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Weekly Report For Week Ended Dec 19th 2008

Courtesy of Meristem Securities, here is the weekly report for the last week. I have also attached the reports from Meristem, Lead Capital, Forte Assets, and FSDH.

STOCK MARKET BRIEF FOR THE WEEK ENDED FRIDAY DECEMBER 15, 2008.

NSE ASI Returns 3.15 Percent As Trading Close for the Week
Daily trading Slides on Thursday swung upwards as key market indicators took off for the Northside closing the week in a much more bullish atmosphere. Banking stocks remain the investors’ toast. Liquidity squeeze (short supply of stock) continued to propelling share price higher. Major market statistics maintained the newly gained momentum with a prospect for continuity. With 3.15 percent rise for the week the, NSE ASI closed the at 29,582.00 points while the market capitalization of the 213 listed equities surged 3.06 percent to settle at N6.343trl. (USD$54.98b).

Significantly, stocks like FIRSTBANK, GUARANTY, UBA, DANGSUGAR and ACCESS where been ‘off-loaded’ as profit takers rush in to scrape what they could from the recovering market. CHAMS, SPRINGBANK, NEM, FIDELITYBK and UNITYBANK were on the bid list as investors jostled to buy shares of the companies while IAINSURE, MTI, WEMABANK, EQUITYASUR and STACO were under strong selling pressure.

Compared with a 3-day trading week (last week), volume of shares transacted skyrocketed 167 percent, deals climbed higher by 75 percent while value of transaction mounted a 5 percent appreciation. In totality, 2.07b shares was exchanged this week (ended December 19, 2008) in 37,805 trades valued at N13.16b put side by side with 774m shares swapped in 21,635 deals worth N5.44b last week ended December 12, 2008. See table below for breakdown.

Price Movement Chart
In great dissimilarity to last week’s bearish market, the gainers camp experience some heat from the bulls as the camp recorded impressive patronage. 38 stocks higher than 13 previous Friday appreciated in price while the bearish stock count dropped to 25 stocks from 73 observed same time last week. Maintaining top lead all week long, GUINNESS closed at N87.42k soaring in the gainers’ camp with an absolute price jump of N14.42k (19.8 percent) from N73.00k it opened on Monday. On the other hand of the pendulum, CHEVRON slid N54.49k (22.6 percent fall) to close at N186.48k which prop it to emerge most down beaten stock for the week. 38 stocks appreciated while 25 stocks depreciated.

Sectoral Performance
Stocks in the banking click continued to hold sway in transaction volume as the Sector accounted for over 61 percent (1.18b shares) of market turnover which was exchanged in 22,267 deals and valued at N8.99b. In 3,662 deals, investors exchanged over 389.34 million shares in the insurance sector valued at N671.76m. The Breweries sector was third on activity chart with 161.59m shares (8 percent of market turnover) exchanged in 1,367 deals worth N1.15b.

CORPORATE NEWS

1. Companies Performance Results: A consortium of Companies made release their period results of operations during the week amongst which include AIRSERVICE, CCNN, CUTIX, DANGFLOUR, MORISON and others are on the table below. Likewise, NEM, NESTLE, STDINSURE, GLAXOSMITH, DANGFLOUR and CUTIX submitted their forecast profit & loss accounts for their respective periods ended.
2. Morison Plc Recommend 3 kobo Dividend: The board of Morison Industries Plc announced their intent to reward shareholders with a 3 kobo dividend per share held till December 19, 2008 to be paid on December 30, 2008. AIRSERVICE Plc announced that the dividend of 5 kobo declared on April 18, 2008 is for the financial year ended December 31, 2007.
3. Capital Oil Plc Lifted Off Full Suspension: The Nigerian Stock Exchange (NSE) on Wednesday, December 17, 2008 lifted the full suspension placed on Capital Oil Plc following the clearance of the Company by the Securities and Exchange Commission (SEC). Subsequently, the Company has been placed on technical suspension following the receipt of application for a special placing of 4 billion ordinary shares at N1.00k and 1.74billion at N0.50k.

