Q3 FINANCIALS DRIVE THE NIGERIAN EQUITIES MARKET BULLISH IN OCTOBER 2023

Inflation rate has continued rise this year – starting off the year at 21.82% in January and increasing all the way to 22.79% in June of 2023. Experts anticipate a continued increase in the rate if appropriate measures are not taken. The effects of rising inflation can be very harmful to any economy, as it impacts many aspects of the economy including the equities market. Inflation affects investors, companies, and market dynamics, and can also lead to negative consequences for the market; the question is in what way.

When there is inflation, the purchasing power of investors and the people decreases. Someone may be forced to sell some of their stocks to afford certain things like food, and rent, among other things. On the other hand, investors, concerned about the purchasing power of their returns, may demand higher returns to compensate for the declining value of money. As a result, stocks that fail to outpace inflation might become less attractive, leading to potential declines in their prices and overall market volatility.

Inflation and interest rates, which play a crucial role in the equities market, also go hand in hand. Central banks often raise interest rates to combat inflation. We saw this happening during the July Monetary Policy Committee Meeting where the committee voted to raise its benchmark rate to 18.75% to tame inflation and stimulate investments. While high-interest rates could curb inflation, it would also increase the cost of borrowing for companies, limiting their growth prospects and leading to lower earnings. As a result, investors might become more risk-averse, causing a shift away from equities and towards fixed-income investments, which offer higher returns due to the rising interest rates.

Also, different sectors within the equities market are affected differently by inflation. Some sectors, such as commodities and real estate, tend to perform well during inflationary periods due to their tangible nature and potential to act as a hedge against rising prices. Conversely, sectors that rely heavily on borrowing or have limited pricing power may suffer, as their profit margins are squeezed by higher costs. For instance, the 

Lastly, inflation can impact investor sentiment and behavior. Uncertainty about the future purchasing power of money may lead investors to adopt defensive strategies, such as diversifying their portfolios or investing in inflation-protected assets like Such investor sentiment shifts can lead to equity price fluctuations and affect market liquidity.

Although the Nigerian stock market seems to be unresponsive to the high inflation rates, the effects of the contractionary measures the government employs to combat the issue are felt in the market. It is important that investors stay vigilant and adopt appropriate strategies. Diversifying portfolios across various sectors, regions, and classes while considering the current economic landscape and newly implemented policies are essential in mitigating the risk of inflation.

In conclusion, inflation has a multifaceted impact on the equities market, influencing valuation, interest rates, sector performance, and investor behavior. Understanding the interplay between inflation, the equities market, and the economy as a whole is vital for investors, businesses, and policymakers as they strive to navigate the complexities of a dynamic and ever-changing economic landscape.

At its core, compounding refers to the process of generating additional returns on an initial investment by reinvesting the profits generated. This compounding effect results in exponential growth, as the profits themselves begin to generate further profits. It is a snowball effect that accelerates with time, creating a compounding curve that can yield extraordinary results.

Several real-life examples demonstrate the incredible power of compounding. Take, for instance, the story of Warren Buffett, one of the most successful investors of our time. Much of his wealth was amassed through compounding over decades of consistent investing.

The most common application of compounding is in the financial world. Whether it’s investing in stocks, bonds, or mutual funds, the power of compounding can work wonders for those who practice patience and consistency.

Consider this scenario: You invest ₦100,000 with an annual return of 7%. After one year, your investment would grow to ₦107,000. However, if you decide to reinvest those gains, the next year you would earn a return not only on your initial ₦100,000 but also on the ₦7,000 in gains. This process continues, and over time, the compounding effect becomes increasingly powerful

It has been widely discussed and agreed that the multiple exchange rates are detrimental to the economy as the current system allows arbitrage.

The unification of the ₦/US$ exchange rates through deregulation is expected to eliminate arbitrage opportunities and enhance market competition. By removing the existing complexities, this liberalisation will encourage banks to actively support trade and provide facilities to credible businesses with foreign exchange (FX) needs. Strategic banks, seeking to diversify their earnings, will seize the opportunity to play in the FX market, boosting productivity in the economy. However, the black market may face challenges as more transactions shift towards commercial banks.

The Back Story

Fuel subsidies in Nigeria were implemented to ensure affordable fuel prices for citizens and stimulate economic growth. As one of Africa’s largest oil producers, Nigeria heavily relies on crude oil for its economy, GDP, and employment opportunities.  However, sustainability concerns have emerged due to the strain on government finances and associated challenges.

