An international research firm, SBG Securities Limited of South Africa, says about nine commercial banks in Nigeria will be able to pay dividends this year despite the new policy adjustment issued by the Central Bank of Nigeria recently.
The banks are Guaranty Trust Bank Plc, United Bank for Africa Plc, Zenith Bank Plc, Access Bank Plc, Stanbic IBTC Plc, Fidelity Bank Plc, First City Monument Bank Plc, First Bank of Nigeria Limited and Ecobank.
The CBN, in a circular recently, amended banks’ internal capital generation and dividend payout ratio.
The new circular introduced some conditions for banks to be allowed to pay dividend, which are the Composite Risk Rating of the bank, non-performing loans ratio and capital adequacy ratio
According to the CBN circular, no bank is allowed to pay dividend out of reserves, while those that do not meet the minimum CAR are also disallowed from doing so.
Also, banks that have a CRR of “High” or a NPL ratio of above 10 per cent are also not allowed to pay dividend
Banks that meet the minimum CAR but have a CRR of “Above Average” or an NPL ratio of more than five per cent but less than 10 per cent shall have dividend payout ratio of not more than 30 per cent.
Banks that have CAR of at least three per cent above the minimum requirement, CRR of “Low” and NPL ratio of more than five per cent but less than 10 per cent shall have dividend pay-out ratio of not more than 75 per cent of profit after tax
Based on this, analysts from SBG Securities held that Zenith, GTB, UBA, Access, Stanbic IBTC, Fidelity and FCMB were not affected by the policy based on their nine months 2017 unaudited results.
The firm said, “Going by the results released in September2017, most of the banks not restricted from paying dividend have either exceeded or are close to their 2016 full-year profit level.
“Fidelity Bank with a profit before tax of N16.2bn in September 2017 has done 147 per cent of its 2016 full year profit, and Sterling Bank with its N6.6bn profit before tax as at September 2017 has done 131 per cent of its 2016 full year profit.
It was another negative close for the stock market last week with the Nigerian Stock Exchange (NSE) All-Share Index falling marginally by 0.16 per cent, compared with a decline of 1.13 per cent the previous week. Last week’s decline made it the third consecutive fall the market is recording. However, considering the performance, the return of the bulls is imminent. The market actually fell only on the first day of the week and rose for four days.
But the appreciation recorded could not offset the impact of the loss on the first trading day of the week. As a result, the NSE ASI fell by 0.16 per cent to close lower at 42,570.89, while market capitalisation ended at N15.277 trillion.
Similarly, all other indices finished lower during the week with the exception of the NSE Banking, NSE Insurance NSE CG Indices that rose by 1.52 per cent, 1.24 per cent and 0.27 per cent respectively.
The equities market started the week on a negative note on Monday as the bears returned after three days of gains. After seven-days of bearish trend, the bulls had returned last Wednesday and remained in control for the rest of the trading days.
However, the losses recorded in the two days outweighed the gains recorded in three days, making the market to close on bearish note last week. But as the trading resumed for the week on Monday, a decline in bellwether stocks depressed the NSE ASI by 1.53 per cent to close at 41,988.18. Similarly, market capitalisation went down by N233.5 billion to be at N15.1 trillion.
Thirty-two stocks depreciated as against 16 stocks that appreciated. Bellwether stocks such as Dangote Cement (-3.3 per cent), Nestle Nigeria Plc (-4.1 per cent), FBN Holdings Plc (-4.8 per cent) and Nigerian Breweries Plc (-1.6 per cent) were among the price losers. Linkage Assurance Plc led the price gainers’ chart with 9.0 per cent, trailed by Livestock Feeds Plc with 5.0 per cent. Fidson Healthcare Plc and AXA Mansard Insurance Plc added 4.9 per cent apiece. Jaiz Bank Plc and May & Baker Nigeria Plc chalked up 4.0 per cent and 3.5 per cent apiece among others.
In terms of sector performance it was mixed as two of five indices trended southwards, two closed in the green and the remaining one was falt.
The NSE Consumer Goods Index led the losers’ chart with 1.6 per cent, followed by the NSE Industrial Goods Index with 1.5 per cent.
The market recovered on Tuesday, inching up by 0.38 per cent to close at 42,148.40. The appreciation recorded in the share prices of Dangote Cement, UBA, Nestle, PZ Cussons, and Cadbury were mainly responsible for the gain recorded in the Index
“Market outlook remained positive with the possibility of a rebound as investors take advantage of low valuations,” market operators said.
On Wednesday banking stocks rebounded as apprehension among investors over the Central Bank of Nigeria (CBN)’s directive to banks on payment of dividends reduced.
