As far as the Nigerian stock market is concerned, whenever the price history of Skye, Diamond and Wema bank stocks is told in the near future, performances of these equities within the first three trading weeks of 2018 on the floor of the Nigerian Stock Exchange will remain significant. These are simply predictions-defying price movements. At the end of each of these three weeks in question, virtually all technical indicators had always placed these stocks at overbought levels thus propelling warnings from Analysts that the prices were relatively high and thus set for decline. To market operators who were not so technical analysis inclined, they believed that bargain hunters will soon creep into these stocks to take profit. Alas, the more the market expected prices of these equities to rescind, the more they jumped through the roof in pursuit of previous heights.
SKYE BANK PLC:
For Skye Bank plc, it was a growth of 22% in the first week of 2018, 37.7% in the second week and 53.6% in the third trading week and leading the market in percent gains for the week. At that, an investment of N100, 000 in Skye bank stock on January 2, 2018 at a price of 50 kobo per share would have fetched N258, 000 as at January 19, 2018 or a growth of 158% in just three weeks as the price closed the week at N1.29. This is without deduction of commissions though.
Significantly, the stock price of Skye entered an overbought level on January 03, 2018 at a price of just 53kobo. Name the indicator and what you see on Skye is a sell as the Money flow index had flattened out at the highest possible level, ditto the Williams% and the relative strength index while the faster %k in stochastic oscillator has crossed the %D which is a sell signal. Irrespective of all these, the stock still made a straight thirteen days of consistent gains.
The more surprising is the fact that Skye as we speak has no reports upon which a buy recommendation could hinge even if it is for just one day. It should also be recalled that the Central Bank of Nigeria on July 5, 2016 had wielded the big stick by removing top executives of the bank for gross mismanagement. Till date, the bank’s affairs are still being coordinated by CBN appointed officers. Between July 5, 2016 and now, the CBN appointed board is yet to release any results to the market hence; the bank’ stock would be the least on the minds of investors for strategic purchase because nothing is really at stake but where is the volume coming from and for what reason? A quick check on volume transactions on the stock revealed that the minimum volume so recorded within the period under review in Skye bank was a little above seven million units. There were days when well over 100 million units of the bank’ stock exchanged hands. This is a clear indication of the fact that the price movements so far witnessed was not a fluke as there were commensurate deals, volume and value as back up.
In view of the above, it infers that a strategic core investor or a group of investors whose concerns extend beyond price performance and earnings in the short term are behind the movement. From market hearsay, the bank is gearing up for primary market activity. The price and other details remain sketchy.
Guess what? The stock closed Friday with over 968,000 units unsatisfied bid. It suggests that though price may behave to market state but the open stands strong.
WHAT LESSON TO LEARN:
As far as ownership of stocks is concerned, it is never over until a company dies. Though Skye stock price is not near the N15 level of 2018 but the stock is no longer comatose or in descent as it had been since 2016.
Should you be buying at the current price? Why not but if you have what it takes to stand if price turns against you.
In price, Unity bank could be said not to be strange to long range price movements. Historically, there were nineteen straight days of gains between May 6, 2009 when the price was N1.28 and June 2, 2009 when the price closed at N3.10. In that stretch, there was a price growth of 142.19%. Another major price gallop stretching for thirteen straight days was seen around September 12, 2011 at a price of 50 kobo to September 28, 2011 when the price closed at of 76kobo or a growth of 52%.
Historically too, Unity bank’ stock price could equally go low without a single day of upward movements for months, to the stock, touching and staying at 50kobo for a while is not a big issue irrespective of where it has been. The movement between January 02, 2018 and January 19 at a price of 55kobo to N1.22 or a growth of 121.82% is significant for a stock that returned negative 3.6% in 2017 and 50.9% in 2016. So far in the first three weeks of 2018, it was a growth of 17%, 32.3% and 48.8% last week.
Technically, indicators were all against further investment in Unity particularly for last week as they all were pointing to the fact that the stock was overbought
Fundamentally, if earnings are of any use in equity investment consideration, Unity bank had performed fairly well though the books are showing some levels of loan loss provision but the bank had built its earnings from 6kobo in 2017 Q1 to 20 kobo in Q2 2017 and 21 kobo in 2017 Q3. Even at current price of N1.22, the PE Ratio stands at just 5.81 which suggests that using earnings as basis of consideration, Unity bank stock price could not be said to be overpriced. As a matter of fact, the price might still rally for a few days all things being equal.
