06.10.08
Posted in In the news at 11:36 am by bayo.o
The market is determined on its southern course. For several weeks now, it has maintained its downward trend. Analysts have come up with different reasons for the market’s unrelenting slide; from profit taking, distractions from private placements to stoppage of margin accounts and delay in budget passage. But one thing remains clear; the level of liquidity enjoyed by the market over the past three years has dropped in the last couple of months. Its liquidity level started this drop late last year as investors became enamored by IPOs/POs that flooded the market then. These offers, which were mostly oversubscribed, tied up over N700 billion in the primary market. As the Yuletide approached more investors exited their positions to have cash to meet expenses associated with the celebrations.
At the start of this year, the market raced out of the blocks as the index gained 9.23% in the first three months of 2008 to hit 63,986 from a year start 58,579. Today, the index has fallen below the year opening to 56,234, a 13.79% drop in two months. The market cap has not done any better. It started the year at N10. 284 trillion, rose to N12.31 trillion before falling to N10.95 trillion. The initial good showings were mostly due to returned monies from oversubscribed offers. Then CBN put a stop to margin accounts, which analysts said made up 20% of the market. Following this was a plethora of private placements. Though supposedly for sophisticated investors, private placements seem to be the darling of virtually all shades of investors now. The result being a continuous drain on the market as investors trim their portfolios to take up promising private placements.
While some analysts are quick to point to the reasons above, others have continued to be worried because they believe the slide goes beyond margin stoppage, private placements or the budget, but they have not been able to place a finger to the problem. The market authorities are also confounded. This much was revealed when they set up a committee to review the embargo on margin accounts. The move underlines the fact that they believe margin investing could arrest the market slide. Could it?
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Posted in In the news at 11:35 am by bayo.o
When will the authorities and regulators start doing things in the right order? You wonder at this question? Ok, read the excerpts below from a recent report in one of the national dailies on margin accounts.
Apparently worried by the continuous drop in share prices of quoted companies on the Nigerian Stock Exchange (NSE), the Securities and Exchange Commission (SEC) has constituted a committee charged with the responsibility of working out modalities for investing with margin funds by stockbroking firms and investors.
The committee, according to SEC, has membership drawn from the Commission, the Nigerian Stock Exchange, Central Bank of Nigeria (CBN), and the Nigerian Deposit Insurance Corporation (NDIC).
Mr. Lanre Oloyi, spokesman for SEC, disclosed that the committee was mandated to work out modalities for effective implementation of margin trading in the Capital Market, which, according to the Commission, is practiced in all capital markets worldwide.
I especially find the last statement interesting, …”which, according to the Commission, is practiced in all capital markets worldwide.” When margin accounts was stopped by CBN, what role did SEC/NSE play (1) to reverse it immediately (2) to assess how it will impact the market (3) to explore other alternatives. It is clear from the above release that the market authorities never lifted a finger. It is equally safe to assume that neither the CBN nor SEC/NSE had done any comprehensive assessment of the implications of a recapitalised financial services sector. If they had, it should have been clear to them long before it became an issue that margin investing would be a very attractive part of the market, which would require proper regulation and streamlining. As usual, the authorities have the cart before the horse.
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06.02.08
Posted in In the news at 5:42 pm by bayo.o
Share buyback is an arrangement in which a company buys back its shares from its existing shareholders to shore up its value. This is one option that has not been fully explored in the Nigerian stock market.
A shareholder body, the Independent Shareholders Association of Nigeria, recently raised this issue at a meeting in Lagos. It is of the opinion that if companies actually buy back their shares from their existing shareholders, it will reduce the problem of watering down of share value, which is as a result of constant bonus issues being declared.
According to the association president, apart from the shareholders benefiting from this, if it exists, the government also stands a chance of benefiting from it as well. Hence, the association is not only calling for the institutionalization of the practice in the nation’s financial system, it has concluded arrangements on a workshop on the matter for this month in Abuja.
Many Nigerian investors have been led to believe that issuing of bonus regularly by companies will help boost their returns from such stocks/investments. The practice actually makes little difference to/waters down the investor’s returns from such stocks. Share prices are also hard hit from regular issuance of share bonuses as the market marks down the share prices to accommodate the new issues.
