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Profit
taking activities by some investors have been blamed for the continuous
downturn been witnessed in the Nigerian Stock Exchange (NSE).

Detola
Olukorede, an equity analyst at Investment Option, a fund management
firm, said, “It is expected that investors will always want to take the
little profits on their investments during festive season,” adding that
this enables them to celebrate the season.

Mr.
Olukorede said consequently, market performance was expected to fall
during the period because “profit taking activities drags equities
prices down.” Meanwhile, the Exchange market capitalisation of the 201
first-tier equities closed on Tuesday at N7.798 trillion after opening
the day at N7.801 trillion, reflecting 0.04 per cent decline or N3
billion losses. The market had lost N8 billion after Monday’s trading
session.

Multiverse, BankPHB, Intercontinental Bank, Skye Bank, and Guaranty Trust Bank were the most traded stocks on Tuesday.

Gainers decrease

A
total of 34 stocks appreciated in price on Tuesday; lower than the 38
gainers recorded previous day, while 26 stocks depreciated in value;
higher than the 25 recorded on Monday.

Cement
Company of Northern Nigeria and Nigerian Aviation Handling Company
topped the price gainers’ table with an increase of 65 kobo and 44 kobo
on their opening prices of N14.00 and N9.37 per share. University Press
and International Breweries followed in the chart with an increase of
32 kobo and 26 kobo, to close at N6.82 and N6.22 per share.

On
the losers’ side, PZ Cussons and Cadbury Nigeria led the price losers’
chart with a loss of N1.14 and 44 kobo, to close at N31.45 and N26.06
per share respectively. UAC Nigeria and Costain West Africa followed
with a decrease of 42 kobo and 34 kobo on their initial prices of
N38.10 and N6.90 per share

Banking subsector leads

Trading activities in the Banking subsector on Tuesday maintained lead
as the most active subsector with 223.69 million units valued at
N1.28billion exchanged in 3,223 deals as against the 220.21 million
units valued at N1.31billion exchanged in 2,900 deals recorded on
Monday.

The volume recorded in the subsector was driven by transaction in the shares of BankPHB,

Intercontinental
Bank, Skye Bank and Guaranty Trust Bank. The total volume of 141.71
million units valued at N722.49 million traded in the shares of the
four stocks accounted for 34.34 per cent of the entire market volume
and their value represented 28.67 per cent of the market’s value.

Market Outlook

However,
in spite of the current downturn, Bismarck Rewane, Managing Director of
Financial Derivatives Company Limited, a business consultancy firm, is
optimistic that some of the reforms by the Exchange regulator will help
improve investors’ confidence in the coming year.

Speaking at an executive meeting organised by Lagos Business School,
last weekend, Mr. Rewane said that “stricter regulations for operators
and participants in the capital market” will boost confidence next
year. He said this will “encourage greater transparency and less of
sharp practices” in the market.

The
Director-General, Raw Materials Research and Development Council
(RMRDC), Peter Onwualu, has urged investors and businessmen to invest
in the commercialisation of Nigerian research and development (R&D)
findings.

s Mr. Onwualu said
that most investors ‘‘do not want to invest in the outcomes of R&D
in the country because they want immediate returns on their
investments’’.

He said that some
investors are also afraid that the products would not make much wave in
the market. ‘‘The only problem is that investment in commercialisation
of research finding takes longer time to be actualised for profit, most
businessmen in Nigeria find it difficult to invest and wait that long
and that is why most of these prototypes are finding it difficult to
hit the market’’.

By picking a
respected company insider as its next chief executive, MTN Group is
betting on the steady pair of hands that helped steer the mobile
operator’s rapid growth across Africa. Africa’s largest mobile phone
company on Monday named 53-year-old Chief Operating Officer Sifiso
Dabengwa to replace veteran leader Phuthuma Nhleko as CEO when he steps
down in March. The appointment of the quiet, media-shy electrical
engineer is unlikely to mark a major change of strategy at MTN,
business associates and industry analysts said.

Dabengwa is expected to focus on retaining market share and bolstering operations after years of strong growth.

“This guy is an
insider. He is even more of an insider than Nhleko — remember Nhleko
came from outside. It’s a safe pair of hands,” said Strive Masiyiwa,
the founder of rival mobile phone operator Econet Wireless, who knows
him professionally.

Dabengwa, who has
run MTN’s operations in Nigeria and South Africa, is likely to focus on
consolidating the business and improving efficiency said Masiyiwa.