In view of the above, it significantly infers that the bank’ stock price is only experiencing an overdue response to earnings. Closing with over 560,000 units excess bid suggests that open this week stands to be strong.
WHAT LESSON TO LEARN:
In the long run, prices of all stocks will rise in proportion as earnings irrespective of short term price performance.
WEMA BANK PLC:
If technical analysis tools are the only basis of considerations in equity selection, charts of Wema bank are scary. You won’t even touch the stock or recommend for anyone. But so far in 2018, investors or risk takers in Wema are by far wiser than most Analysts who will rather follow charts and not the direction of the smart money.
The very first week of trades in Wema stock on the floor of the Nigerian Stock Exchange resulted in a price growth of 15.4% from 52kobo to 60 kobo. Guess what? Many investors and market operators alike who had thought of catching on a good opportunity to bail out missed the rally of the following week which ended with an addition price of 31.7% as the price inched up from 60 kobo to 79kobo. 48.1% WoW growth was recorded in the third week of 2018 thereby bringing the stock price to N1.17.
So far in 2018, an investment of N100,000 in Wema Bank plc from January 02, 2018 would have fetched N225,000 or 125% in just three weeks without commission deductions. The bank stock had only rallied nine straight trading sessions in the year. For 2017, it was a negative performance of -3.70%. Historically, Wema bank is not slack in records of consistent price rally. From May 05, 2009 to June 02 of same year, there was a record of twenty days of unbroken price gains from N1.91 to N4.41 or a growth of about 131% and another twenty days stretch of consistent price growth between January 15, 2013 and February 13 of same year. In the process, a growth of 268.63% was achieved as its price moved from 51kobo to N1.88. Looking back at all these stretches of substantial gains in history, technical indicators had often prompted a sell almost at the start of each of these rallies just as there was a prompt to bail out of Wema on January 3 after which the stock has made eleven days of gains. Of course, price might eventually plummet to respond to indicators but the gains of the past eleven trading sessions would have been missed.
In earnings, Wema bank might not be that robust but definitely not at the zero level it was at a time in the past. For 2017, Q3 was 5 kobo earnings. at current price level, P.E Ratio is 23.40 which stands to be one of the highest in the industry. It suggests therefore that the bank’s Q4 earnings being expected must of necessity come with substantial growth to justify current price level and more.
High profile transactions, extreme conservative management and prudent use of shareholders funds stand the bank out. Wema bank’ share are concentrated in few hands that might to easily sell. There is also the possibility of share reconstruction.
WHAT LESSONS TO LEARN:
To invest well in a stock, consider its past to see the storms and challenges it had overcome over the years.
DIAMOND BANK PLC:
In history, Diamond had recorded more days of stretched losses than gains hence, the fifteen days of unbroken price appreciation recorded so far in 2018 is not only significant but historical. Of course the price is still far below its N24 2008 level but well ahead its all time low of 78 kobo.
Technically, charts had indicated an overbought signal on January 03. An exit would have been inappropriate seeing another thirteen days of rally thereafter.
The bank has not so much been consistent in earnings in addition to the burden of NNPC funds in its kitty however; current P.E Ratio is about 14.28.
Unless the bank’ management improves on the 2017 Q4 to be released to the market soon, current price might too high and consequently decline.
LESSONS IN THE GAINS:
- In the long run, earnings and price must move proportionately. That is Abayonomic’s first fundamental law of equity’ price movement. Consequent upon this, endeavour to lay hold on earnings, stay with such a stock with improving earnings for at least three quarters consistently and hold on in the stock irrespective of what the price might be in the interim. This also answers the question on whether some stocks are currently overpriced or not. It is not just the percentage gains that make a stock over priced or not but the earnings upon which such price performances rest.
- The use of just one tool for equity selection is wrong. Technical analysis in the short term might not deliver as expected to precision. Earnings and other basic fundamental will always remain relevant within stock market arena.
- Follow the direction of the smart money. Earnings or no earnings, technical indicators or not, when smart money speaks, the stock market does not just listens but also responds. Smart money is in the who and why behind a purchase. This might not be readily available but might be accessed via interactions with market operators.
- In the long run, buy and hold of stocks still pays particularly when a company is building earnings without commanding market attentions.
- The secret of making the best in the current market situation is not to queue behind stocks that had already commanded attentions but to discover next bullish stocks.
I do hope this piece helps you makes the right investment decision. Feel free to reach me on firstname.lastname@example.org or facebook- Abayomi Obabolujo, instagram-obastocks and twitter-@obastocks