The CBN had, at the weekend, issued a new policy, which among others, stipulates that banks or discount houses that do not meet the minimum capital adequacy ratio shall not be allowed to pay dividend.
According to the CBN, banks that have a Composite Risk Rating (CRR) of “high” or a non-performing loan (NPL) ratio of above 10 per cent shall not be allowed to pay dividend; and those that meet the minimum capital adequacy ratio (CAR) but have a CRR of “Above Average” or an NPL ratio of more than five per cent but less than 10 per cent shall have dividend payout ratio of not more than 30 per cent.
The central bank, however, pointed out that there shall be no regulatory restriction on dividend pay-out for banks that meet the minimum capital adequacy ratio, have a CRR of “low” or “moderate” and an NPL ratio of not more than five per cent.
When the news of the policy hit the market some investors dumped their banking shares on Monday and Tuesday. However, fewer investors sold off their banking shares, while more are buying. A development that saw more banking stocks appreciate yesterday.
Eight banks appreciated in value, making the NSE Banking Index to record the highest gain of 1.1 per cent.
The banks that appreciated were: Sterling Bank Plc (3.8 per cent); United Bank for Africa Plc (3.2 per cent); FBN Holdings Plc (2.7 per cent); Access Bank Plc (1.6 per cent); GTBank Plc (1.5 per cent); Diamond Bank Plc (0.81 per cent) and ETI Plc (0.2 per cent).
An investment banking firm, Cordros Capital Limited (CCL) has said the CBN’s policy would not affect dividend payouts in the medium term.
In report yesterday, the investment banking firm, said based on the directive by CBN and contrary to earlier jitters that trailed the release of the circular, they think the directive more appropriately reveals the apex bank’s commitment to financial stability.
“That said, it is our view that the CBN’s latest directive is unlikely to, in the medium term at least, affect the dividend payouts we expect from the banks covered in this report. We should mention that many of the banks’ dividend payment ratios (DPRs), in recent years, have barely reached the peak of the CBN’s requirements on DPR,” they said.
The bullish sentiments in the equities market was sustained for the third day on Thursday as the index 0.28 per cent to close at 42,258.78. Similarly, market capitalisation added N36.1 billion to close N15.17 trillion.
Sustained buying interest in banking stocks, especially in United Bank for Africa Plc, FBN Holdings Plc, Zenith Bank Plc and Access Bank Plc bolstered the performance. The growth of yesterday lifted the year-to-date return to 10.5 per cent.
A total of 24 stocks appreciated while 17 stocks depreciated yesterday. Although gains by banking stocks led to the positive close, Japaul Oil and Maritime Plc led the price gainers’ with 5.4 per cent, trailed by WAPIC Insurance Plc with 4.9 per cent. Total Nigeria Plc with 4.7 per cent, while Livestock Feeds Plc garnered 4.5 per cent.
Other top price gainers included: AIICO Insurance Plc (4.2 per cent); Transcorp Plc (3.8 per cent); UBA, FBN Holdings Plc (3.1 per cent apiece); University Press Plc (2.3 per cent); Jaiz Bank Plc (2.0 per cent); African Prudential Plc (2.0 per cent).
Conversely, UNIC led the price losers’ chart with 6.6 per cent, trailed by Courtville Plc with 5.5 per cent. A.G Leventis Plc shed 5.0 per cent. Caverton Offshore Support Group Plc went down by 4.9 per cent, while Dunlop Nigeria Plc closed 4.3 per cent loser. Fidson Healthcare Plc lost 3.1 per cent, just as Skye Bank Plc and Wema Bank Plc shed 2.8 per cent apiece.
Performance across sectors was largely positive as all indices, save for the NSE Consumer Goods Index shed 0.3 per cent. The NSE Banking Index and NSE Oil & Gas Index led with 0.7 per cent apiece. The NSE Insurance Index and NSE Industrial Goods Index garnered 0.3 per cent and 0.2 per cent respectively.
Meanwhile, a total turnover of 2.018 billion shares worth N21.740 billion in 25,496 deals were traded last week, compared with 2.940 billion shares valued at N27.924 billion that exchanged hands the previous week in 28,567 deals.
The Financial Services Industry led the activity chart with 1.520 billion shares valued at N12.648 billion traded in 16,225 deals, thus contributing 75.3 per cent and 58.2 per cent to the total equity turnover volume and value respectively.
The Consumer Goods Industry followed with 130.660 million shares worth N6.912 billion in 4,168 deals, while the third place was occupied by Oil and Gas
Industry with a turnover of 130.163million shares worth N251.941 million in 1,420 deals.