Forte Assets - Weekly Capital - Dec 19th 2008 (15)
FSDH - Weekly Report - Dec 19th 2008 (24)
Meristem - Weekly Report - Dec 19th 2008 (15)
Lead Capital - Weekly Report - Dec 19th 2008 (10)

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Afrinvest’s Release On The +5%/-5% Circuit Breaker

Afrinvest has prepared a well written report on the reinstated 5% circuit breaker. Here is an excerpt:

Going Forward: What are the Opportunities?
Overall, Afrinvest Research expects  that a return to +5%/-5% will lead to a significant sell-off in Nigerian equities, and a sharp decline in market valuations. However, we expect that the return to previous levels of daily trading liquidity will encourage long term value investors  to focus on bargain acquisitions of stocks with healthy operating fundamentals, high cash generative businesses, and a good dividend history. Similarly, we believe that book value based trading multiples will likely provide the basis for a floor on commercial bank market prices. While we do expect that market reactions to the re-instated trading boundaries will be swift and potentially outsized, we recommend a continuous and careful evaluation of selected stocks going into 2009. Further, we expect that as prices begin to test new lows, and dividend yield thresholds begin to approach the same level as corporate Return on Equity (ROE) targets for many cash rich companies; defensive share buy-back programs will begin to appear even more attractive to several of these companies. We expect that some of these buy-back programs will be financed by a cut back on dividend pay-out  ratios, as effective yields continue to improve with declining prices.

Afrinvest Nigeria Market Alert October 2008 (37)

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The following companies placed on suspension

Proshare is reporting that the NSE has placed the following companies on suspension:

• Tate Industries Plc
• Security Assurance Plc
• Onwuka Hi-Tek Industries Plc
• Oluwa Glass Company Plc
• Nigeria Lamps Industries Plc
• Niyamco Plc
• Nigerian Textile Mills Plc
• Maureen Laboratories Plc
• Intra Motors Plc
• Grommac Industries Plc
• Albarka Air Plc
• African Paints (Nigeria) Plc
• Ferdinand Oil Mills Plc
• Epic Dynamics Plc
• Enpee Industries Plc
• Ceramic Manufacturer Nigeria Plc
• Beverages (West Africa) Plc
• BCN Plc
• Baico Insurance Plc
• Atlas Nigeria Plc
• Asaba Textile Mill Plc
• Arbico Plc
• Amicable Assurance Plc
• Aba Textile Mills Plc
• Sun Insurance Nigeria Plc
• Aviation Development Company Plc
• Abplast Products Plc
• Rietzcot Nigeria Company Plc

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Intervention by the FG in the NSE

As part of efforts to restore investor confidence in the stock market, the Federal Government announce the following steps:

1. NSE with effects from Wednesday, August 27, 2008 (today) will reduce its fees by 50 percent.
2. Stabilization fund will be established with its modalities to be worked out very soon.
3. The Office of the attorney general of the federation has been directed to issue an exemption to the provision of the relevant sections of the company and allied matter act, 1990 on share buy backs to permit quoted companies buy up to 20 percent of their shares.
4. Banks were also advised to restructure existing credit facilities extended to market players to allow for longer repayment periods.
5. CBN is also taking appropriate measures to review the liquidity situation in the economy and appropriate measures to improve the liquidity in the system if required.
6. NSE is also taking steps to review its trading rules and regulations. In the interim, effective from today; one per cent maximum downward limit on daily price movement whilst the current five percent limit on upward movement is retained.
7. SEC will also release guidelines for market makers on the NSE before the end of the week and delist moribund companies earlier advertised.
8. There will be strict enforcement of NSE listing requirement with zero tolerance for infractions.
9. Nigerian banks will also partner with market maker to inject fund into the capital market through appropriate structured credit facilities.

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NSE Report for Week Ending July 4th

A turnover of 4.8 billion shares worth N41.96 billion in 77,288 deals was recorded this week, in contrast to a total of 5.21 billion shares valued at N42.52 billion exchanged last week in 82,798 deals.

