Budget, Election Spending to Speed up Market Rebound
- By Business World
- Published April 14th, 2010
- Back Page
- Unrated
THE first quarter of 2010 has been wonderfully bullish to the surprise of even the most abrasive critic.
In the corresponding period of 2009 when we stuck our necks out and stood firm to the fact that the market would bounce back sooner than envisaged, pessimists were calling for our heads; asking what things we saw that gave such confidence.
We remember and answering one of such critics that the boys will dump and leave the farm for the men; that by the time the boys show up, the men would have taken over and consolidated. And it is happening. We emphasized that what the market needed was confidence and pronto, the money will follow. This is exactly what has happened.
The market in the second quarter looks very much likely to go the same way of the first quarter because the conditions that have been propelling the market are still there.
Avid investors saw the wonderful opportunities that prevailed in a down market and simply cashed in on it and soared.
These investors understood that many of the stocks on the exchange were very much undervalued because there was no money to give them their true value.
They also understood that the fundamentally strong companies will likely give incentives that will cause investors to believe that they are alive and kicking. They knew that these low prices are the biggest incentives.
Thus they pounced on them. They knew that the political landscape has been stable to warrant peaceful economic environment. So all these factors are still there and will be there in this quarter and the next.
The confidence-building Asset Management Company of Nigeria (Amcon) will soon come on stream, and banks have begun to release funds to the public for business. The biggest spender in the economy - the government, will soon release N4.6trillion, the budget into the economy. The political parties too will pump their electioneering money into the system. So equities will only look upwards.
Below are some bank stocks that have released and one that is yet to release; investors are advised to take position in any of them for dividend, bonus or price again.
Zenith Bank Plc
This bank is the first to have released its 15months audited financial report since the CBN mandatorily made December 31 the financial year-end of Nigerian banks.
The performance of the bank was not bad at all considering the harsh financial terrain the banks were operating in. Turnover increased by 31 per cent from N211.6billion in December 2008 to N277.3billion in December 2009. Profit after tax (PAT) dipped by 61.7 per cent as a result of provisioning for bad and doubtful debts as instructed by the CBN. From a height of N52billion at the end of the 2008 accounting year, the PAT came down to N20.6billion as at December 31, 2009.
Consequently, the earnings also fell by as much as 73 per cent from 311kobo in 2008 to 84 kobo in 2009. In spite of this fall in profitability, the bank still rewarded its shareholders with a 45kobo dividend and a 1: 4 bonus issue. Operators believe this was a show of confidence in the ability to perform better.
The bank is aggressive in its marketing style and driven by the state of the art information and communication technology. However analysts believe the consistent bonus issue might not be good for its already high outstanding number of shares. But this and the regular dividend payout are what attracts investors to the stock. Therefore investors are advised to take position before it closes its books.
UBA Plc
UBA Plc has declared a dividend of 10kobo and a bonus of one new share for every five (1:5) previously held by its shareholders. It did fantastically in turnover but fell short on profitability due to provisioning for bad and doubtful debts.
It presented a 15-month year end financial report having obeyed the CBN’s December 31, uniform financial year-end.
Turnover improved by 45.6 percent from N169.5 in 2008 reporting year to N246.7 billion in 2009. However, profitability dropped by a whopping 94 per cent from a high of N40.85 billion in 2008 to N2.4billion as at December 31, 2009.
This of course is due to the provision for bad debts. The fall in profitability also affected the earnings of the bank as it dipped from 191kobo in 2008 to 111kobo as at December 31, 2009. This has led to a very high price to earnings (P/E) ratio of 135times.
Nonetheless, its working capital increased to N607.8billion from N528.7 billion representing an 8.0 percent increase.
What has happened to UBA (loss of profit), is common to all the banks because they are making provisions for bad debts from their profits. But the fundamentals of UBA are very strong and growth potentials are still very much there.
Therefore income, bonus and price gain hunters should take position before the books are closed.
Diamond Bank Plc
Diamond Bank Plc is one of the banks that crossed the CBN hurdle successfully. Since 2007, it has been paying dividend consistently.
In 2008, it capped it with a bonus of one new share for every ten shares previously held (1:10). It has regularly presented it quarterly and yearly reports promptly to the investing public for scrutiny.
Looking at the historical data, it was discovered that it has no peak earnings quarter. The earnings could peak in any quarter. It also provisioned for bad debts incurred from its incursion into the capital market. However the scorecard is reading positive and solid. Analysts are forecasting earnings per share of 14 kobo from which a dividend of 5-6kobo could be given. Investors should take position on account of a possible dividend or price gain.