Trading in the top three equities namely – FBN Holdings Plc, Fidelity Bank Plc and Skye Bank Plc accounted for 567.824 million shares worth N3.456 billion in 4,891 deals, contributing 28.14 per cent and 15.9 per cent to the total equity turnover volume and value respectively.
Price Gainers and Losers
In all 54 equities depreciated in price, higher than 48 equities of the previous week, while 23 others appreciated lower than the 30 gainers of the previous week.
Conoil Plc led the price losers with 18.3 per cent, trailed by Courtville Business Solutions Plc. UNIC Diversified Holdings Plc went down by 15.6 per cent, just as Unity Bank Plc and DN Tyre & Rubber Plc lost 12.8 per cent and 12 per cent respectively.
Other top price losers include: Wema Bank Plc (11.7 per cent); FCMB Group Plc (11.2 per cent); Caverton Offshore Support Group Plc (9.4 per cent); Vitafoam Nigeria Plc (8.5 per cent) and A.G Leventis Nigeria Plc (8.3 per cent).
On the positive side, Livestock Feeds Plc led the price gainers with 19.0 per cent followed by Japaul Oil & Maritime Services Plc that appreciated by 16.6 per cent.
CAP Plc garnered 7.8 per cent, just as AIICO Insurance Plc and United Bank for Africa Plc chalked up 7.1 per cent and 6.5 per cent in that order. Other top price gainers included: Fidson Healthcare Plc (6.4 per cent); First Aluminium Nigeria Plc (5.4 per cent); University Press Plc (5.2 per cent) Cadbury Nigeria Plc (4.9 per cent) and Linkage Assurance Plc (4.5 per cent).
The bears remained in control of the stock market leading to the fourth consecutive day of losses Thursday. The pressure from the bears pulled the Nigerian Stock Exchange (NSE) All-Share Index (ASI) fell further down by 0.99 per cent yesterday to close at 43,529.06.
However, 21 stocks escaped from the charging bears to close higher. Dangote Sugar Refinery Plc led them with 10.16 per cent. African Prudential Plc and United Bank for Africa Plc followed with 4.1 per cent and 4.1 per cent respectively.
FBN Holdings Plc chalked up 4.0 per cent while Access Bank Plc gained 3.9 per cent.
Transnationwide Exress Plc and WAPIC Insurance Plc garnered 3.8 per cent and 3.8 per cent in that order. Other top gainers included: Livestock Feeds Plc (3.1 per cent); Linkage Assurance Plc (2.7 per cent); Flour Mills of Nigeria Plc (2.6 per cent).
Flour Mills is currently shopping for N40 billion from existing shareholders through a Rights Issue.
Specifically, the company is issuing 1,476,142,418 shares of 50 kobo each to existing shareholders in the ratio of nine new shares for every 16 shares held as at the close of business on December 8, 2017 at N27 per share.
According to the Group Managing Director of the company, Mr. Paul Gbededo, the rights issue is part of strategy to grow and build long-term value for all stakeholders.
“The proceeds from the Rights Issue will be used to strengthen the company’s capital base by deleveraging our balance sheet, supporting our working capital needs and positioning the Company to exploit value-accretive opportunities, whilst giving greater operational and financial flexibility to ensure business growth and continuity,” he had said.
Meanwhile, Glaxosmithkline Consumers Nigeria Plc led the price losers for the day with 9.6 per cent. Caverton trailed with 9.4 per cent. Diamond Bank Plc and Skye Bank Plc shed 9.2 per cent apiece just as Unity Bank Plc and Wema Bank Plc depreciated by 9.1 per cent and 8.4 per cent respectively.
Other top price losers were: Honeywell Flour Mills Plc (6.2 per cent); Stanbic IBTC Holdings Plc (4.9 per cent); FCMB Group Plc (4.8 per cent) and Eterna Plc (4.7 per cent).
A further review of the market showed that two sectors closed negatively, while two ended in the positive territory, while one was flat. The NSE Industrial Goods Index led laggards, shedding 2.0 per cent trailed by the NSE Banking Index with a decline of 0.4 per cent.
On the positive side, the NSE Consumer Goods Index led with a gain of 0.7 per cent, followed by the NSE Oil & Gas Index that appreciated by 0.3 per cent.
Nigerian Breweries Plc has recorded a minimal increase in its profits in its audited results for the year ended December 31, 2017. Specifically, the brewing firm’s profit before tax rose marginally from N39.7 billion to N46.6 billion, just as profit after tax was slightly from N28.4 million in 2016 to N33 million.
A company release weekend, showed that the firm recorded a mere 6.6 per cent rise in revenue to N334.6 billion, from N313.7 billion posted in 2016, while gross profit fell to N133.5 billion, from N135.5 billion in 2016.
