done today against a future period. And so where the company was, where the company might be now, where the company should be, can be or might likely be should inform whether you will say the equity is good for an investment purpose or not.
In the capital market, everyone knows that a typical quoted company is expected to release results at least 4 times a year. The first is the report of the company’s activities for the first 3 months. The second, which is been expected now is the results which will show the general public activities of corporate institutions for the first 6 months. And so you could see it been written as H1 or Half Year.
It is very important that you are able to forecast to have a glimpse or an insight of what the firms are bringing in or will be bringing in.
When the results eventually is released, there are things that will happen as response of the generality of investors and market operators to the result.
So if the result is good, we will see the price of such equity rise. It could rise for a day or two, or three or four days as the case may be. Also in the same vein when the results comes in, and it is negative, it will be an abnormality for the price to go up. What you should do as an investor is to look at the possibilities in the result that is being expected in the market now and you take your decision now before others eventually begin to act. If your expectation is that the result will be positive, you act now; and when eventually the result is released and you see the price of the equity rising on the floor of the Nigerian Stock Exchange, you might decide to sell because there is no price that will rise consistently without looking back.
WEMA BANK
When analyzing the quarterly report of Wema Bank, we need to put certain things in consideration. This financial institution had transformed from national bank to regional bank, then to national bank. Not that alone, it has changed ownership from one group of people to another. One thing that marks Wema Bank out is the fact that it is like a cat with many lives.
If you look at this Institution, the fact that it has struggled to remain till today when other organizations that started the same time as Wema Bank with Identical form are dead and Wema Bank is alive gives one confidence that for some years to come, the bank will still be there.
Looking at the Second Quarter earnings of Wema Bank from somewhere around 2009, you will see that aside from 2012 where there was a negative earnings of 0.7kobo, it has continued within the same range. Sometimes it will be 3 kobo, sometimes it will be 4 kobo. To be specific, earnings per share was 3 kobo in 2013; it was 4 kobo in 2014. It came to 2 kobo in 2015; back to 3 kobo approximately in 2016. It maintained that 3 kobo in 2017 and in 2018 EPS grew to become 4 kobo.
What are the possibilities for Wema Bank in 2019 Second Quarter earnings per share? Because of the geometric improvement in the First Quarter of 2019 report from something in the region of 1 kobo or approximately 2 kobo in the previous year to 3 kobo; which suggest that what the organization did for the Q2 earnings in 2018, they are almost matching it in the Q1 of 2019. Then we should begin to project something in the region of 5 kobo for Wema Bank in the Second Quarter report of 2019.
Relative to its current share price, Wema Bank can go ahead and declare anything 4 kobo of 5 kobo in the Q2 report, it will make Wema Bank a good ‘BUY’.
We need to also prompt you that there has been a huge volume of cross-dealing, which means that other sets of people are picking interest in the financial institution.
Wema Bank is not a short term hold, if you want look at Wema Bank, you have to think medium; you have to think long term, so that when the price when the price is lower than how much it is now, you should be willing to buy more.
NEM INSURANCE
The regulator of insurance industry, NAICOM has jacked up the paid up share capital of companies operating in the industry. I make bold to say that NEM insurance is one of those companies that will never be shaken or affected. Yes the outstanding number of shares now is just about 5.2 billion and that is N2.6 billion plus or minus. But the company has more than N10 billion in reserve which they can easily recapitalize. All that NEM could do is to use this opportunity to buy one ailing Life Insurance company and then they become better.