Sometimes, when companies have too many fragmented stock holding positions, which makes it difficult to boost their market price, a share reconstruction option is taken. Nigerian Breweries is an example of a company that struggled for a while from such a situation due to its policy of frequent bonus issue.
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Posted in In the news at 5:42 pm by bayo.o
The revelation by the Central Bank of Nigeria that some commercial banks have been sanctioned for various irregularities in foreign exchange transaction brings back memories of the Babangida/Abacha era, when round tripping and forex hoarding was a sine quo non with banks and the financial services sector.
In its 2007 annual reports and accounts released last weekend, the apex bank said: “The examination on foreign exchange of banks revealed various infractions, including improper bookkeeping, incomplete documentation by banks and wrong use of unconfirmed letters of credit.”
The CBN stated that the errant banks were appropriately sanctioned for each of these offences. It further stated that it embarked on a number of examinations on anti-money laundry, combating financing terrorism and realized that it is difficult to obtain information on politically exposed persons.
This latest revelation by CBN should be a source of worry for all stakeholders, particularly viewed against the backdrop of unethical banking practices as revealed in Wema Bank recently and in Spring Bank sometime last year. With banks increasingly facing stiff peer competition to corner a larger market share, some might again be tempted to borrow a thing or two from the rowdy days of zero regulation. “Improper bookkeeping”/”incomplete documentation” are simply means to conceal underhand dealings.
While CBN is to be commended for its actions, it is important to stress that it needs to be very vigilant as banks continue to strive to improve their top and bottom lines, by whatever means they deem possible.
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05.28.08
Posted in In the news at 1:59 pm by bayo.o
Next week is children’s day, May 27. The week set aside to celebrate our future, our tomorrow. How prepared are we, as parents, for the kids; how prepared are we to make them truly our tomorrow? What is it we have in place to help smoothen their paths to a bright, meaningful and fulfilling tomorrow?
For too long, we (Nigerians) have lived in the past, leaving our future to providence, believing, like the ostrich, that all will be well if we bury our heads deep enough in the sand. Most hardly have a plan for how to adequately cater for their families or their kids. In the past, this had led to delayed or aborted dreams, shattered future, and several untold hardships, when parents suddenly run into unexpected challenges.
For too long we have relied on the extended family and communal arrangement as a support structure in times of need. But western values have taken a terrible toll on this structure; we are hardly our brothers’ keepers now.
As investors, and as we consider our portfolios – most have been hard hit by recent market slowdown – now is also a good time to have in place a long term plan for our kids. There is no better way to say Happy Children’s Day than by starting an investment in your kids’ names or opening a trust fund in their name to hedge against uncertainties. Luckily, this is a good time to buy good quality companies on the cheap.
One of the best retirement benefits one can have is to look back in life and feel a sense of fulfillment and accomplishment, to live a happy and peaceful life, with pride that you have passed the baton to a worthy successor – your kid. That can only come if you invest wisely on and for your kids.
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05.21.08
Posted in In the news at 1:06 pm by bayo.o
The Exchange recently rang some changes on trading, a fallout of the recent insinuations by the Security and Exchange Commission (SEC) that the market is characterised by insider trading and price manipulations. The new changes are targeted primarily at price movements of quoted securities. For instance, the NSE has increased the volume of trading required, from 15, 000 to 100, 000, in a particular stock for it to experience price movement, either negatively or positively. What this means is that for a stock to move from a price A to price B, a minimum of 100, 000 units of that stock must have been traded in for the day as against the previous 15, 000 units. Also, companies listed via introduction have been mandated to make available at least 10% of their shares for trading on introduction day. Newly listed companies have also been given a 12-month post-listing window before they can approach the market for fresh funds.
These measures are aimed at reasserting the long-term outlook of the market, which had recently come under threat from too much attention to short term benefits of the market by most participants. To be sure, short-term activities are essential to market growth, but too much focus on that has often meant cutting corners and circumventing rules by some, which is hurting the market, and invariably investors.