However, other income jumped by 266 per cent to N2.2 billion from N600 million, while net finance cost fell by 21 per cent from N13.2 billion to N10.5 billion.
Based on the performance, the directors have recommended a total dividend of N33 billion that translates to N4.13 per share. The recommended dividend is inclusive of interim dividend of N8 billion, which is N1.00 per share earlier paid by the company in November 2017.
The Company Secretary/Legal Adviser, Nigerian Breweries Plc, Mr. Uaboi Agbebaku, said in the statement that “whilst the foreign exchange situation improved in the course of the year, double digit inflation continued to impact both businesses and consumers.
“Nevertheless, the company was able to end the year with improved results through continuous focus and execution of the twin agenda of cost leadership and market leadership supported by innovation. Whilst there are some early signs of improvement in the macro-economic condition, this is yet to be reflected in consumer confidence. The Board remains confident that the company has a clear strategy to deliver good return on investment to shareholders as part of its commitment to winning with Nigeria,” Agbebaku said.
Nigerian Breweries Plc reported a 27.3 per cent fall in its profit before tax for the 2016 financial year. Its 2016 group profit before tax tumbled to N39.62billion from N54.51billion recorded in the previous year.
The firm’s group revenue for the 2016 financial year stood at N313.74bn compared to N293.91bn posted in 2015. In its audited financial statements for the year ended December 31, 2015 filed with the NSE, the brewing company had noted that its pre-tax profit fell then by 11.3 per cent to N54.51billion at the end of 2015.
Its revenue, however, rose to N293.91bn from N266bn at the end of the 2014 financial year.
Analysts at the FBNQuest had stated then that the decline in the PBT in the Q4 marked the sixth consecutive quarter of year-on-year decline for the company.
The analysts added: “Further down the profit and loss account, PAT declined by a slimmer margin of six per cent mainly because the tax expense fell by 18 per cent y-o-y, driven by a lower effective tax rate of 29.9 per cent versus 32.8 per cent in the Q4 2014.”
The brewing firm recently appointed Mr. Jordi Borrut Bel as the substantive managing director/chief executive officer to replace Mr. Johan Doyer, who served as MD/CEO on an interim basis since June 16, 2017.
The company had explained that Borrut Bel joined Heineken Spain in 1997 as Sales Representative and subsequently held increasingly senior management positions in different countries, first as Distribution Project Manager in Slovakia, Brand Manager in France and Trade Marketing Manager at the Head Office in The Netherlands. In 2006, he returned to Heineken Spain where he evolved in the organisation and eventually became the On-Premise and Distribution Director and a member of the Management Team.
“Mr. Borrut Bel was appointed the MD of Brarudi S.A. in 2015 and has successfully led the company through a very turbulent period, strengthening the company’s route-to-market and launching successful innovations. The Board is confident that Mr. Borrut Bel’s track record and broad experience stand him in a very good position to drive Nigerian Breweries Plc’ strategy and consolidate its leadership position in the Nigerian market,” the company said.
It is far better to invest in a compound interest yielding investment than a simple interest yielding one.
Many young Nigerians may not have heard of the benefits of money market funds and some that have heard about it, may not understand the working principles behind it while a very few smart ones are already investing in it.
We will try to define money market funds in the simplest way possible; money market fund is an open-ended mutual fund that deals in short-term discount securities such as treasury notes, bank bills and promissory notes. The money market funds are managed by experienced funds managers who are trained to optimise shareholder returns by deploying a balance mix of portfolio investing to ensure the investor’s money is safe and return remain higher than the inflation rate.
A money market fund can provide numerous benefits for investors especially in a high inflation economy such as the current Nigeria economy. Here are some of the benefits to consider:
Low risk investment The risks of investing in money market funds are very low; the fund managers invest your funds in very low risk debt securities such as treasury bills, FGN bonds. You are very sure your capital is safe from the volatilities incurred from the stock market.
Higher return than the inflation rate With the current inflation rate in Nigeria stands at about 14.6%, inflation rate as we all know, it is the rate at which prices increase over time, resulting in a fall in the purchasing value of the money.
As prices rises, your money buys less and less goods and services, so it would be a very wise decision to put your funds in an investment that will always return an interest higher than the current inflation rate. These high inflationary trends will make the cost of goods and services to continue to rise in the near term reducing the purchasing power of most Nigerians, especially if your income remains flats.
Despite the negative effects of a higher inflationary economy, money market funds are benchmarked against the inflation rate.
Higher returns than standard savings accounts The most popular investment destination for many young Nigerians with a little cash to spare is saving accounts. When you deposit money in a bank account, you basically lend that money to the bank and earn interest, presently the interest rate on a savings account in Nigeria is between 3 – 4% but if you borrow money from the bank; the lending rate is between 20-21%.