The history of fuel subsidies in Nigeria dates back to October 2000 when supply inadequacies from the country’s refineries prompted the government to establish a committee to review petroleum product pricing and distribution. This committee led to the formation of the Petroleum Products Pricing Regulatory Committee (PPPRC), which later evolved into the Petroleum Products Pricing Regulatory Agency (PPPRA). The PPPRA utilizes a price modulation mechanism that allows for adjusting petroleum product prices in response to changes in global oil prices. This mechanism enables the government to regulate fuel prices and maintain stability in the domestic market.

However, fuel subsidies have become increasingly unsustainable in recent years. The high costs of maintaining subsidies, inefficiencies, corruption, and fraudulent practices have strained the government’s finances. The subsidies have also led to issues such as smuggling and black-market activities, economic distortions, and reduced investment in critical sectors. To address these challenges, the Nigerian government has undertaken efforts to reform the subsidy system. Recently, the newly elected president Bola Ahmed Tinubu announced the removal of the fuel subsidy resulting in the current fuel price hike. The recent fuel price hike has sparked debates and raised concerns about its impact on inflation, transportation costs, household budgets, and economic growth.

What does this mean for our Economy?

Subsidies distort market dynamics and discourage healthy competition in the oil industry. With the removal of petrol subsidies, the downstream sector can operate in a more market-driven environment. This fosters competition, encourages efficiency, and allows for a more dynamic and responsive industry.

The subsidy regime has disincentivized investment in local refining capacity in Nigeria. By removing petrol subsidies, the downstream sector becomes more attractive for investment in refining infrastructure. This can lead to the construction of new refineries and the expansion and modernization of existing ones. Increased refining capacity would reduce Nigeria’s reliance on imported petroleum products, boost local production, create jobs, and enhance energy security.

Furthermore, The removal of petrol subsidies can incentivize investment in alternative energy sources and technologies. With higher petrol prices, there is a greater motivation for consumers, businesses, and the industry to explore and adopt cleaner and more sustainable energy options. This could lead to increased investment in renewable energy, natural gas, and other environmentally friendly alternatives, fostering a transition to a more diversified energy mix.

From a fiscal sustainability perspective, removing fuel subsidies can alleviate the burden on the government’s finances. Redirecting funds from subsidies to priority sectors can help address budget deficits and create a more sustainable fiscal environment. This, in turn, can enhance investor confidence and attract foreign direct investment, signalling to foreign investors that the Nigerian government is committed to economic reforms and creating a favourable business environment.

• The Board and Management of Ardova highlighted recent operational challenges that have impacted the performance of the business and its ability to make attractive returns to shareholders citing the decline in security’s price on the exchange over the past 5 years as well as the decline in its dividend yield.
• The Board and Financial Adviser, Stanbic IBTC Capital, in the scheme document highlighted the need for capital injection into the business and the consideration of the most appropriate funding method for the company.
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• The conclusion of their analysis is that the majority shareholder will be better positioned to take strategic decisions, raise funds and drive the company’s operations by buying out the minority shareholders and delisting from the exchange.
• They also stated that the company will be unable to make attractive returns to shareholders in the near term and advice minority shareholders to consent to the scheme.
• According to the proposed timelines in the scheme document, June 22, 2023, will be the last trading day on the Nigerian Exchange.
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• Ardova will be delisted from the Nigerian Exchange on June 29, 2023.
• Though the dates were stated as indicative, we believe the transaction is on track to meet these timelines. 

Oando Plc disclosed that it has received an offer from its core shareholder, Ocean and Oil Development Partners Limited (OODP), to acquire the shares of all minority shareholders in the company. Following the acquisition, the company will be delisted from NGX and JSE and re-registered as a private company. Under the Scheme, each Scheme Shareholder shall be entitled to receive the sum of N7.07 in cash or its equivalent in South African Rand (ZAR) for every ordinary share held by qualified Scheme Shareholders at the Effective Date of the Scheme.

In keeping with their promise to link investors to choice investment opportunities, Parthian Securities Limited and i-invest held the January 2023 edition of their Bears & Bulls Series themed “An Investor’s Guide to Building Wealth on the Nigerian Exchange”. The online investment clinic which held on the 18th of January 2023 offered investors free insights and analysis on the Nigerian equities market.

Speaking at the investment clinic, Head of Investment Research at Parthian Securities Limited, Oluwaseun Dosunmu, reminded investors that true to Parthian Securities’ earlier market predictions last year, the Nigerian equities market defied the odds in 2022, posting an upbeat performance despite the risk-off sentiments that rattled the global equities market.