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Posted in In the news at 1:06 pm by bayo.o
After months of investigations, with intermittent meddling from Cadbury, the Securities and Exchange Commission (SEC), the capital market watchdog, finally came out with its findings and a guilty verdict on the personae in the Cadbury fraud that was blown open two years ago.
Though the investigation took an unusually long time – well, Cadbury contributed to that through its various gimmicks to stop the investigations – the eventual verdict was well worth the wait. And I am sure very few stakeholders can fault SEC’s decisions.
The findings
The Commission discovered that “N13.255 billion was the accumulated overstatement for the years 2002 to September 30, 2006”, and found Cadbury, its management, and Akintola Williams Deloitte (AWD), the auditing firm, guilty in the overstatement of the company’s accounts for those years. Some of SEC’s findings include:
- That Bunmi Oni, the company’s former managing director, in concert with the company’s Board since year 2002 used stock buy backs, cost deferrals, trade loading and false suppliers stock certificates to manipulate its financial reports that were issued to the public and filed with the Commission.
- That both Bunmi Oni and Ayo Akadiri, a former executive director, stated that the use of the sale and stock buy-back as well as the issuance of false stock certificates schemes were motivated by what they called “profit management desire/action” and that off-shore payments were made to Executive Directors to cushion the devaluation of their pay by soaring inflation.
- That an undocumented and undisclosed offshore account was maintained and operated by the company from which Bunmi Oni, Ayo Akadiri and other executive directors were paid offshore remunerations without the approval of the Committee responsible for fixing remunerations of Executive Directors and not recorded in the company’s financial report and account.
- That the company as Issuer and Uduimo Itsueli, Bunmi Oni and other members of the board, some management staff and audit committee members, in 2005 authorized the issuance of a Rights Circular dated August 24, 2005 which contained untrue statements.
- That Bunmi Oni, Ayo Akadiri, Olusegun Aina, Senior financial Accountant/Head of Accounts; Akinbode Gbolahan, Sales operations and development controller and Tunde Egbeyemi, head of internal audit were the masterminds of the financial malpractices perpetrated through the falsification of sales figures, overstatement of profits/assets and false suppliers certificates to manipulate its financial records/report.
- That Tunde Egbeyemi, Cadbury’s Head of Internal Audit, Thomas A. Ayorinde, Z.C. Enunwa, S.J. Balogun (Audit Committee members) and Akintola Williams Deloitte did not follow up available leads which ought to put them on enquiry in respect of the company’s accounts
· That a balance of N7.7 billion was credited to the company’s account in 2005 without confirmation of the bank balances from any of the banks. AWD did not make any note in the 2005 audited account that it did not receive confirmations from any of the banks for the balances recorded against such banks. The materiality of the amount is significant enough to have put AWD on enquiry.
- The APC of the Commission found that N13.255 billion was the accumulated overstatement for the years 2002 to September 30, 2006 and that AWD audited the published accounts for those years as well as carried out an interim audit for the period ended September 30, 2006.
- That Union Registrars was printing dividend warrants for the company while the latter was dispatching and paying same.
- That Union Registrars did not pay dividends and failed to notify SEC in writing as stipulated by the Code of Conduct for Capital Market Operators and their Employees.
The verdict
The Commission then took its decisions, among which are:
The company
· Cadbury Nigeria Plc to pay N200,000 “in the first instance” for “filing with the Commission financial statements that contained untrue/misleading statements” and “for filing a Rights Circular for the N5 billion irredeemable convertible loan stock which contained false/misleading statements.” Cadbury is then to pay N5,000 per day from “June 30, 2002 to December 14, 2006” and another N5,000 from “August 24, 2005 to the date of the decision (March 28, 2008)” in respect of the two offences. The company is further ordered to pay N5,000 for its refusal to “provide funds en-bloc for the payment of dividends to its shareholders despite the Commission’s earlier directive” to that effect. Failure to do this means suspension from the market.
The management
· Bunmi Oni and Ayo Akadiri are “banned from operating in the Nigerian capital market, being employed in the financial services sector and holding directorship positions in any public company in Nigeria.”