Investing in money market fund you are sure of a return higher than the inflation rate, as at the last time I checked the interest rate for the money market was about 15%. It has a compounding effect Money market fund has a compounding effect on its interest; every interest accrued is added to the principal sum of the initial deposit. Your initial deposit grow at a faster rate than simple interest investment, the rate at which the compound interest accrues depends on your initial deposit and the frequency of compounding; it has a monthly capitalization with the annual rate of interest meaning that the compounding frequency is monthly.
Start small and grow You don’t need to have a lot of money to start investing in money market funds, you can start investing as little as N10,000 and you can keep topping your account with a minimum of N5,000 to start enjoying the benefits. The different fund managers have their different start-up deposit, so you can contact them for proper briefing.
Investment for your children This is a very useful investment option for parents, who are looking to save for their children’s future or towards their university education. Parents can start saving for their children as soon as they are given birth to, so let’s say the parents are saving for their children university education 16 years from their birth. If they can save for their children for 16years with the compounding effect on their initial deposit, the parent would not need to worry about the school fees of their children from matriculation to graduation.
You can quickly converted into cash at short notice: Unlike other investment, you don’t have to wait until it reaches it maturity date before you can cash out. On a short notice, if you have any need for immediate cash you can apply for your funds and cash out.
It is a good option for people saving up for a project: If you are planning for any project, say you want to buy a car, equipment, land etc, you can be saving up for the project as the funds keep earning interest while you continue to save.
Finally, while inflation rate might be high, with Treasury bill and other government securities attracting yields of over 18%; you will agree with me that there has never been a better time to invest in money market funds today. Dare to start with what you have and from where you are.
The equities market rebounded yesterday, halting a seven-day losing streak to close higher. The market witnessed a free fall for seven days as investors locked in profits from an early year rally that saw prices hit new highs. However, barging hunting in banking and consumer goods sectors lifted the Nigerian Stock Exchange (NSE) All-Share Index (ASI) by 1.1 per cent to close at 42,171.80 yesterday. Similarly, market capitalisation added N166.4 billion to close at N15.1 trillion.
Stockrokers had on Tuesday said: “Market performance to remain soft in coming sessions with the possibility of a rebound at the end of the week, driven by bargain hunting.”
However, the rebound can largely be attributed to buying interest in Banking and Consumer counters with Zenith Bank (+5.0 per cent), United Bank for Africa (+6.3 per cent ) and Nestle (+1.9 per cent) weighing the most on performance.
But Skye Bank Plc led the gainers chart with 10 per cent trailed by FCMB Group Plc that garnered 9.8 per cent. Conversely, First Aluminum led the price losers with 9.1 per cent, trailed by LASACO Assurance Plc with a decline of 5.8 per cent.
Volume and value of trading also rose by 10.7 per cent and 28.1 per cent to 520.7 million shares and N4.7 billion respectively.
Commenting on the performance, analysts at Cordros Capital Limited said: “We expect appetite to remain strong, as investors continue to hunt bargains and take position ahead of Q4-17 earnings, amidst generally improving macroeconomic conditions.”
Also commenting, analysts at Meristem Securities Limited said: “The bullish charge in the market was led by gains recorded on counters in the banking and consumer goods sectors, which offset the loss on the market’s heavyweight, Dangote Cement Plc. We expect a continuation of the bargain hunting activities in the market and an improvement in the market mood to sustain the recovery in the near term.”
The NSE Banking Index led with a growth of 2.7 per cent, followed by the NSE Insurance Index and NSE Consumer Index that appreciated by 1.3 per cent and 1.0 per cent in that order.
Analysts at FSDH Merchant Bank had said the banking sector would remain top performer in 2018 to improve on its performance in 2017. “FSDH Research expects the continued improvement in the macroeconomic environment to boost the performance of the banking sector in 2018. We see investment opportunities for the tier two banks in the sector,” they said.
When Guinness Nigeria Plc recorded a loss of over N2 billion for the year ended June 30, 2016, it was the first in 30 years of the company’s operations. But the loss did not come to many stakeholders as a surprise because the high cost of servicing its borrowings from bank was the major cause of the loss.
While Guinness Nigeria is one of the leading brewing firms that boast of leading brands, its reliance on debt to finance its operations has been having a negative impact on its bottom-line. Market analysts had said the way out for Guinness Nigeria was to inject equity and reduce the level of debts.
In fact, as at half year ended December 31, 2016, Guinness Nigeria’s net debt to equity ratio stood at 103.9 per cent, indicating that the company was highly leveraged and needed urgent equity injection to reduce the erosion of its earnings through high interest charges. Hence the company approached the shareholders for their approval to float a Rights Issue of N39.9 billion. That decision has started yielding fruits going by the result of the company for the half year ended December 31, 2017.