Transactions during the week included a total of 4,500 units of Access Bank Plc N13.5 billion Redeemable Bond 2010 valued at N4.68 million.There were no transactions in the Federal Government Development Stocks, State Government Bonds and Industrial Loans/Preference Stocks sectors.

The Insurance subsector was the most active during the week (measured by turnover volume), with 2.9 billion shares worth N4.4 billion exchanged by investors in 13,755 deals. Volume in the Insurance subsector was largely driven by activity in the shares of Investment and Allied Assurance Plc. Trading in the shares of the Insurance Company accounted for 2.3 billion shares, representing 78.5% of the subsector’s turnover.

The Banking subsector, boosted by activity in the shares of Fidelity Bank Plc, Sterling Bank Plc and PlatinumHabib Bank Plc, followed on the week’s activity chart with a turnover of 1.45 billion shares valued at N29.61 billion in 38,937 deals.Last week, the Banking subsector led on the activity chart and was followed by the Insurance subsector.

Price Movement:
The All-Share Index rose by 1.0% to close on Friday at 55,456.58. The market capitalization of the 208 First -Tier equities closed higher at N10.9 trillion. Seventy-Four (74) stocks appreciated in price during the week, higher than the forty (40) in the preceding week. Also, as in the preceding week, Chevron oil Nigeria Plc led on the gainers’ table with a gain of N16.90 to close at N355.49 per share while Flour Mills of Nigeria Plc followed with N5.10 to close at N85.00 per share. Other price gainers in the Top 10 category include:
+ Beta Glass Co. Plc - N2.85
+ Costain (WA) Plc - N2.85
+ Dangote Flour Mills Plc - N2.38
+ Dangote Sugar Refinery Plc - N2.25
+ Cadbury Nigeria Plc - N2.23
+ United Bank for Africa Plc - N2.09
+ Ashaka Cement Plc - N1.99
+ National Salt Co. Of Nig. Plc - N1.86

Thirty-Eight (38) stocks depreciated in price during the week, lower than the eighty (80) in the preceding week. Presco Plc led on the price losers’ table, dropping by N10.99 to close at N15.98 per share while Oando Plc followed with a loss of N7.99 to close at N196.00 per share. Other price losers in the Top 10 category include:
- Tripple Gee & Co. Plc - N4.85
- Intercontinental Bank Plc. - N4.69
- Nigerian-German Chemicals Plc - N4.66
- PlatinumHabib Bank Plc - N4.00
- Nestle Nigeria Plc - N3.90
- UACN Plc - N3.00
- Airline Services & Logistics Plc - N2.00
- Ecobank Transnational Incorporated - N1.93

Six equity prices were adjusted for dividend as recommended by the Board of Directors. Tripple Gee & Co. Plc was adjusted for Dividend of N0.15 per share and bonus of 1 for 2. Crusader Insurance Plc was adjusted for dividend of N0.15 per share. DN Meyer Plc was adjusted for dividend of N0.10 per share. Nigerian-German Chemicals Plc was adjusted for dividend of N0.45 per share. Presco Plc was adjusted for dividend of N0.05 per share and bonus of 1 for 1. Smart Products Nigeria Plc was adjusted for dividend of N0.075 per share.

Supplementary Listings
A total of 500,000,000 shares were added to the shares outstanding in the name of Presco Plc following the bonus of 1 for 1. Also, a total of 164,985,000 shares were added to the shares outstanding in the name of Tripple Gee & Co. Plc following the bonus of 1 for 2. Similarly, a total of 5,096505,536 were added to the shares outstanding in the name of Japaul Oil & Maritime Services Plc on Wednesday, July 2, 2008 following the conclusion of the hybrid offering and Placing.

COMPANY NEWS
LONGMAN NIGERIA PLC: Audited result for the year ended 31st December 2007 shows Turnover of N2.31 billion as against N1.74 billion in 2006. Profit after tax stood at N276.8 million compared with N203.75 million in 2006. The Directors are recommending a dividend of N1.00 per share. The date of closure of register of members is July 7, 2008 while payment date is July 28, 2008.