In the corresponding period of 2009 when we stuck our necks out and stood firm to the fact that the market would bounce back sooner than envisaged, pessimists were calling for our heads; asking what things we saw that gave such confidence.
We remember and answering one of such critics that the boys will dump and leave the farm for the men; that by the time the boys show up, the men would have taken over and consolidated. And it is happening. We emphasized that what the market needed was confidence and pronto, the money will follow. This is exactly what has happened.
The market in the second quarter looks very much likely to go the same way of the first quarter because the conditions that have been propelling the market are still there.
Avid investors saw the wonderful opportunities that prevailed in a down market and simply cashed in on it and soared.
These investors understood that many of the stocks on the exchange were very much undervalued because there was no money to give them their true value.
They also understood that the fundamentally strong companies will likely give incentives that will cause investors to believe that they are alive and kicking. They knew that these low prices are the biggest incentives.
Thus they pounced on them. They knew that the political landscape has been stable to warrant peaceful economic environment. So all these factors are still there and will be there in this quarter and the next.
The confidence-building Asset Management Company of Nigeria (Amcon) will soon come on stream, and banks have begun to release funds to the public for business. The biggest spender in the economy - the government, will soon release N4.6trillion, the budget into the economy. The political parties too will pump their electioneering money into the system. So equities will only look upwards.
Below are some bank stocks that have released and one that is yet to release; investors are advised to take position in any of them for dividend, bonus or price again.
Zenith Bank Plc
This bank is the first to have released its 15months audited financial report since the CBN mandatorily made December 31 the financial year-end of Nigerian banks.
The performance of the bank was not bad at all considering the harsh financial terrain the banks were operating in. Turnover increased by 31 per cent from N211.6billion in December 2008 to N277.3billion in December 2009. Profit after tax (PAT) dipped by 61.7 per cent as a result of provisioning for bad and doubtful debts as instructed by the CBN. From a height of N52billion at the end of the 2008 accounting year, the PAT came down to N20.6billion as at December 31, 2009.
Consequently, the earnings also fell by as much as 73 per cent from 311kobo in 2008 to 84 kobo in 2009. In spite of this fall in profitability, the bank still rewarded its shareholders with a 45kobo dividend and a 1: 4 bonus issue. Operators believe this was a show of confidence in the ability to perform better.
The bank is aggressive in its marketing style and driven by the state of the art information and communication technology. However analysts believe the consistent bonus issue might not be good for its already high outstanding number of shares. But this and the regular dividend payout are what attracts investors to the stock. Therefore investors are advised to take position before it closes its books.
UBA Plc
UBA Plc has declared a dividend of 10kobo and a bonus of one new share for every five (1:5) previously held by its shareholders. It did fantastically in turnover but fell short on profitability due to provisioning for bad and doubtful debts.
It presented a 15-month year end financial report having obeyed the CBN’s December 31, uniform financial year-end.
Turnover improved by 45.6 percent from N169.5 in 2008 reporting year to N246.7 billion in 2009. However, profitability dropped by a whopping 94 per cent from a high of N40.85 billion in 2008 to N2.4billion as at December 31, 2009.
This of course is due to the provision for bad debts. The fall in profitability also affected the earnings of the bank as it dipped from 191kobo in 2008 to 111kobo as at December 31, 2009. This has led to a very high price to earnings (P/E) ratio of 135times.
Nonetheless, its working capital increased to N607.8billion from N528.7 billion representing an 8.0 percent increase.
What has happened to UBA (loss of profit), is common to all the banks because they are making provisions for bad debts from their profits. But the fundamentals of UBA are very strong and growth potentials are still very much there.
Therefore income, bonus and price gain hunters should take position before the books are closed.
Diamond Bank Plc
Diamond Bank Plc is one of the banks that crossed the CBN hurdle successfully. Since 2007, it has been paying dividend consistently.
In 2008, it capped it with a bonus of one new share for every ten shares previously held (1:10). It has regularly presented it quarterly and yearly reports promptly to the investing public for scrutiny.
Looking at the historical data, it was discovered that it has no peak earnings quarter. The earnings could peak in any quarter. It also provisioned for bad debts incurred from its incursion into the capital market. However the scorecard is reading positive and solid. Analysts are forecasting earnings per share of 14 kobo from which a dividend of 5-6kobo could be given. Investors should take position on account of a possible dividend or price gain.
