" /> Investors and 2016 | Hallmarknews
Published On: Tue, Jan 12th, 2016

Investors and 2016

BY TESLIM SHITTA-BEY|     These are choppy times for investors in Nigeria, not only are they likely to face painful falls in the values of stock market investments, they are also likely to see significant diminution in the value of all other types of investments. Why? It’s the economy, simple. Already the government’s budget benchmark price of oil has been kicked in the gut with oil prices ranging from as low as $32 per barrel to as high as $34 per barrel in the course of the first week of the new year (this abstracts from the temporary one day spike of $39 per barrel when news broke out of a simmering diplomatic face-off between Saudi Arabia and Iran over the Saudi Arabian execution of a Shiite Islamic cleric).

Low international oil prices, therefore, suggests that the Federal Government’s fiscal budget projections for 2016 have been put under severe pressure as a major fall in anticipated revenue could lead to a widening of government’s budget deficit and a need to extend its borrowing more than it had earlier expected. This would mean the issuing of fresh rounds of treasury bills which would have to be priced at rates that would coax funds away from competitive private sector uses. In other words, the government’s fresh borrowing needs would raise short and medium term interest rates and elbow aside private sector loan demands. The flip side of this is that non-bank financial institutions listed on the stock exchange would find that they would be faced with higher finance charges in the course of the year, leading to lower after tax incomes (and inevitably lower dividends).

The troubles of quoted companies listed on the NSE would not be limited to higher financing costs. Another sore to itch would be the deteriorating availability of foreign exchange needed to import inputs. The higher naira to dollar exchange rate in unofficial markets would strain the treasuries of many of these companies and hurt their ability to produce replacement stock on a sustainable basis. What this means is that quite a large number of these companies would see gross earnings fall or at the minimum grow at significantly slower paces. What this means is that for growth investors (those that invest in companies that have prospects of strong earnings), this is going to be a very long and pitiful investment winter. For value investors (those that look for undervalued stocks), however, this might actually be a boon period as the market excessively penalizes companies for their difficult operating conditions.

The All Shares Index (ASI), for example, has already seen a New Year decline of -5.63 percent year-to-date (in other words in first week of the year) or a year –on-year decline of -7.45 percent. The weak market growth at the beginning of the year foretells the challenges that the market expects to see in the first two quarters. Even the hitherto, strong banking and finance sector is likely to be tossed by recessionary storms worsened by the removal of Commission on Turnover (COT) charges within the year and the implementation of the Federal Government’s Single Treasury Account (STA) policy which would reduce retail banking liquidity and ‘float’ incomes (incomes made from idle federal balances that should but habitually were not remitted to the central bank over long periods). Banking sector stocks are, therefore, not likely to be the pretty maidens they were in previous years.

On the other hand, stocks in the building and construction sector are potentially good buys for those not particularly interested in purchasing bargain basement stocks (stocks with market values that have temporarily been knocked down to the ground). Stocks such as Dangote Cement (current market price N 59.99 per share, p/e 14.5) and Lafarge Wapco (current market price N105, p/e 15.09) should see major value growth as the Federal Government’s capital expenditure on road construction and housing have salutary effects on these companies turnovers and after tax profits. Companies listed in the agricultural sector should also see marginal improvements in their performance as many of them have limited import requirements and are heavily reliant on local labour and commercial retail and wholesale markets companies such as Okomu Oil (current price N36.25, p/e 20.50) should therefore appear quite attractive to aggressive growth stock buyers.

Oil & gas stocks on the other hand are pariahs. Buying into the sector at the moment could prove very risky; the prospective removal of subsidy and the incessant disruptions to sales could hurt revenues and bottom lines during the course of the year. The horrible interim third quarter results of Oando for 2015 shows what could occur if industry outlook dims. The distortions in the local pricing of Premium Motor Spirit (petrol) and Dual Purpose Kerosene (DPK) have hobbled the retail business of major oil marketers. With the Federal Government breathing down their necks to supply and sell PMS at N86.50, a price they all consider only marginally profitable, the droopy faces of most petroleum marketing executives is a gritty sign of the times.

Investors are likely to have a fairly tepid year in 2016 as stock market values prove difficult to pull up against a tottering fiscal economy and shrinking consumer spending power. However since rolling over and playing dead is not a viable option for survival, investors may increasingly need to keep their eyes glued to the nation’s macroeconomic dashboard and move with speed and boldness.

