One of the greatest investors of all time, Peter Lynch, once said, “Insiders might sell their shares for a number of reasons, but they buy them for only one: they think the price will rise.”
That is the case for some Nigerian companies where insiders from parent companies to directors are buying their stocks that have been undervalued for over two years now due to broader concerns about the economy and foreign exchange accessibility.
Nestle SA, Stanbic Africa Holdings and a non-executive director at Access Bank are some of the insiders who have bought substantial shares in their companies this year.
“The insiders buying the shares of these companies are doing so because they feel the stocks are undervalued,” says Johnson Chukwu, CEO of Lagos-based asset management firm, Cowry Assets.
Such actions are sometimes a pointer for investors that there is value in a company since the insiders have more information than an outsider, according to Wale Okunrinboye, head of investment research at pension fund manager, Sigma Pensions.
The Switzerland-based Nestlé S.A, majority shareholder in fast moving consumer goods (FMCG) company, Nestlé Nigeria plc, has bought nearly N20 billion worth of the Nigerian unit’s shares this year alone.
The latest deal was on November 4, when it acquired 63,077 units of Nestle Nigeria shares at N1,400 for N88 million.
Nestle has managed to stay profitable amid a challenging operating environment where purchasing power is low and operational costs are rising.
The FMCG company made sales worth N90.15 billion in the third quarter of 2021, a 25.7 percent increase compared to last year.
Cost of sales may have risen 30 percent to N55.29 billion but profit after tax was up 17 percent to N11 billion. For the nine-month period, Nestle’s revenue was up 23 percent to N261 billion from N212 billion in 2020, while profit after tax rose 5 percent to N33 billion.
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Nestle’s shares have not however reflected the company’s resilient financial performance this year, with its share price down by 6 percent since the start of the year.
Stanbic Africa Holdings, a majority shareholder in Stanbic IBTC Bank, has also been busy mopping up undervalued shares of the lender. The financial holding company has bought N1.48 billion worth of Stanbic IBTC shares in the last two months alone. The buying activity started on September 14, as reported by the lender.
Stanbic’s profit after tax in the first nine months of 2021 fell 40 percent compared with last year, due to a mixture of lower trading income and higher operating costs, even though its net interest income beats expectations.
The lender’s return on average equity of 14 percent still however remains well above the industry average of 8 percent in the period.
Another bank that has attracted the interest of an insider in recent times is Access Bank. Okey Nwuke, one of the bank’s non-executive directors, bought N13.9 million worth of Access Bank shares on November 3, according to data obtained from the Nigerian Exchange Group. This adds to the 1.3 million shares that Nwuke bought in May.
Access Bank’s profit after tax in the first nine months of 2021 (N122bn) was higher than its entire profit in 2020 (N106bn). Interest income grew by 24 percent to N395 billion in the nine-month period from N318 billion last year while its earnings per share climbed by 19 percent, a sign that it delivered greater value to investors.
