Why Banks, Other Entities Are Mopping Up Own Shares
In three days of long knives, equities investors embarked on massive sell offs of the shares of First Bank of Nigeria Holdings (FBNH) Plc and those of Zenith Bank Plc.
Nestle Nigeria Plc, GTCO, and MTN Nigeria are not spared from the season of massive offloading of stocks as knowledgeable investors are selling either to realise any available profit margin or cut down losses as the case may be.
In order to forestall likelihood of a steep dip in price of these bluechip equities, the entities’ stakeholders are now mopping own shares as prices near bottom.
In line with market regulatory requirement, insider deals involving FBNH and Zenith were declared in series of filings to the Exchange.
Between September 20th and 23rd, the Managements of First Bank of Nigeria Holdings (FBNH) and Zenith Bank Plc notified the Nigerian Exchange Group of insider deals on the shares of the banks.
Disclosure notice dated 23rd September 2022 and signed by the FBNH’s Acting Company Secretary, Adewale L. O Arogundade, stated that 1,160,000 units of the bank’s ordinary shares were crossed over to the Bank’s Executive Director, Investment Management and Oversight, Samson Oyewale Ariyibi, at N10.57 per share. The deal was sealed on September 21, 2022.
In another cross deal the following day, precisely on September 22, 2022 involving the Group Managing Director, Nnamdi Okonkwo, a whopping 8,165,019 ordinary shares of the bank were mopped up at N10.25 per share. Both notification letters were filed on Friday, September 23rd.
In the case of Zenith Bank Plc, the Staff Provident Fund was used as the vehicle to mop up the shares in two large ticket transactions on September 22nd and 21st.
On September 22nd, total of 4,350,000 shares of the bank were crossed in two deals of 3,350,000 units at N20 per share, and 1,000,000 units at N20.50 per share.
The Company Secretary and General Counsel, Michael Osilama Otu, stated in his notification letter filed to the Exchange that the transactions involved Zenith Staff Provident Fund and Related Party.
Earlier on September 20, a total of 4,500,000 units were also crossed in two deals on behalf of Zenith Staff Provident Fund and undisclosed Related Party. Total units of 3,500,000 ordinary shares were crossed at N19.80 per share while 1,000,000 units were crossed to the Staff Fund and Related Party at N19.70 per share.
Similar mop up transactions have occurred in shares of entities like Nestle Nigeria, where the parent company, Nestle SA, has embarked on buying spree of the Nigerian subsidiary at different times.
On Monday September 26, Ecobank Transnational Incorporated Plc also declared a chain of share purchase transactions involving one of its directors, Alain Nkontchou, who used his personal fund, ENKO Opportunity Growth Fund, to mop up the shares of the Pan Africa bank.
The bank’s filing to the Nigerian Exchange Group on Monday indicated that a total of 524,418 units of ordinary shares of the bank were crossed over to the Director’s Growth Fund in three separate transactions carried out on September 20th, 21st and 22nd at average price of N11.20 per share.
The notification letter titled “Notice Of Share Dealing by an Insider,” was dated September 26, 2022 and signed by the Company Secretary, Madibinet Cisse.
Analysts attributed the massive shares mop up to speculations anticipating interest rate hike at the Monetary Policy Committee (MPC) meeting on Monday and Tuesday.
Dealing members of the Nigerian Exchange who spoke with our correspondent envisaged inevitable hike in interest rate to compensate for rising inflation.
Inflationary pressure jumped 20.52 per cent in August while current interest rate stood at 14 per cent, the highest in more than a decade, fueling speculations that CBN is going to adjust core interest rate upwards to compensate for current inflation level.
Our analysis show that each time the CBN hiked interest rate, equities market took a hit as investors migrated to fixed income market where yield is guaranteed with minimal risk.
For instance, foreign and domestic investment inflows into the Nigerian stock market slumped by 83 per cent two months after the Central Bank of Nigeria (CBN) raised its key interest rate in July, first time in six years.
Total inflows into the stock market slumped to N50.65 billion in July from N303.22 billion in May, according to data from the Nigerian Exchange Limited (NGX).
The CBN hiked its monetary policy rate to 13 per cent in May from 11.5 per cent to combat soaring inflation. It further increased the benchmark interest rate to 14 per cent in July.
“This trend of rising inflation and interest rates denting the allure of equities market,” analysts say, “will give rise to uptick in the fixed income yields amid tight system liquidity and ensure persistent selloffs in the equities market,” says the Chairman, Association of Stockbroking Houses of Nigeria (ASHON) Sam Onwukwe.
According to him, the massive sell offs going on in blue-chip stocks is expected because investors in stock market will continue reducing their equity exposure as they gradually shift to higher-yielding risk-free assets, stressing CBN decisions could heighten the pace of capital flow reversals in favour of fixed income.
“No one wants to be caught napping,” says David Adonri of Highcap Securities Limited.
He however expressed doubts as to the ability of CBN to contain the twin macro economic problems of inflation and excess liquidity control.
“A continuous hike in rate will likely constrain the country’s fragile growth while achieving little or nothing in terms of combating inflation and attracting foreign inflows,” the analysts said.
The FBNH and Zenith Bank shares have recorded significant price decline this month.
Share price of FBNH which opened at N11.15 per share on September 1st, 2022 has depreciated 13.5 percent this month to settle at N9.65 per share on September 26, the lowest the stock has dropped since after management reshuffle.
Analysts have placed it on buy considering the current price to be too low for its underlying fundamentals, having cleaned up its non performing loans baggage.
This is why insiders are mopping up the shares in confidence that the bank is going to deliver double digit returns by end of this year, perhaps first time since 2016.
Share price of Zenith Bank has declined -14.89 per cent since this year to settle at N20 per share after gaining about 5kobo on Monday. Month on month, share price of the stock opened at N21.90 per share on September 1st, but declined 8.9 per cent to N19.95 on Friday, September 23rd.
The high yield dividend stock which is expected to pay about N3.10 dividend per 50kobo share this year, recorded its lowest price decline to N19.50 per share on September 15 before insiders moved to mop up the shares. Analysts have placed a buy band on the stock, projecting a dividend yield of about N3.10 per 50kobo share this year.
Commenting on the shares mop up activities of the entities’ insiders, the Managing Director, Highcap Securities Limited, David Adonri, said the entities’ insiders have confidence in their companies performance expectations and therefore would want to position for expected mouthwatering returns by year end.
Comments are closed.