· J.S.T. Bogunjoko, Abiodun Jaji, Andrew Baker and Christopher Okeke are “suspended from operating in the Nigerian capital market, being employed in the financial services sector and holding directorship positions in any public company in Nigeria for a period of 5 years from the date of the decision.”
· Olusegun Aina, Akinbode Gbolahan and Tunde Egbeyemi are “suspended from operating in the Nigerian capital market, being employed in the financial services sector and holding directorship positions in any public company in Nigeria for a period of 3 years from the date of the decision.”
· Rt. Hon. Uduimo Itsueli, Olatunde Falase, Raymond Ihyembe, Gabriel Onabote, Olusegun Oyewole, Matthew Shattock, Thomas Ayorinde, Z.C. Enuwa and S.J. Balogun are “suspended from operating in the Nigerian capital market, being employed in the financial services sector and holding directorship positions in any public company in Nigeria for a period of one year from the date of the decision.”
· Cadbury Nigeria Plc, Rt. Hon. Uduimo Itsueli, Bunmi Oni, Ayo Akadiri, J.S.T Bogunjoko, Abiodun Jaji, Andrew Baker, Christopher Okeke, Olatunde Falase, Raymond Ihyembe, Gabriel Onabote, Olusegun Oyewole, Matthew Shattock, Olusegun Aina, Akinbode Gbolahan and Tunde Egbeyemi “have been referred to the Economic and Financial Crimes Commission (EFCC) for further investigation and prosecution.”
The auditors
· Akintola Williams Deloitte is “ordered to pay a fine of twenty (20) million Naira within 21 days of the decision for its failure to handle the accounts of the company with high level of professional diligence, failing which its registration with the Commission shall be cancelled.”
· AWD was “strongly reprimanded and warned to desist from engaging in acts that may affect the investing public’s confidence in the capital market.”
· AWD was also “directed to sign an undertaking to be diligent and of good behaviour in its future dealings in the capital market.”
The Registrar
· Union Registrars Limited is “ordered to pay a penalty of five thousand Naira (N5,000.00) per day from June 1, 2002 to June 31, 2006 within 21 days of the decision, failing which its registration with the Commission will be cancelled.”
· Union Registrars Limited was also “strongly reprimanded and warned to desist from engaging in acts that may affect the investing public’s confidence in the capital market.”
· Union Registrars Limited was further “directed to sign an undertaking to be diligent and of good behaviour in its future dealings in the capital market.”
It is most likely that one or more of these entities will appeal this judgment. But whatever they do, The Commission has, with these verdicts, sent a strong signal to market operators that it is no longer business-as-usual. One only hopes that it is strong enough to stand its ground, because failure to do so will cost it the respect of market operators and the investing public. It would be interesting to see what happens next.
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Posted in In the news at 1:06 pm by bayo.o
The market seems to have finally recovered from its slump over the past several weeks. A number of reasons had been given for the slowdown: from budget delay, margin account stoppage to the credit crunch in the US, lack of confidence in the market, and so on. But the bottom line is, the market went through a period of correction, a quite normal thing. For a while before the decline, equities had been trading consistently above their value, as so much money chased after limited number of quoted stocks on the Exchange. The result was that momentum traders and profit seekers throw money at stocks thereby pushing prices higher and higher. Value investors could hardly get good stocks at bargain prices to buy.
The three or four weeks of decline was, however, a great window of opportunity for value investors, who had been nudged of the market, to take positions in good quality companies at near or their intrinsic values. With the rebound, analysts have also come forward with what could be responsible. The rebound has been largely attributed to encouraging corporate results so far released. Yes, good results have helped somewhat, especially with dividends and bonuses declared by some of the companies. Whatever the cause of the new confidence, it is too early to celebrate the return of the bulls, as some are already doing. Is the rebound a temporary reprieve or are the bulls truly back? Well, whatever the case, this is still a good period to take positions in good quality companies at give away prices.
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04.10.08
Posted in In the news at 10:22 am by bayo.o
The recent spat – there were furious denials of any such thing – between the Okereke-Onyuike-led Nigerian Stock Exchange (NSE) and Al-Faki’s Securities and Exchange Commission (SEC) over the investigation and suspension of trading in some securities has once again shown the shoddy approach to issues and problems by regulatory authorities.