ROADS NIGERIA PLC: Audited result for the year ended 31st March 2007 shows Turnover of N1.8 billion as against N1.33 billion in 2006. Profit after tax stood at N25.12 million compared with N12 million in 2006. The Directors are recommending a dividend of N0.30 per share. The dates of closure of register of members and payment would be advised later.

INTERNATIONAL ENERGY INSURANCE PLC: Audited result for the year ended 31st December 2007. The Directors are recommending a dividend of N0.09 per share. The date of closure of register of members is July 11, 2008 while payment date is August 15, 2008.

STANDARD ALLIANCE INSURANCE PLC: Audited result for the year ended 31st December 2007 shows Gross Premium of N2.12 billion as against N1.61 billion in 2006. Profit after tax stood at N417 million compared with N328 million in 2006. The Directors are recommending a dividend of N0.075 per share. The dates of closure of register of members and payment would be advised later.

TRANS-NATIONWIDE EXPRESS PLC: Unaudited result for the first quarter ended 31st March 2008 shows Turnover of N109.6 million, as against N81.7 million in the comparable period of 2007. Profit after tax stood at N13.42 million compared with N11.5 million in 2007.

NIGERIAN-GERMAN CHEMICALS PLC: Unaudited result for the first quarter ended 31st March 2008 shows Turnover of N902 million, as against N710.5 million in the comparable period of 2007. Profit after tax stood at N60.44 million compared with N57.2 million in 2007.

REPORT ON THE OTC MARKET FOR FGN BONDS
A turnover of 280.3 million units worth N281.2 billion in 2,120 deals was recorded this week, in contrast to a total of 142.75 million units valued at N145.7 billion exchanged in 1164 deals during the week ended June 26, 2008. The most active bond (measured by turnover volume) was the 5th FGN Bond 2018 Series 2 with a traded volume of 37.02 million units valued at N34.54 billion in 350 deals.

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FSDH’s 2008 Market Outlook and ‘07 Review

I must commend FSDH for this Market Outlook. One of the most striking things in the document is the fact that 15 of the most capitalized stocks are banking stocks. They represent over 20% of the market capitalization.
When you think of it, that is a very high percentage. It shows that the Nigerian Stock Exchange is highly dependent on the banking sector. While it is good that the economy is growing and that interest in the stock market is increasing, there is a danger of being overdependent on the banking sector.
At least for the first part of 2008, I am projecting that the insurance sector will be the new hot sector.

FSDH 2008 Market Outlook

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Penny Stocks

Here is a write up by Meristem Securities on the facts about Penny Stocks

 

The Nitty Gritty of Penny Stocks

Blue Chip companies are made rather than born contrary to the perceptions of some investors.  They have to work through the different growth phases/business life cycles everyone else. Unfortunately, some investors believe that the best way to ‘dig for gold’ in shares trading is by scouring through penny stocks in hopes of finding the next Japauloil, IPWA, Niwicable,C&I Leasing,Cutix in the early 2007 or Capoil, Afroil, Poly Products in recent times. Some analysts express that this is probably not the best strategy.

Understanding a Penny/Micro-Cap Stock:

Technically, micro-cap stocks are classified as such based on their market capitalization while penny stocks are looked at in terms of their price. Definitions of what stocks qualify as penny / micro-cap vary. In the U.S, stock with market capitalization between $50m and $300 m (N6bn to N36bn) is a micro-cap. (Less than $50 m (<N6m is a nano-cap.) According to the U.S Securities & Exchange Commission (SEC) any stock under $5 is a penny stock.

While all these categorizations are not outlined in any formal /regulatory documents in the Nigerian context, but generally as a norm or market perception, a stock trading at a price range of N1 and N10 is usually considered penny.

