- Meagre dividend pay-out depresses investors’ optimism
- Stocks to Watch
The market last week continued its southward journey as rates in the money market and bond market keep improving. The yield of March Federal Government Savings Bond increased to 6.181% and yield in Treasury Bill appreciated by 100 basis points to 6.5% from 5.5%. Smart investors in search for superior returns have been taking their profit to take position in the money market and bond market. Investors had anticipated impressive dividend pay-out by quoted firms in order to compensate for the bearish trend in price movement but were however not impressed with the corporate actions published so far.
Year to date, the market has returned -4.03% as against over 50% gain recorded at the end of year 2020.
Commenting on the current market state, the Chief Dealer of Global View Capital Limited, Aruna Kebira pointed out that PFAs being the major market participants do not traded with emotion, rather they trade with focus on better yield. Hence, there is capital fight from the equity market into the money market.
The capital market guru stated thus:
“The money market is doing better now. The Treasury Bills rate has improved from 5.5% to 6.5%. That 100 basis point increase means a lot for people holding up to about N1 billion. Not undermining the fact that after the foreign investors have left, the major participants in the market are the PFAs. PFAs are only entitled to 1% to the fund they are managing if they don’t do anything on it. So they have to sweat that money to be able to live that luxury live that they want to live. They don’t have emotion for the capital market neither do they have emotion for the money market; there problem is that where will the yield come from? Where is the yield better? So they move their money from the equity market to the money market, wherever the yield is better. When there are indices where the yield is horrible in the capital market, they will move their money from there.
“One of the things we should know is that the equity market is risky, so if they want to compensate for the risk, premium is needed. Where they cannot get the premium, PFA will not go there. The money market on the other hand is risk free; it means that your money plus a percentage comes to you. In the equity market, you can put N100 million and return back with N70 million. But in the money market, when you put N100 million at 1%, you are sure that you are coming out with your N100 million, even that is the least, you can recover your money. It is better for them to play in the money market than in the equity market. The moment the money market becomes more attractive they pitch their tent there immediately”.
“The March FGN Savings Bond is now 6.181%, Treasury Bills is now 6.5%. All these were coming from as low as 3% and 0.3% respectively. So naturally, there will be a flow from equity market to these markets. So it is the exit that is causing this downturn in the equity market. Nobody wants to take N2.70 from Zenith Bank and lose N5. Another issue about the dividend is, how many have we seen? People are now asking: where is GT Bank? Are they going to do better than what they did last year? Will they do better than Zenith Bank? What is First Bank going to do? UBA paid 35 kobo dividend. They said UBA and Access Bank are now pairs; will Assess Bank come back and do 35 kobo or even less than that? Fidelity Bank and FCMB have not come out; what did they do last year? UBA came down from 50 kobo to 35 kobo; will a typical Fidelity Bank come from 20 kobo to 9 kobo? So it’s that sentiment from investors that is affecting the market”.
“Going forward, Cash is king as regards the current market mood. If you are in a loss of more than 10%, hold your position because whatever goes down must go up. Those that have sold should hold their cash and wait for when the market bottoms out”.
Stocks to Watch
- Access Bank traded flat at N7.8. It is trading 25.71% away from its 52 weeks high of N10.5, hence there is uptrend potential in Access Bank. With the book value of N19.12, Access Bank is considered cheap at the current share price.
- FBN Holdings traded flat at N7.1. It is trading 21.11% away from its 52 weeks high of N9 which implies an uptrend potential for the share price of the big elephant. Considering its book value of N19.84, relative to the current share price, shows that FBNH is cheap at the current price and has a lot of growth potential embedded in it.
- Zenith Bank’s share price dropped to N21.35 from N21.45. It is trading 25.09% away from its 52 weeks high of N28.5. There is uptrend potential of 24.74% in the share price of Zenith Bank. With the book value of N35.59 relative to the current share price, Zenith Bank is considered cheap.
- UBA grew to N7.15 from N6.95. It is trading 27.04% away from its 52 weeks high of N9.8. With the book value of N19.16 as against its current share price, UBA is considered cheap and has uptrend potential.
- Guaranty Trust Bank dropped to N30.75 from N30.95. It is trading 20.03% away from its 52 weeks high of N38.45 and this implies an uptrend potential for the bank.
- WAPCO dropped to N22 from N22.05. It is trading 30.16% away from its 52 weeks high of N31.5. There is uptrend potential in the share price of Wapco as records have it that it has touched N52 some years back.
- Dangote Cement: One of the stocks that we are expecting a very high dividend is Dangote Cement. If you look at the price of Cement in the country is going up. There is no way it is not beneficial to the share price of the stock. Now that they have reduced their number of issued share capital. So whatever dividend they have is for the few and therefore they are expected to pay much higher than the N16 dividend they declared last year.