Several weeks back, SEC had revealed that it was investigating some quoted companies for what the market regulator called ‘price manipulation and insider trading’ in their stocks. Then shortly after, SEC announced that it has suspended Afroil Plc and Capital Oil Plc from the market for falling foul of “Rules 110 and 70(2) of the Commission’s Rules and Regulations.” Afroil, however, denied the allegations. In a release sent to us by the company and signed by its Head, Business and Corporate Relations Group, Yakubu T. Luke, it wondered why “the nation’s apex capital market regulator came up with such a weighty allegation in the media without first notifying the company to defend itself.”
That seems to be the culture of regulators in Nigeria, to first reveal a situation to the public, thereby lending it to distortions, before thinking it through or properly investigating it. This happens all the time and across all sectors of the economy.
Interestingly, Afroil and Capital Oil continued to be traded after the suspension order was announced, as NSE, which was supposed to effect the order ignored it. Then the bickering started. While SEC accused NSE of insubordination the other accused SEC of marginalisation and ineptitude. According to NSE, up until about three weeks ago, it had not officially received any suspension directive from SEC and as such could not have acted based on newspaper reports.
Accusing SEC of poor handling of the situation, Okereke-Onyuike said: “People’s live savings are in this market; whatever happens to this market will affect them. That is why we should not make announcements for the sake of announcements.”
One wonders – not for the first time – why a responsible body would handle things that poorly. Afroil claimed not to have been notified of any investigation – this was likely to be true for others as well. The NSE, which is directly involved with the companies, also claimed ignorance. Yet SEC went to press with it. To be sure, SEC is not mandated to reveal its activities to any company or entity, but common sense dictates that for effective oversight functions there is need to carry along stakeholders, particularly the market. The cold shoulder treatment could have been avoided if a harmonious working relationship had been in place.
The spat between SEC and NSE has only shown there is a mutual suspicion, mistrust and a lack of respect between the two. The fear now is that it does not get worse as the investor is the ultimate loser. The two must find a way to work together in harmony for the interest of the investor and the economy. We cannot continue to have vital market information bandied around carelessly, because the market is information sensitive.
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Posted in In the news at 10:20 am by bayo.o
Just a few weeks ago, professional investors complain of not getting enough quality stocks to buy at bargain prices. Then the bulls were having a field day and prices were generally too high. Over the past two to three weeks, however, the market has been taking a correction and stocks that seemed out of reach then are beginning to look good. For the professional investor, there is no better time than now to pick up quality stocks at or around their intrinsic values. But the irony here is that while the knowledgeable investors are busy buying, for most other investors (the novices and the average ones), this is the time to sell. This set of people easily panic when there is a downturn and they unload quicker than it takes a lady to powder her face.
It is funny when one sees this situation plays out time and again. In everyday life we know and easily recognize a situation when we could get something for a bargain, it is instinctive. For instance, a neighbour is in a financial mess and wants to sell his vehicle, we immediately know we can have the vehicle for a knocked down price. Or a big store that wants to clear out old stocks, that is an opportunity for cheap purchases. Some might call this taking advantage, but that is what the market is about – advantage taking to maximize your returns. But most do the opposite; they jump in when prices are rising and bail out when prices are falling, thereby taking losses – they buy high and sell low.
There are a number of things to note here:
As much as possible avoid speculative buys. At Smart Investor, we keep emphasizing the need to buy quality stocks and that is why we recommend a fundamental approach to stock buying. Do a valuation and analysis of the stock you are interested in and once the fundamentals are right buy it. If the price is high then wait for when it would correct itself, because ultimately, stock prices will always gravitate towards their intrinsic values.
You should also note that the market is not a one-directional entity that maintains a single course; it swings back and forth, up and down or may even remain flat. Experienced investors are not overly anxious about these swings; they merely time them to maximize their returns. If you have bought good quality stocks you need not worry about falling prices.
Even now there are a number of stocks an investor should be taking positions in. Don’t miss this opportunity to buy good stocks at good prices.
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