“He is not going to
be expansionist. Those days are done.” Dabengwa, who holds an MBA,
joined MTN in 1999 from state power firm Eskom . That was two years
before Nhleko, a former banker,

joined the
business. wHe will need to fend off competition from Bharti Airtel,
which is waging a price war in sub-Saharan Africa and plans to spend at
least $1.1 billion on network upgrades in the next three years.
Dabengwa also takes over just as the company faces fewer opportunities
for large-scale expansion.

Broken deals

MTN, which has
failed to complete four major deals since 2008, has said it is
concentrating on paying more to shareholders, in line with a strategy
that no longer emphasises growth by acquisition.

Its latest
acquisition attempt, a bid to buy assets from Egypt’s Orascom Telecom,
fell through in June, when Algeria’s government blocked the sale of
Orascom’s unit there.

“He is quite a firm leader and is a good choice for this job,” said an MTN executive who did not want to be named.

The executive added Dabengwa is steeped in MTN culture and should be able to navigate the challenges facing it.

He will need to
seek new revenue streams, such as mobile data — as further growth
opportunities in voice services are limited, analysts said — and focus
on cost cutting.

“He’s got a very
strong operational background, which is very important as it is
becoming very competitive,” said Frost & Sullivan analyst Spiwe
Chireka.

She said MTN must
step up expansion into the enterprise business focusing on corporate
customers. This could result in a lucrative revenue stream and a tie-up
with a global carrier.

The $35 billion
company, which operates networks across Africa and the Middle East, had
134.4 million users at the end of September. However, much of its
business is concentrated in a few markets, such as Nigeria, South
Africa and Iran.

Respect

Although well known
for years as MTN’s second-in-command, Dabengwa has tried to avoid media
publicity. He generally does not grant one-on-one interviews, limiting
public comments to annual general meetings or earnings announcements.

“I have a huge
respect for him. Very efficient, very focused and totally committed to
the company,” said Nozipho January-Bardill, MTN’s former spokeswoman.

MTN, the country’s
only mobile operator majority owned by South Africans, was set up with
government help in 1994 as the first black-owned group after the end of
apartheid.

“He is not just an
experienced senior black executive. He is a world-class executive. He
now carries the legacy of ensuring the world knows we can build
world-class organisations as black people,” said Econet’s Masiyiwa.

“I know there are people who wanted an outsider and there is no need for that. Success is built on success.”

The council of the
Nigerian Stock Exchange (NSE) through its Quotation Committee on Monday
approved the listing of two new issues worth N50.5 billion. The NSE, in
a statement signed by Wole Tokede, its spokesperson, said the council
approved the Benue State Government’s application for approval and
listing of N13 billion Fixed Rate Development Bond 2015 of N1, 000 each
(for a unit) at 14 percent.

“Specifically, the
bond is for funding of some projects embarked upon by the state as well
as refinancing existing debt obligations used in funding the projects,”
the statement said. First Bank of Nigeria Securities Limited and United
Bank for Africa (UBA) Stockbrokers Limited are the joint stockbrokers
to the issue.

The council also
endorsed Flour Mills of Nigeria’s application for approval and listing
of an Offer for Subscription of N37.50 billion at 12 per cent Fixed
Rate Bond 2015 (Series 1) under a N70billion debt issuance. The bond
was jointly introduced by IBTC Stockbrokers and Guarantee Trust Bank
Securities Limited.

The Exchange noted
that “The on-going request for capital raising is an attestation to the
fact that companies would continue to take advantage of opportunities
in the Nigerian capital market to expand their operations.”

Market declines

Meanwhile, the
Exchange market capitalisation of the 201 First-Tier equities closed on
Monday at N7.801 trillion after opening the day at N7.809 trillion,
reflecting 0.10 per cent decline or N8 billion losses. The market had
gained N2 billion last Friday after losing about N23 billion the
previous trading session. The NSE All-Share Index also lost 0.10 per
cent or 24.03 units on last Friday’s figures of 24,444.28 basis points,
to close yesterday at 24,420.25. Wema Bank, Fidson Healthcare, MTI,
Zenith Bank, and Ecobank Transnational Incorporation were the most
traded stocks on Monday.

Gainers increase

A total of 38
stocks appreciated in price on Monday, higher than the 37 gainers
recorded previous day; while 25 stocks depreciated in value, lower than
the 27 recorded last Friday. Julius Berger and Nigerian Bottling
Company topped the price gainers’ table with an increase of N1.90 and
N1.82 on their opening prices of N48.10 and N36.48 per share
respectively.