Half year performance Guinness Nigeria Plc recorded a revenue of N70.6 billion, up 19 per cent from N59.5 billion in the corresponding period of 2016. Cost of sales went up by 13 per cent to N46.56 billion, compared with N41.1 billion, while market expenses rose by 17 per cent to N6.462 billion, from N5.54 billion.
However, distribution expenses fell by 11 per cent to N6.421 billion, from 7.217 billion, just as administrative expenses went down by 22 per cent from N6.1 billion to N4.7 billion. Guinness Nigeria closed the period with an operating profit of N6.64 billion, compared with a loss of N84.66 million. The company was able to reduce its net finance cost by 32 per cent from N4.578 billion to N3.106 billion. This lifted the company’s profit before tax to N3.542 billion as against a loss of N4.663 billion in the corresponding period of 2016. Profit after tax stood at N2.131 billion compared with a loss of N4.667 billion in 2016.
According to the company, the top-line growth was driven by both spirits and beer, reflecting the expansion of the company’s portfolio, and improved operating margins with benefits from productivity initiatives despite sustained cost pressures.
However, one factor that contributed to the positive performance was the rights issue raised by the company last year, which assisted it to reduce finance costs from N4.578 billion to N3.106 billion in 2017. Also, marketing spend increase by 17 per cent demonstrating sustained investment behind Guinness Nigeria’s brands, administrative and distribution expenses declined, driven by the company’s continuing focus on productivity.
Commenting on the results, Managing Director/CEO, Guinness Nigeria Plc, Peter Ndegwa, said: “In a difficult operating environment, notwithstanding recent signs of economic recovery, we delivered a strong performance with net sales growth of 19 per cent for the half year with growth in spirits and benefits of an expanding portfolio and also against the backdrop of lapping inventory reduction from prior year.”
According to him, they believe in the continued execution of their strategy, allowing them to navigate a tough environment characterised by down trading of consumers as disposable income is subjected to additional pressure.
“We have made significant progress in driving productivity especially in the supply chain and the commercial function, even though cost pressures and inflation takes its toll. In this half we have also continued to innovate with increased marketing spend across our portfolio to drive the growth on our core brands and to fund our expanding portfolio and innovation pipeline,” he added.
Impact of the Rights Issue Ndegwa said: “The utilisation of the rights issue proceeds leading to significant reduction of the Diageo loan and other borrowings, has resulted into a 32 per cent reduction in the net finance charges and improved our debt to equity ratio from 82 per cent to two per cent.”
Guinness Nigeria offered 684,494,631 ordinary shares of 50 kobo each at N58 per share to existing shareholders to raise about N39.7 billion. The offer opened on Monday, July 24 and will close on August 30, 2017. To many market operators, the equity capital injection was overdue for Guinness considering the fact the high cost of finance that stemmed from reliance on debt financing pushed the company into a loss position.
During the offer, Ndegwa had said it would deleverage the company’s balance sheet and reduce finance costs. He noted that the company obtained a loan from Diageo in 2016 to manage foreign exchange related obligations, saying that between 2015 and 2016 obtained loan facilities from various financial institutions to fund working capital requirements and business expansion operations.
Ndegwa said: “This rights issue will allow the company to deliver on its strategic objectives and give all our shareholders a unique opportunity to increase their shareholding in the company. Our expectation is that funds raised will help mitigate the impact of increasing finance costs, optimise our balance sheet and improve the company’s financial flexibility.” Similarly, the Chairman of Guinness Nigeria, Mr. Babatunde Savage, has told shareholders why they should exercise their rights fully.
“The company’s unique competitive advantage in terms of total beverage alcohol portfolio, consistent strong support from Diageo, world class local production assets, scalable beer operating model and strong corporate governance standards within its board and management, sets it apart as an excellent investment opportunity,” Savage said. According to him, the devaluation of the Nigerian currency, foreign exchange scarcity and volatility, higher interest rates, a decline in real gross domestic product(GDP), weak financial markets and increase in cost of imported raw materials impacted on the company’s performance, over recent years.
“We have embarked on a number of restructuring initiatives in order to return the company to profitability. For example we have increased sourcing of our raw materials locally, deepened our partnerships with local distributors, reduced prices to grow volumes and gain market share, enhanced operational efficiencies and broadened our product portfolio to meet consumer preferences amongst others. We believe the capital injection rights issue will help the company to deliver on our strategic objectives and give all shareholders a unique opportunity to increase their shareholding,” he stated.