As regards the earnings possibilities, I took time to check out what their earnings have been in the last 10 years. Looking at it from around 2008, we really can say that earnings only became consistently mobile, that is, forward movement between 2016 and now. Though it was also positive and moving upward between 2009 and 2013. But 2014 and 2015, it went down then it was truncated in 2016. So since 2016 and now, NEM has not looked back at all. So looking at the possibility in their earnings in 2019 second quarter, I’m not expecting geometric increase in growth. As a matter of fact, I’m expecting a result that will be more or at par. But I’m expecting if they can do like between 32 kobo and 40 kobo, the organization would have done well. But if they are not able to do, I’m not expecting the earning to be lower. I’m expecting something that is going to be within the range of what was declared in 2018 when they declared 28 kobo. Though in 2017, they did 23 kobo; in 2016 they did 21 kobo. So I’m not expecting them to come back to 21 kobo. I’m expecting them to do what they did in 2015 which was 29 kobo, and then a little bit higher than that. We could see that their earnings in 2019 first quarter & 2018 Q1, they were more or less the same thing. If NEM, let us even assume that what they are able to do is 28 kobo which was done in 2018, I’m expecting them to do a little bit better than that. But let us assume that 28 kobo is what they eventually brought to the market at a current price of N2.45, the stock of NEM will still be performing brilliantly well.
FIDSON HEALTHCARE PLC
Looking at the earnings of Fidson over the years from 2009, I could see the earnings per share at around 17 kobo for Q2 in 2009. Except for 2011, when there was a negative earnings of 13kobo; but the following year, that is 2012, the organization wiped off the negative Q2 earnings of the previous year and reported 10 kobo.
In 2013, earnings per share grew 100% to 20 kobo; in 2014 it was 21 kobo. In 2015, earnings per share grew to 22 kobo.
In 2016 when things were very difficult, dollar rising and not available at all, the earnings of Fidson for the second quarter came down to about 3 kobo. Of course it did not just affect Fidson alone, it affected all the manufacturing companies in Nigeria back then. But the following year in 2017, Fidson came back forcefully to 34 kobo earnings per share for the second quarter. In 2018, because of the fact that there were lots of borrowings and they have to pay back a lot, earnings declined. But again, looking at that, relative to their current price, even if Fidson still goes ahead to declare what it declared in 2018 which was 21 kobo EPS at a price relatively fixed at N5.50, it will not be a bad performance at all. I see possibilities of even performing more than 21 kobo.
As at 2018, the first quarter of Fidson was 10 kobo, but in 2019 it has gone 13 kobo. So, if you look at it from that end, it is most likely that we should be expecting between 21 kobo and 25 kobo earnings per share for Second Quarter report. If that is achieved, it will make Fidson Healthcare a bargain at current price.
FIRST BANK OF NIGERIA HOLDINGS (FBNH)
Looking at the performances of FBNH particularly in the Second Quarter for over a period of 10 years between 2019 and 2019, I can tell you that the worst performance that FBNH ever recorded was in 2011 when Q2 earnings declared was 63 kobo, whereas in 2010, it was 78 kobo; so there was a decline. But the following year in 2012, FBNH grew its second quarter earnings to N1.39.
In 2013, the organization did a lot better than the previous year in 2012; but it declined in 2014 to N1.14. In 2015, earnings declined to N1.10. Between 2016 and 2017, the organization recorded low performance in the second quarter because the earnings per share that was declared as N1.14 in 2014 and N1.10 in 2015 declined to 96 kobo and 81 kobo in 2016 and 2017 respectively.
In 2018, the Second Quarter earnings of the ‘big elephant’ began to move upward. Earnings per share of FBNH in the second quarter of 2018 was 93 kobo and this was generated from the first quarter earnings per share of 40 kobo. The Holding company declared 42 kobo in the first quarter of 2019. Market expectation is that the financial institution should now begin to move towards the N1 mark.
Therefore the expected earnings of FBNH for the Second Quarter of 2019 should not be lower than 90 kobo.
The question to now ask is that, is 90 kobo half year’s earnings at a price of 6.90 kobo okay? Now if you look at the fact that this result is in the second quarter at the price of N6.90, I don’t think that is bad in any market.
GUARANTY TRUST BANK
For quite a number of years Guaranty Trust Bank has always paid interim dividend. They rarely increase it, 25kobo is what they do pay per year; and because of that, the second quarter report are always audited.