Ashaka Cement and Zenith Bank followed in the chart with
an increase of N1.35 and 49 kobo, to close at N28.35 and N15.00 per
share. On the losers’ side, Dangote Cement and Cadbury Nigeria led the
price losers’ chart with a loss of N2.50 and 50 kobo, to close at
N120.00 and N26.50 per share respectively. Ecobank Transnational
Incorporation and Dangote Flour Mill followed with a decrease of 29
kobo and 26 kobo on their initial prices of N15.41 and N15.75 per share
respectively.

Active subsector

Trading activities
in the Banking subsector maintained lead as the most active subsectors
with 220.21 million units valued at N1.31billion exchanged in 2,900
deals as against the 188.10 million units valued at N1.36billion
exchanged in 2,868 deals recorded on Friday.

The volume recorded in the
sector was driven by transaction in the shares of Wema Bank, Zenith
Bank, Union Bank, UBA, Access Bank and First Bank. The total volume of
158.84 million units valued at N962.94 million traded in the shares of
the five stocks accounted for 32.42 per cent of the entire market
volume.

The
Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC)
yesterday said it will review the revenue sharing formula indices.

At
the first formal meeting in Abuja following its recent reconstitution,
the Commission said the review will be one of the major assignments it
will carry out in the near future as it settles down to business.

“A
standing Committee is to be established immediately on new revenue
sharing formula to come up with a recommendation to the President that
would be transmitted to the National Assembly for consideration,” said
Elias Mbam, the Commission’s chairman.

“The
one currently in use has been in place since the military regime. So,
it is time the revenue sharing formula is reviewed, because the basis
for it has already been overtaken by reality. We will ensure that we
bring in place a new formula that would be fair and equitable to all
Nigerians,” Mr Mbam.

Concerns over accruals

Similarly,
he expressed concern over the revenue accruals in the federation
account, announcing that a standing committee on diversification of
revenue sources to the federal government is to be created immediately
to help mobilise other sources of revenue.

“The
revenue into the federation account comes basically from oil, gas,
Federal Inland Revenue Services (FIRS), Nigeria Customs Service (NCS)
and Department of Petroleum Resources (DPR). We are going to expand the
sources of revenue and look at other sources. We will be concerned with
diversification of the sources of revenue,” he said.

Though
the chairman denied that the issues of jumbo pay to lawmakers was
discussed during the meeting, he however, indicated that the Commission
has already directed that a full brief on it be made available to
enable the Commission take necessary actions that would ensure that it
is resolved holistically.

The
first attempt at reviewing the country’s revenue sharing formula was
initiated by the Commission in August 2001 in line with its mandate in
the third schedule of the 1999 Constitution empowering it to review,
from time to time, the revenue allocation formula and principles in
operation to ensure conformity with changing realities; provided that
any revenue formula accepted by the Act of the National Assembly shall
remain in force for a period of not less than five years from the date
of the commencement of the Act.” The Commission, in its first revenue
allocation proposal to the National Assembly, gave the federal
government 41.3 per cent, states (31 per cent), local governments (16
per cent) and a total of 11.7 per cent for special funds, consisting
1.2 per cent allocation to the FCT; one per cent each to ecology and
national reserve fund, agriculture/solid mineral fund, and 1.5 per cent
and Basic Education and Skill Acquisition (BESA), 7 per cent.

In
January 2003, the Commission, apparently in compliance with the ruling
of the Supreme Court, drafted and submitted to the National Assembly a
new formula for ratification, which gave the Federal Government 46.63
per cent share; states, 33 per cent, and local governments, 20.37 per
cent.

But, again, Olusegun Obasanjo, in November 2003, unilaterally asked
the National Assembly to withdraw the proposed formula by the
Commission, necessitating reliance on the old formula till the end of
his administration.

Investors in
Dangote Cement have lost over 10.9 percent value of their investment
since the stock was listed by introduction on the daily official list
of the Nigerian Stock Exchange on October 26.

The reasons for the
drop in the share price are seen partially in the observations raised
in the report of the quotations and listings committee of the Nigerian
Stock Exchange (NSE).

In its appraisal
report on the scheme of merger between Dangote Cement Plc and Benue
Cement Plc, dated September 3, it raised the flag on the entire
valuation, merger, and listing process of the resultant entity. In the
report, which was submitted to the NSE council, it faulted the
valuation process that arrived at the price of N135 at which the stock
was introduced.