The shareholders fully exercised their rights which led to a successful offer for the company. It is believed that if the H1 performance is sustained for the second half of the year, shareholders would receive improved dividend at the end the year ending June 30, 2018.
Analysts’ comments Assessing the second quarter (Q2) performance, analysts at FBN Quest said results were stronger than they expected. According to them, although sales were in line and gross margin was softer, these were offset by interest expense and operating expenses surprising positively. “As such, we have increased our earnings estimates by 11 per cent on average over the 2018-19E period. However, we have left our price target unchanged at N91.3 because our long term view of the company has not changed significantly.
They said sales grew by 12 per cent to N40.7 billion in Q2, while PBT and PAT advanced to N3.5 billion and N2.1 billion compared with pre-tax and after-tax losses of N2.4 billion in the corresponding period of 2017. “The strong growth in earnings was driven by a gross margin expansion of 601 basis points (bps) to 33.5 per cent and a 70 per cent reduction in interest expense. While we attribute the marked expansion in gross margin to lower input costs due to the improvement in FX liquidity, we believe that the significant reduction in interest expense is likely related to the deleveraging of the firm’s balance sheet, with the proceeds of its N40 billion rights issue,” they said.
Looking ahead, FBN Quest said: “Our outlook for the sector remains broadly positive. We continue to expect top-line growth to be driven by the value segment. During its last conference call, management alluded to the fact that the value segment is now the largest segment and accounts for 67 per cent of total volumes. We also expect the company’s focus on the spirits business to bode well, even if modestly. We see top-line growing by 15 per cent in 2018E. The completion of Guinness’ rights issue has also helped to improve earnings. Net interest expense declined by 70 per cent following a 64 per cent reduction in total debt (including overdrafts). Consequently, for 2018E, we see strong PBT growth of 250 per cent.”
Investment analysts at FSDH Merchant Bank have restated that the nation’s equities market has positive outlook in 2018 despite the bear run that has reduced the year-to-date(YTD) growth of the market to 11.8 per cent.
Having recovered from a three-year decline to record a growth of 42.3 per cent last year, the market sustained the rally in the first month of 2018 with YTD hitting 17 per cent. But profit taking has led to a bear run in the past days, reducing the YTD to 11.8 per cent as at Monday.
Despite the negative sentiments, FSDH has restated that the market has positive outlook. In their special report titled: Economic and Financial Markets Outlook (2018 – 2022): Strong Growth Prospect with Downside Risks,” analysts at FSDH said the outlook of the equities market remains positive in 2018 as they expect the macroeconomic environment in Nigeria to strengthen further.
“Thus we forecast a growth of 27.43 per cent in 2018, lower than the growth of 42.3 per cent recorded in 2017. We expect a strong rally in the equity market in the first half of the year 2018. We see investment opportunities in the Banking, Building Materials and Consumer Goods sectors of the market,” they said.
They listed factors that will drive the market in 2018 to include: increase in crude oil price at the international market and increase in local production; the expected drop in the yields on fixed income securities leading to portfolio realignment towards the equity market; improvements in the external position of the country through increase in external trades and capital inflows; increase in the external reserves providing further stability exchange market; improved corporate earnings and actions and increased participation of the foreign portfolio investors.
The analysts added that the banking sector would remain top performer in 2018 to improve on its performance in 2017. The NSE Banking Index recorded the highest appreciation in 2017, growing by 73.3, a development, they linked to the improvements in the price of crude oil and production that had a positive impact on the loans extended to the oil and gas sector.
“The stability in the foreign exchange also had a positive impact on the operations of the companies in the sector. Analysts and investors see this positive developments for growth in future earnings and corporate actions. FSDH Research expects the continued improvement in the macroeconomic environment to boost the performance of the banking sector in 2018. We see investment opportunities for the tier two banks in the sector,” they said.
Looking at consumer goods sector, they the improvements in consumer purchasing power and the stability in the foreign exchange market in 2017had positive impacts on the consumer goods sector. “Despite the increased supply and stability in the foreign exchange market, companies continue to substitute imported inputs for local inputs where available. FSDH Research expects that as consumer purchasing power grows, the consumer goods sector will grow in 2018. FSDH Research expects the improvements in the macroeconomic environment and the growth in the equity markets to have positive impacts for consumers and firms income in 2018.
The capitalisation of the equities market fell to a new low of N14.97 trillion, while the Nigerian Stock Exchange (NSE) All-Share Index (ASI) fell to 41,708.15 yesterday. This followed a bear run that has lasted for seven consecutive days.