The main thing you have to know about penny/micro stocks is that they are much riskier than regular stocks. For instance, junk bonds (bonds with a rating lower than BBB) are considered a much higher risk than those of investment grade (bonds with a rating higher than BBB). In the stock market parlance, equivalent comparison is penny stocks and blue-chip.

What is the Problem with These Stocks?
Market analysts have identified four (4) major issues which make penny stocks riskier compared to other stocks. These are:

Lack of Information Available to the Public:
A fundamental principle that is always preached by many professional analysts is that the key to any successful investment strategy is acquiring enough tangible information to make informed decisions. For micro-cap stocks, information is much more difficult to find. Companies listed on the second and third tiers market are have less stringent requirements especially in relation to disclosures and filling of operational reports with the regulators and are thus not as publicly scrutinized or regulated as those on the first tier board furthermore, much of the information available about micro-cap stocks is typically not from a credible source.

No Minimum Standards:
Stocks on the Second and Third Tier Markets do not have to fulfill minimum standard requirements to remain on the Exchange. Sometimes, this is why the stock is on one of these markets. Minimum standards act as a safety cushion for some investors and as a benchmark for some companies.

Lack of History:
Many of the companies considered to be micro-cap stocks are either newly formed or approaching bankruptcy. These companies will generally have a poor track record or none at all. As you can imagine, the lack of histories of companies only magnifies the difficulty in picking the right stock.

Liquidity:
When stocks do not have much liquidity, two problems arise: first, there is the possibility that the stock you purchased cannot be sold. If there is a low level of liquidity, it may be hard to find a buyer for a particular stock, and you may be required to lower your price until it is considered attractive by another buyer. Second, low liquidity levels provide opportunities for some traders to manipulate stock prices, which is done in many different ways - the easiest is to buy large amounts of stock, hype it up and then sell it after other investors find it attractive (also known as pump and dump).

The Problem for Investors
Penny stocks have been a thorn in the side of the regulators for some time because micro-cap stocks’ lack of available information and poor liquidity make these groups of stocks an easy target for fraudsters. There are many different ways these people will try to part you from your money, but here are two of the most common:

Biased Recommendations – Some micro-cap companies pay individual analysts to recommend the company stock in different media, i.e. newsletters, financial television and radio shows. Look to see if the issuers of the recommendations are being paid for their services as this is a giveaway of a bad investment and make sure that any press releases are not given falsely by people looking to influence the price of a stock.

Off-Shore Brokers– This is does not relate to Nigeria system. In the advanced markets like the U.S, under regulation S, the SEC permits companies selling stock outside the U.S. to foreign investors to be exempt from registering stock. These companies will typically sell the stock at a discount to offshore brokers who, in turn, sell them back to U.S. investors for a substantial profit. By cold calling a list of potential investors (investors with enough money to buy a particular stock) and providing attractive information, these dishonest brokers will use high-pressure “boiler room” sales tactics to persuade investors to purchase stock.

Buying These Stocks
Two common fallacies pertaining to penny stocks are that many of today’s stocks were once penny stocks and that there is a positive correlation between the number of stocks a person owns and his or her returns. Investors who have fallen into the trap of the first fallacy believe NESTLE, OANDO,FIRSTBANK, WAPCO, OCEANIC, ZENITH and many other large companies were once penny stocks that have appreciated to double/tripple digit values. Many investors make this mistake because they are looking at the “adjusted stock price”, which takes into account all stock splits. Rather than starting at a low market price, many of these companies actually started pretty high, continually rising until they needed to be split.

The second reason that many investors may be attracted to penny stocks is the conception that there is more room for appreciation and more opportunity to own more stock. If a stock is at N2 and rises by N1, you will have made a 50% return. This together with the with the fact that a N20,000 investment can buy 10,000 shares convinces investors that micro cap stock are a rapid surefire way to increase profits. For some reason, people think of the upside but forget about the downside. A N5 stock can just as easily go down N2.50k and lose half its value. Most often, these stocks do not succeed, and there is a high probability that you will lose your entire investment.