Looking at the second quarter report of Guaranty Trust Bank for the period of 10 years till the last that was recorded in 2018, one can say there was only one time that there is a break and that was between 2014 against 2013. Up until 2013 as beginning from 2009, their earnings for the second quarter had been incremental as from about 75 kobo to 78 kobo to 95 kobo in 2011 to N1.55 in 2012 to N1.67 in 2013. So the breakage actually came in 2014, when the earnings declined from #1.67 to #1.50 in 2014.
From there, up until 2018 the earnings had grown largely from N1.50 in 2014 to N1.88 in 2015 to N2.74 in 2016 and N2.96 in 2017. In 2018 they had left the Two Naira realm and graduated to the realm of Three Naira, when it generated N3.38 in the second quarter of 2018.
Now if you ask me for example, what the possibilities are, I will tell you because from what I have seen, what we often see in the result of GT Bank is that sometimes they double performance of first quarter in the second quarter. If the Q1 of 2019, Guaranty Trust Bank generates N1.74 in earnings, If we are now to look at what that might portend for our expectations, I can tell you that we should not expect anything below N3.50 in earnings per share. That might sound like marginal increase, between the N3.38 that it declared in 2018 and the N3.50 kobo I am forecasting. It could be a little bit higher or slightly lower than that; but we put it around N3.50. But largely relative to the current price, if at half year, the organization could generate N3.50, then the current price, I tell you is a bargain.
FORTE OIL
Femi Otedola has said good bye to Forte Oil. Market expectations for Forte Oil outside Femi Otedola according to analyst is a positive one. According to Aruna Kebira, “Prudent Energy that is coming into Forte Oil would have found value in it because as at the time of purchase, the price was N31.20 on the floor of the Nigerian Stock Exchange they are taking it for N66.25, which means there is a very big value”.
“And I believe that post Otedola Forte Oil will actually be better because there is going to be a number of things especially Corporate Governance and it’s going to impact positively on the balance sheet of the company”.
“Geregu has actually been contributing to Forte Oil, but the capital from Geregu has also been the non-controlling interest which has been provided for in the books of Forte Oil and that has been taking the chunk of the profit after tax.
How attractive is the stock to buy for new investors?
In this kind of takeover of Forte Oil by Prudent Energy, SEC has made provision; because one man is divesting, who is the majority shareholder, SEC will always want the buyers to also extend such gesture to minority shareholder by doing a mandatory tender offer which NIPCO did for the shareholders of Mobil. I wouldn’t know because about 75% of this is involved, whether they are still going to do mandatory tender offer, but I think that they should also allow it to tickle down to the minority shareholders by doing a mandatory tender offer and as such if they are going to do that I think is going to react positively and the price will be pushed towards the N66.25.
WAPCO
WAPCO just dispose their holdings in one of the South Africa Subsidiaries 100%, and what they did was to deleverage their balance sheet. And when you actually look at it, the finance cost that has been their headache and making them to make losses is actually what they are going to remove from their books, going forward. Because as it is they don’t have negative reserve. Going forward, I think we will be seeing WAPCO declaring a dividend.
The South Africa Subsidiary has actually being a core center to WAPCO and in fact that is why the market is reacting positively, they believe that removing that headache and bringing in the cash to deleverage their balance sheet, going forward, they can now remove finance cost, and the balance sheet will look healthy.
The price at which WAPCO is trading at N12.00 is cheap because the WAPCO I have known had always been N100, N95. The first right they did was N45 and the market brought them to do another one at N12.50. What I’m even saying is that a number of people might be tempted today at N12.00, because they have been in WAPCO, they bought the right at N 12 .50 and WAPCO had been trading between N8 and N10, and they may be looking at it as opportunity to exit. But I still believe that even if you are taking position in WAPCO at N12.70, it is absolutely okay because like I said, those billions of finance cost is going to off their balance sheet and they don’t have negative reteamed earnings. At that, they will be poised to pay dividend and that is what drives the price of any stock in the market.
I will not be wrong to say that you don’t treat a stock like WAPCO with this condition of a short term investment. But you rather look beyond the short, you make it medium and long term before you can really see the impact of this sales; and subsequently when the results begin to come in and the impact is now reflecting in their books, I believe that WAPCO is not going to be at N12 stock anymore.