Reactions from Facebook

comments and opinions

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Recent posts

  • How to pick best name for your business

    The name of a business has a significant role to play in its success or failure, especially when it is a small business. The right name can make your company the talk of the town. The wrong one can doom it to obscurity and failure. Ideally, your name should convey the expertise, value and uniqueness […]

  • Operation Python Dance scuttled agreement on restructuring – Uko

    Obinna Ezugwu   Evangelist Elliot Ugochukwu Uko is the Founder of the Igbo Youth Movement, Secretary, Eastern Consultative Assembly and the Deputy Secretary, Igbo Leaders of Thought. In this interview, he alleges that those opposed to the restructuring of Nigeria are after Nnamdi Kanu, and their intention is to kill him so the agitation will […]

  • How customs uncovered arms import – F.O.U Boss

    Comptroller Mohammed Uba Garba is a crack enforcement officer deployed from Federal Operation (FOU) Zone ‘C’, Owerri where he recorded some daring performances. His string of  achievements in Zone ‘C’ made the Customs top hierarchy to redeploy him to FOU, Zone ‘’A’’ which accounts for 70 per cent of Customs revenue as well as being the hot […]

  • Cement: Distributors, consumers explain Dangote’s dominance

      EMEKA EJERE As Nigeria continues to grow in the area of real estate, one item that is increasingly favoured is cement, given its indispensability in building construction from the foundation to the finishing. But among the cement brands, BusinessHallmark’s investigations revealed that a number of factors are in favour of Dangote Cement, which explain […]

  • Consolidation: NAICOM suspends licence issuance

    EMEKA EJERE The Commissioner for Insurance, Mr. Mohammed Kari, has said that the National Insurance Commission has refused to issue new operational licences to insurance firms because it is better for the industry to embrace consolidation than to start new companies. Kari spoke during the Annual Insurance Professional Forum of the Chartered Insurance Institute of […]

  • NHIS boss calls for compulsory national health insurance scheme

      EMEKA EJERE Acting Executive Secretary of the National Health Insurance Scheme (NHIS) Mr. Attahiru Ibrahim, has stated that health insurance should be made compulsory for Nigerians if the country must achieve universal health coverage. Ibrahim who was briefing reporters last week in Abuja on the activities of the scheme appealed for the amendment of […]

  • Creche, Daycare Services As a business

    The number of full-time housewives in urban areas is on a rapid decline. Unlike anytime in its history, more Nigerian women are working at paid jobs or running their own small businesses. As a result of this trend, there is a growing opportunity for convenience services like crèche and daycare centre businesses. More middle class […]

  • Pressure mounts on CBN to cut interest rates

    The Central Bank of Nigeria governor, Godwin Emefiele, was not the most popular choice of head of the Bank when erstwhile President Goodluck Jonathan appointed him as helmsman. Emefiele was considered too much of a bureaucrat; tall on process but short on big ideas. Besides it was suspected that Emefiele did not have enough practical […]

  • E-BANKING: New Hi-Tech culture changes the rules

    FELIX OLOYEDE Nigerian banks have moved the theatre of competition from brick and mortar financial service vending to a new place. Here the codes are a series of zeroes and ones, the actors are not svelte ladies in high –heeled shoes and short skirts looking up rather than down or men with smooth cheeks, crew […]

  • Union Bank: N50b lifeline for the Stallion

    OKEY ONYENWEAKU   As part of its strategic effort to reposition a balance sheet a few financial analysts had, hitherto, considered relatively weak and improve liquidity Union Bank of Nigeria (UBN) Plc has raised a N50 billion Rights Issue straight in the middle of one of the slowest growth rates the economy has experienced in […]

  • IPOB: Igbo elders keep mum over crisis

    Obinna Ezugwu   Mayhem! There is no better word to describe the events playing out in the South East zone, and Abia State, the home state of rabble rousing leader of the Indigenous Peoples of Biafra (IPOB) in particular at the moment. It has to do with the intense military onslaught and the result has […]

  • Nigeria returns to African Trade Insurance Agency

    Federal Executive Council on Wednesday gave a approval for Nigeria to rejoin the African Trade Insurance Agency. Minister of Finance, Mrs. Kemi Adeosun stated this Wednesday while addressing State House correspondents after the Federal Executive Council meeting presided over by President Muhammadu Buhari. Adeosun said the council approved a memo she presented which harped on the necessity […]

  • Fidelity Bank to give out over N110 Million to Customers in ‘Get Alert In Millions Promo Reloaded’

      Top Nigerian lender, Fidelity Bank Plc is set to delight the banking public with the introduction of a fresh Savings promo that promises to provide new and existing customers with the unique opportunity to win fantastic cash prizes within a specific period. The promo dubbed ‘Get Alert In Millions Promo Reloaded’ is in line […]

  • Royal Exchange defies the odds   

    EMEKA EJERE Royal Exchange Insurance Plc has continued to resist the volatile and tough operating environment of Nigeria, recording a double digit growth in half year profit. Despite the hostile operating environment experienced by the insurance sub-sector and the financial services industry, the underwriter last week announced profit after tax (PAT) of N203.3 million in […]

  • STANBIC IBTC constructs recovery after a storm

    Stanbic IBTC Holdings came to being as a result of a merger between Stanbic Bank Nigeria Limited and IBTC Chartered Bank Plc. On 24 September 2007, IBTC Chartered Bank Plc merged with Stanbic Bank Nigeria Limited. Stanbic Africa Holdings Limited on behalf of Standard Bank tendered an offer for the acquisition of additional IBTC shares […]

  • How PZ makes investors beg for more but….

    Full year results for PZ-Cussons ended on a happy note in May as the company’s profit after tax soared by a hefty 73 per cent rising from N2.1 billion in 2016 to N3.7billion in 2017. The company’s fairy tale result has had several investors emptying their piggy banks as the company’s share price jumps on […]

Visit us on Google+