He stated that the global central themes of 2022 were the Russian-Ukraine war, the zero covid policy in China, high crude oil prices, elevated inflation rates and the hawkish stance adopted by most central banks which made major economies experience a slowdown in economic activities, resulting in high cost of living and doing business. The Nigerian economy didn’t do better either as the key macroeconomic numbers were disappointing.

He forecasted that in 2023, the dominant events of 2022 will likely persist albeit with a mild twist. For the global economy, the tightening by the central banks would likely persist at a slower rate while in Nigeria, the forthcoming elections would ultimately determine the next direction of the foreign exchange (FX) market. In addition, it is expected that the inflation rate would decline due to the high base effect of 2022.

In addition to a credible and fair election, he listed low-interest rates, new listing/capital market reforms and strong corporate earnings as some of the factors that would drive market performance in the year.

“We are optimistic that in 2023, the equities market would continue the positive momentum driven largely by the dominance of domestic investors, better corporate earnings and lower interest rates. Favourable FX policies and a peaceful election would likely get foreign investors trooping into the country in 2023,” he said. He further explained that this is the right time to buy stocks as many investors would likely return to the market after the February presidential election, thus pumping the prices of equities.

Dosunmu cautioned that on the downside, continued monetary tightening, election violence and poor earnings of listed equities could trigger a negative outcome. He projected that 2023 will experience a continuous but slower monetary tightening and bullish oil prices, adding that some of the issues that defined economic performance last year would continue in the year but with some moderation.

According to the analyst, in 2022, Airtel and Seplat led the performance of the Nigeria equities with 71.2 per cent and 69.2 per cent returns respectively, followed by BUA Foods, BUA cement, and Geregu Power which was newly listed. He picked Airtel and Seplat again, alongside MTN, Zenith Bank, UBA, Nestle, Dangote Cement and Lafarge as stocks to watch this year with Nigerian Breweries and Total Energies also making the list.

Also, Chief Operating Officer of i-invest, an investment app of the Parthian Group, Tobi Olusoga, enjoined investors to consider flexibility and diversification in the management of their investment portfolios. She explained that i-invest would help investors to achieve this in a safe, secure, and convenient way.

“With i-invest, investors can access an array of competitive investment opportunities such as Treasury Bills, Commercial Papers, Fixed Deposit Notes, Eurobonds, and much more. They can also buy and sell shares on the Nigerian Exchange (NGX) without the aid of a broker, create one-off or reoccurring saving plans and accrue interest at attractive rates,” she said.

Bears & Bulls Series is an initiative of Parthian Securities, a subsidiary of the Parthian Group, created to empower people looking to invest in the equities market with the vital knowledge and resources to help them ace their investment goals and make valuable gains.

Despite the challenging operating environment which pushed up distribution and administrative expenses, the performance of most of the oil and gas companies in Nigeria has been impressive in the nine months to September 2022. The combined earnings of the oil and gas marketing companies listed on the stock exchange increased by more than 38%.

Here are our thoughts on the financial performance of the sector and the outlook for the rest of 2022.

What caused the spike in the sector’s performance?
The oil sector witnessed an improved performance, mainly due to growth in key revenue lines (the sale of petroleum products and lubricants). The major revenue growth driver was higher oil prices in 2022 compared to previous years. The geopolitical tensions between Russia and Ukraine also provided a boost to crude oil prices this year, as oil prices reached a peak of $127/barrel.

Looking ahead, what should we expect from the sector?
The expectation is that oil and gas companies will do way better than what they did in 2021 as some of them have already generated higher revenues and achieved over 90% of the 2021 full-year revenue in the nine months to September 2022. Nonetheless, the declining international crude oil price remains a downside risk and would be determined by OPEC+ output cuts in their November 2022 meeting and the crude oil demand from China.

Why you should invest in Oil & Gas Stocks
Oil and gas stocks can produce significant capital gains through share price appreciation and attractive dividend income when crude oil prices rise. In times like this, oil companies tend to generate gushes of cash which provides them with more funds to increase oil and gas production, repay debt, repurchase stock, and pay dividends, all of which can increase shareholder value.

How to invest in Oil & Gas Stocks
If you’re looking to add oil and gas stocks to your portfolio, here are the nine oil marketing and production companies listed on the NGX (Nigerian Exchange): Ardova Plc, Conoil, Eterna, Japaul Gold and Venture, MRS Oil Nigeria, Oando, Seplat Energy, Total Nigeria, and Capital Oil.