Conclusion

Sure, some pennies might be of good quality, and many Second and Third Tier Securities are working extremely hard to make their way up to the more reputable First Tier Securities. However, the flip-side is that there many good opportunities in stocks that are not trading for pennies. You need to understand that this is a high risk area that is not suitable for all investors. If you can not resist the lure of micro-caps, make sure you do extensive research and understand what you are getting into.

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Bank PHB’s Stock Matrix

The stock matrix below was prepared by Bank PHB and places the stocks in one of four quadrants (The Honey Zone, High Flyer, Safety Zone and Sell) based on the expected risk and returns.

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CSL Stockbrokers 2008 Financial Mkt Outlook

Here is the 2008-outlook.pdf by CSL Securities.

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Analysis of Some Insurance Stocks

Analysis of Some Insurance Stocks - Courtesy of Proshare NG.

Analysis of Some Insurance Stocks

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Afrinvest 2008 Stock Market Outlook

Afrinvest 2008 Stock Market Outlook

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Share Certificates - SEC to sanction erring firms

As people have know now, a lot of the companies going to the market to raise capital through public offers are guilty of not listing the stocks on time and not providing the share certificate promptly. This makes it impossible for those who want to make a quick profit from doing so by selling their shares on time. They are also guilty of failing to return surplus monies on time.

As a result of this, the Securities and Exchange Commission (SEC) has said that it would suspend trading in the shares of any publicly quoted company that fails to dispatch share certificates or return surplus monies on time.

Here is the story:

The Securities and Exchange Commission (SEC) wielded the big stick yesterday saying it would suspend trading in the shares of any public quoted company that fails to dispatch share certificates or return surplus monies in accordance with market rules.

 

The commission also said with effect from April 1, 2008, no registrar will be allowed to administer any public company to which it is a subsidiary.Many investors have expressed considerable displeasure which has turned into disenchantment with the capital market over deliberate delays by public quoted companies to dispatch their (investors’) share certificates several months and even years after the closure of their public offers.

 

Also, in instances when offers are oversubscribed, investors who are unlucky to get their full allotment of shares wait endlessly to get back their money.

 

In a bid to check this unwholesome trend and stamp its authority on the market, SEC yesterday said companies that violate its rules and regulations relating to the dispatch of share certificates and returned/surplus money will have their listed securities suspended indefinitely from being traded on the floor of the Nigerian Stock Exchange (NSE).

 

According to SEC’s rules, companies must submit their allotment proposals six weeks after the closure of an offer while certificates/returned money must be dispatched 15 working days after the date of clearance of the allotment.

 

These rules have been violated by many companies without any serious sanctions by the capital market regulator. Commenting on these developments, market analysts said SEC may have awoken from its slumber by the issuance of the new directive.

 

Apart from suspending trading in the shares of erring companies, the commission said that such defaulting companies would not be allowed to access the market for fresh issues.

 

“All such defaulting companies shall not be allowed to access the Nigerian capital market until all outstanding complaints against them are cleared to the satisfaction of the commission,” SEC said in a circular to all quoted companies.

The commission has also disallowed applications for preferential allotment.

 

“With effect from April 1, 2008, no registrar shall be allowed to administer the register of any public company to which it is a subsidiary, a holding company, a related company or which has substantial shareholding in the said registrar or in which the said registrar has substantial shareholding,” SEC said.

 

According to the commission, any violation of the directives shall attract severe sanctions including the outright withdrawal of registration to operate in the Nigerian capital market.Meanwhile, SEC has asked all investors who have not received their share certificates and returned/surplus monies in respect of all public offers that closed on or before October 31, 2007 to forward their complaints in writing to the director-general of the commission.

 

The commission advised such investors to enclose evidence of transactions justifying their claims, indicate the public offer and clearly mark the complaint “Non-receipt of share certificates and return/surplus” and telephone numbers.
 

Some of the companies whose offers closed before October 31, last year include, United Bank for Africa Plc, Oceanic Bank International Plc, First Bank Plc and Access Bank Plc.

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