“On the face
value, the valuation of Dangote Cement is unreasonable. Dangote Cement
has an installed capacity of 5 million metric tonnes per annum, with a
debt overhang of N64 billion and it is valued at N2.025 trillion while
debt free BCC (Benue Cement Company), with an installed capacity of 2.8
million metric tonnes, is valued at N246 billion,” the report added.

The report also
pointed out the incidence of conflict of interest as both merging
entities had Afrinvest West Africa Limited as sponsoring stockbroker
while also acting as co financial adviser for Dangote Cement.

“The response of
the advisers is that the role of a stockbroker does not give rise to a
conflict of interest and that the scheme document has already been
printed and in the process of distribution,” the report stated.

Lower than potential value

Ike Chioke, the
managing director of Afrinvest West Africa, the merger advisers,
however, defended the fact that it acted as sponsoring stockbroker for
both merger entities and acting as co financial adviser for Dangote
Cement.

“By virtue of the
fact that we were broker to the merger, we then continued to prosecute
the special sale. The special sale is effectively a secondary
transaction,” Mr. Chioke said.

He said the stock
was even valued lower than its potential value, given the investment in
the company that was not captured in the valuation process. He said the
current valuation did not take cognizance the future growth of the
company and the fact that its production capacity would double by July
next year. He said that a company like Dangote Cement that trades about
N5 billion a day, a debt of N64 billion simply translates to working
capital.

“I will like you
not to quote what is rubbish because clearly that report was written by
somebody who works at the Stock Exchange and we do have issues with
people who work at the Stock Exchange who don’t understand their job,”
Mr. Chioke said. Interview clip

He explained that a
company can be valued using different methods. “It can be valued based
on its earnings, that is, price earnings ratio. There is what is called
firm value, which is the value of the equity plus the cash and the debt
on the books.”

He said because of the size of the company, it was about 25 percent of the total capitalisation of the Nigerian stock market.

Wole Tokede, the
NSE spokesperson, said the business of valuation and listing price of
equities is that of the issuer and the issuing house.

“It must be
approved by the Securities and Exchange Commission before it can be
listed. If a stock is over valued at the point of listing, the market
will put it in its proper position,” Mr. Tokede said.

Indeed, the market is placing the stock in its position, as it has lost N14.75 as at last Thursday, closing at N120.25.

World class company

Tony Chiejine,
spokesperson for Dangote Group, said the company is building a world
class entity that would be a pride to the country.

“If you take a look
at the gross African asset and the plan of the company going forward,
you would agree that the valuation was done with this in focus. Look at
the tax we pay to government annually. There is no need throwing
stones. Instead, we should encourage local entrepreneurs,” Mr. Chiejine
said.

A source at Vetiva
Capital Management Limited, lead financial adviser to Dangote Cement,
said while it may be correct to say the company is overvalued at
current assessment, the company’s real value is in its future growth.
He said despite the debt free Benue Cement Company, its valuation was
done based on the efficiency of the technology that both companies
operate.

“BCC is an
inefficient and old factory. Power accounts for about 40 percent of the
cement plant. It uses low pour fuel oil (LPFO) while Dangote Cement
uses gas,” the source said.

The NSE report also pointed out the breach of a key listing rule of the Stock Exchange:

“The requirement
for 25 percent of the issued shares to be held by the public as only 4
percent of the issued share will be held by the public at the point of
listing.”

Mr. Chioke said this aspect had to be waived by the NSE due to the inability of the market to absorb 25 percent.

“No one can sell
N450 billion worth of share in Nigeria today. We wanted to sell only
100 million units but we ended up selling 196.1 million,” he said.

Afrinvest said the
regulators gave the company 24 months to sell down an additional 20
percent at the listing price of N135, in order to comply with the
listing requirements.

However, while
investors count their losses, the promoter, Aliko Dangote, Dangote
Cement chairman, is smiling to the bank. By virtue of the shares listed
on offer for sale, proceeds of the sale do not necessarily go to the
company but to the promoters of the company.

So in real terms,
funds realised from the transaction, about N26.5 billion, may not
necessarily translate to value to the company but definitely adds value
to Mr. Dangote.

“How else will he
recoup the money he has invested in the business over the years?
Dangote has invested his money. He may have borrowed money or he may
have invested his personal funds. He cannot steal the company’s profit,
or under declare profit.