Specifically, the NSE ASI fell by 2.41 per cent, the highest decline since the beginning of the year. Similarly, the market capitalisation shed N369.5 billion, propelled by a decline in the shares of bellwether such as Dangote Cement, UBA, Nestle Nigeria Plc, FBN Holdings, and Nigerian Breweries Plc.
Brokers said all sector indices trended southwards amidst lingering sell sentiments.
“Market performance to remain soft in coming sessions with the possibility of a rebound at the end of the week, driven by bargain hunting,” they added.
Apart from the index and market capitalisation that closed lower, the level of activity also weakened as volume and value traded fell 9.1 per cent and 29.0 per cent to 470.5 million shares units and N3.7 billion respectively.
The bears were virtually on rampage yesterday as 40 stocks depreciated compared with 15 stocks that appreciated. Prestige Assurance Plc led the price losers with 7.1 per cent, followed by Skye Bank Plc with a decline of 6.5 per cent. Consolidated Hallmark Insurance Plc, FCMB Group Plc and United Bank for Africa Plc went down by 6.1 per cent, 5.9 per cent and 5.5 per cent in that order.
Japaul Oil and Maritime Services Plc, Royal Exchange Plc and Union Bank of Nigeria Plc shed 5.0 per cent each. Forte Oil Plc declined by 4.9 per cent, just as Fidson Healthcare Plc, Dangote Cement Plc and Sterling Bank Plc lost 4.8 per cent apiece.
The stocks that escaped the bear run were led by A.G Leventis Nigeria Plc with 7.0 per cent, trailed by Berger Nigeria Plc with 5.0 per cent, just as Eterna Plc appreciated by 4.9 per cent.
Other top price gainers included: NAHCO Plc (4.8 per cent); Linkage Assurance Plc (4.5 per cent); Access Bank Plc (3.9 per cent); African Prudential Plc (3.8 per cent); May & Baker Nigeria Plc (3.3 per cent).
Meanwhile, all the sectors closed bearish. The NSE Consumer Goods Index led with a decline of 2.8 per cent. The NSE Industrial Goods Index fell 1.6 per cent, while the NSE Insurance Index closed 1.5 per cent lower.
In the same vein, the NSE Oil & Gas Index and NSE Banking Index shed 0.6 per cent and 0.2 per cent in that order.
Abuja – The inflation rate, measured by the Consumer Price Index (CPI), has further dropped to 15.13 per cent in January from 15.37 per cent recorded in December, 2017, National Bureau of Statistics (NBS) has said. The NBS disclosed this in its CPI report for January 2018 released on Wednesday in Abuja. The Consumer Price Index (CPI), which measures inflation, started the year 2018 increasing by 15.13 percent (year-on-year) in January 2018 According to the bureau, this is 0.24 per cent points lower than the rate recorded in December (15.37 per cent).
It stated that the rate recorded made it the twelfth consecutive disinflation (slowdown in the inflation rate though still positive) in headline year-on-year inflation since January 2017. It, however, stated that increases were recorded in the Classification of Individual Consumption by Purpose (COICOP) divisions that yield the Headline Index. On a month-on-month basis, the report stated that the Headline index increased by 0.80 per cent in January 2018, 0.21 per cent points higher from the rate of 0.59 per cent recorded in December 2017.
The percentage change in the average composite CPI for the twelve-month period ending January 2018 over the average of the CPI for the previous twelve-month period was 16.22 per cent. It stated that the figures showed 0.28 per cent point lower from 16.50 per cent recorded in December 2017. Meanwhile, it stated that the Urban inflation rate rose by 15.56 per cent (year-on-year) in January 2018 from 16.78 per cent recorded in December 2017.
The report stated that the rural inflation rate also eased by 14.76 per cent in January 2018 from 15.02 per cent in December 2017. On month-on-month basis, the bureau stated the urban index rose by 0.83 per cent in January 2018, up by 0.17 from 0.66 per cent recorded in December 2017. It stated that the rural index also rose by 0.77 per cent in January 2018, up by 0.23 per cent when compared with 0.54 per cent in December 2017. According to the report, the corresponding twelve-month year-on-year average percentage change for the urban index is 16.55 per cent in January 2018. It stated that this was less than 16.92 per cent reported in December 2017, while the corresponding rural inflation rate in January 2018 was 15.89 per cent compared to 16.10 per cent recorded in December 2017. The CPI measures the average change over time in prices of goods and services consumed by people for day- to-day living.
The construction of the CPI combines economic theory, sampling and other statistical techniques using data from other surveys to produce a weighted measure of average price changes in the Nigerian economy. Key in the construction of the price index is the selection of the market basket of goods and services. Every month, 10,534 informants spread across the country provide price data for the computation of the CPI and the market items currently comprise of 740 goods and services regularly priced. (NAN)