You can invest in any of these companies directly on the i-invest app or contact us via info@parthiansecuritiesng.com

Source: Parthian Securities Research.

If you’ve never heard the phrase “investing ethically” fret not, you are not alone but today will be the end of all of that. In this article, we’ll be discussing what ethical investing is, the types of ethical investments and how you can access them.

Ethical investing involves choosing companies or funds to invest in based on your values. These values could be moral, social, political, environmental, religious or any ideology that you care about. These values, whatever they may be, make up the main filter for the selection of investment options in ethical investing.

Why Ethical Investing?

Although ethical investing depends on the investor’s views, ethical investors generally choose investments that have a positive impact on the world while also aiming to make a profit. For example, the earliest recorded instance of ethical investing was by the 18th-century Quakers, who restricted members from spending their time or money in the slave trade.

These days, ethical investing primarily centers on impacts on the environment and society such as climate change, renewable energy, and animal testing. As more and more people are increasingly conscious of the fact that the fate of our planet rests in our decisions, investments in businesses are increasingly ethically conscious. This is to contribute, in every possible measure, to fostering environmentally and socially conscious companies to ensure we build sustainable systems of living.

Companies involved with stigmatized activities, such as gambling, alcohol, smoking, pollution or firearms are in turn avoided in this context of ethical investments. Certain companies may not market products that are stigmatised but they engage in unethical business practices such as; poor working conditions, sexual harassment, discrimination, false product claims, bribery and selling customer data. These companies can be seen to carry social stigmas, rightfully so, and therefore do not enjoy the patronage of ethical investors. That should show ‘em.

Types of Ethical Investments

Selecting investments based on ethics, however, offers no guarantee of performance. The following investments, whose terms have been used interchangeably in the investment sector, fall under the umbrella of ethical investing:

1. Impact investing: is an investment strategy that aims to generate specific beneficial social or environmental effects in addition to financial gains. The point of impact investing is to use money and investment capital for positive social results. Investors who follow impact investing consider a company’s commitment to corporate social responsibility or the duty to serve society positively. Socially responsible investing (SRI) and environmental, social, and governance (ESG) investing are two approaches to impact investing. According to the Global Impact Investing Network, more than 88% of impact investors reported that their investments met or exceeded their expectations.
2. Socially responsible investing (SRI): this is any investment strategy which seeks to consider both financial return and social or environmental good to create social change regarded as positive by proponents.
3. Environmental, social, and governance factors (ESG): this is a set of standards used by socially conscious potential investors to screen a company’s behaviors.

1. Environmental criteria screen how a company performs as a custodian of nature, in matters such as climate change, energy emissions, carbon footprint, water use and conservation, waste management and resource depletion.
2. Social criteria examine how a company manages its relationships with employees, suppliers, clients, and its immediate community in areas such as employee relations, human rights, diversity within hiring, inclusion programs and impact on communities.
3. Governance criteria deal with how a company is managed or “governed” for driving positive change. It covers assessing the quality of its management and board, shareholder rights, executive pay and diversity, and overall transparency and disclosure.

1. Sustainable investing: This ensures that businesses aren’t judged solely on short-term financial gains but on a bigger picture of what and how they contribute to society, this in turn encourages companies to embrace sustainable principles, which can provide long-term social and financial gains. This concept is embodied in the idea that, in addition to focusing on financial performance and generating profit, organizations should measure their social and environmental impacts.
2. Halal investing: This refers to the investment of money in accordance with Islamic finance principles which is centered on the concepts of social justice, ethics, and using finances to help build communities. An example of halal investing is Mudarabah, an Islamic finance technique in which a lender or investor and a borrower or investment manager establish a profit-sharing partnership to undertake a business or investment activity. Under this structure, the investor provides the financing or funds, and the investment manager provides the professional, managerial, and technical know-how to carry out the business or manage the investment. The investment manager must invest the funds on a Sharia-compliant basis (for example, the funds cannot be invested in prohibited (haram) products or activities such as tobacco, alcohol, or gambling).

How to Start an Ethical Investment in Nigeria

Using an investment platform like i-Invest makes it easy to buy shares or funds. On this platform, there are a few different ways to invest ethically. You could pick your own stocks under ‘Equities’ and create your own ethical portfolio by buying shares or bonds yourself that you believe fit your own beliefs and values, or you can invest directly in the Modarabah fund.

Click here to get started with ethical investing.