“So, the only way is for him to sell off part of his holding. That is the standard worldwide,” the Vetiva source said.

Nigeria is left licking her wounds once
more with the planned delisting of Nigeria Bottling Company, bottlers
of Coca Cola and other soft drinks, from the Nigerian Stock Exchange.

NBC recently announced that its parent
company, Coca-Cola Hellenic Bottling Company South Africa, intends to
invest up to N45 billion in Nigeria between 2011 and 2013 in order to
expand its commercial base. Consequently, the proposed transaction will
involve the cancellation of part of the share capital of NBC, so that
it would become a wholly-owned subsidiary of Coca-Cola Hellenic. The
proposal includes a cash payment of naira 43.00 per NBC share as
consideration to the minority shareholders.

However, some market operators have
raised concerns over the absence of policies that ensure multinationals
have part of their equity percentage listed on the bourse for the
benefit of local investors.

“I’ve seen in some jurisdictions, Ghana
for instance, when the government wants to licence a multinational
company, they will tell them the necessity of ensuring that part of the
equity percentage of the company will be thrown to the home-based
investors within a particular period,” Sunny Nwosu, the national
coordinator of the Independent Shareholders Association of Nigeria,
said.

Mr. Nwosu asked that the Nigerian
government should also have a means of persuading multinational
companies in the telecommunication, oil and gas sectors to be listed on
the Exchange.

“A company like MTN, Shell, and Chevron
and other exploration companies should also be persuaded to list their
companies. Their ordinary 10 percent equity will deepen the market and
give a lot to local investors,” he said.

Mr. Nwosu blamed Nigerian directors in those companies for their greed.

“I blame the directors because they
could not advice the foreigners on how to ensure that the power of
Nigeria spending is shared through profits to Nigerians,” he said.

He added that “any value that a company
like MTN is having today is a value created by majority of Nigerians;
not a few of them as directors. If Nigerians today say they are not
going to patronise MTN, definitely the business will collapse. MTN has
been selling its shares in dollars to eliminate common Nigerians from
participating.”

The same sentiment was expressed by
Boniface Okezie, the national chairman of the Progressive Shareholders
Association of Nigeria, who claimed investors are not happy with the
delisting plan “since the company is still making money because
Nigerians are the consumer of their products. Nigeria is the main
destination for investment in Africa.”

Mr. Okezie said the company’s attitude
shows that “it doesn’t want to be regulated again,” adding that “if the
environment is not conducive for them, they can wind up and leave the
country.”

Investors should be concerned

In the meantime, finance analysts said
the capital market community should “worry” about the delisting plan
because the “move would naturally translate into a reduction of market
capitalisation.”

Analysts at Proshare Nigeria, an
investment advisory firm, said the immediate effect is the “blow on the
image of the NSE as an avenue for raising capital and trading in the
securities of listed companies.”

They added that “The NSE and the
Securities and Exchange Commission (SEC) should be worried that our
market is perceived as having failed in both important criteria of
successful markets.”

It remains unclear as at press time,
SEC plan of action on the delisting plan. Several attempts to get
comments from Lanre Oloyi, spokesperson of the SEC, and Simon Obidairo,
personal assistant to Arunma Oteh, SEC’s director general, went
unsuccessful as their phones were switched off.

But Wole Tokede, the Exchange
spokesperson, said NBC plan “does not have anything to do with loss of
confidence in the capital market.” Mr. Tokede said that the Coca-Cola
producing company has its reasons for delisting, adding that it is a
choice of a company to either be listed on the Exchange platform or
not.

Meanwhile, the chairman, House of
Representatives committee on capital market, Umar Jubril, in a
telephone interview, promised that the committee “will sit down with
the managements of the NSE and SEC to deliberate on the development” to
ensure shareholders’ interests are protected.

He said the committee is thinking in
the direction of wooing more multinationals to be listed in the
Exchange. “We’ll try to lure MTN for instance, NNPC, and other
companies that Nigerians can benefit from.”

Jim Lafferty, NBC managing director, in
a statement, said the new investment plan of NBC is going to make
Nigeria “one of the most important emerging economies in the world
during the next decade.”

The NBC, one the companies in the AG
Leventis Group, was established in Nigeria in 1951 and formed the
foundation of Coca-Cola Hellenic, the largest Coca-Cola bottling group
in the world. It was listed on the NSE on the 12th November, 1973.</