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Geregu, Dangote Cement, BUA, Transcorp entities hedge market against rate hike

Stock market closes in red as investors await MPC outcome

Shares of companies where Nigeria’s billionaire businessmen have majority stake helped the stock market to cushion the effect of last months rate hike on equities market.

The Central Bank of Nigeria (CBN) this Monday, March 25 and Tuesday, March 26 holds another rate decision Committee meeting, its second this year. In the first MPC meeting under Olayemi Cardoso as CBN governor on February 26 and 27, the committee raised the Monetary Policy Rate (MPR) by 400 basis points to 22.75 from 18.75 percent, adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points, raised the Cash Reserve Ratio from 32.5 percent to 45 percent, and retained the Liquidity Ratio at 30 percent.

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Given the Central Bank’s disposition to deploy orthodox monetary policy tools (like OMO auction) to mop-up excess liquidity, the rate hike decision was expected to trigger funds aways from equities as yields in the fixed-income (FI) market trended higher.

The equities market defied this expectation of bearish sentiments following buy interest driven by the recent listing of Transcorp Power stocks by introduction. Transcorp Power listed its 7.5 billion ordinary shares on the Nigerian Exchange Limited (NGX) at N240 per share and a market capitalisation of N1.8 trillion, making the Company a top-10 stock on the NGX by market capitalisation. The stock’s price rally steadied at N383 per share as at March 21, pushing the capitalisation higher by N1trillion to N2.87trillion.

Topmost on the list of stocks that helped the market defy impact of rates hike is Geregu Power which as at March 21 was up this year by 150.6percent as against the NGX ASI which was up by 39.60percent. Also, while Dangote Cement is up by 114.7 year-to-date (YtD), the Transcorp entities (Transnational Corporation of Nigeria is up by 72.1percent and newly listed Transcorp Power has risen by 59.6percent).

Other stocks that have helped the market hedge against impact of last month’s rake hike by the Monetary Policy Committee (MPC) are BUA Foods which is up this year by 96.4 percent, FBN Holdings (+60.5percent), and BUA Cement (+47.6percent).

In early trading this year, Femi Otedola was the prime mover of prices in the Nigeria stock market, analysts had noted. His interest in shares of Dangote Cement and that of Transcorp pushed their prices higher.

The First Bank of Nigeria (FBN) Holdings, whose flagship arm is First Bank recently appointed Otedola, the billionaire businessman and investor, as the new chairman of its board of directors.

With a total wealth of $1.1 billion, Otedola was ranked as one of the top 20 richest person in Africa by Forbes on January 22, 2024 — making him the fourth richest Nigerian. Otedola is also the chairman of Geregu Power. Geregu Power, which Otedola took public in October 2022, accounts for about nine percent of Nigeria’s grid electricity.

Earlier this year, the billionaire businessman was also in the news for his recent acquisition of shares in Dangote Cement, an investment that has since been linked to the increase in the market capitalisation of the cement maker.

Otedola said his interest in Dangote Cement shares underscores the company potential, emphasising long-term wealth preservation, export potential and shareholder value in Dangote Cement share acquisition. Before this, he had offered to acquire majority stake in Transcorp Plc, a move his co-billionaire Tony Elumelu didn’t allow, despite the positive impact on the pricing of the shares of the conglomerate.

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Other stocks like Tripple G (+92.1percent), Seplat Energy (+45.9percent), Meyer (+56percent), Wema Bank (+48.2 percent), and PZ Cussons (+49.8percent) have all outperformed the market benchmark index this year.

As at March 21, the Nigerian Exchange Limited (NGX) All-Share Index (ASI) and equities market capitalisation of the 155-member companies increased from preceding trading day’s lows of 104,256.81points and N58.947trillion respectively to 104,387.47 points and N59.021trillion.

The February 2024 Consumer Price Index (CPI) report released recently by the National Bureau of Statistics (NBS) showed that Nigeria’s headline inflation printed at 31.70percent year-on-year (y/y) compared to 21.91percent y/y recorded in February 2023.

“Given the imperative to curb inflationary pressures, which could pose social challenges and impede long-term growth prospects, I am persuaded that the MPC must adopt an assertive stance by tightening monetary policy measures, with a medium-term inflation target of 21.40 percent by the end of 2024 in mind,” Cardoso and.

“Central banks in sub-Saharan Africa have taken divergent paths so far in 2024. The Central Bank of Nigeria raised interest rates by 400bps to 22.5percent in efforts to combat high inflation. For Nigeria, the country’s decision to raise interest rates was met with a positive reaction, notably from global ratings agencies and international institutions such as the IMF; the fund believes the decision will help contain inflation (February: 31.70 percent y/y) and ease pressures on the Naira.

“Investors will keep a close eye on the policy direction and rhetoric of the CBN; the expectation is that the CBN will continue to tighten policy to starve off inflationary pressures. This should present foreign investors with attractive yield offerings, with the FGN 1-year, 2-year, and 5-year papers trading at 21.34percent, 18.11percent, and 19.22percent, respectively. Additionally, the 1-year OMO paper is currently yielding 25.53percent, offering foreign investors another alternative as well,” Vetiva research analysts said in their March 21 note.

“We were pleasantly surprised not to underperform by a larger margin last week. We were underweight banks and the banking sector rallied by 12.8percent. We were fortunate, within our underweight banks’ position, to have notional positions in banks that rallied, for the most part, more than the banking sub-index. In addition, our notional overweight in MTN Nigeria paid off again. We took a position in Transcorp Power, as we said we would last week, and it rallied slightly,” Lagos-based Coronation research analysts said in their March 18 note

According to them, their decision to be underweight banks since the end of January has yielded a positive difference of 46 basis points (bps), “a somewhat marginal return given what is at stake”.

“We will make notional purchases of bank stocks to bring the overall bank sector weight up to a neutral position this week. We will bring our tactical overweight in MTN Nigeria back to a neutral position. We will measure the neutral positions of the largest stocks by index weight and make notional sales and purchases as appropriate to align with these. We plan no further changes this week. We will maintain our notional overweight positions in Seplat Energy, Okomu Oil and Presco,” the analysts said.

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“The listing of Transcorp Power ’s shares by introduction on the NGX represents a significant milestone for Nigeria’s Power sector as well as the capital markets. The Company’s listing further deepens the capital markets, particularly the Electric Power Generation sub-sector. This listing strengthens the foundation that the Company has laid in the last decade since privatisation, and offers the investing public an avenue to be part of the Company’s growth story,” said Chuka Eseka, GMD/CEO, Vetiva Capital Management Limited, which participated as financial adviser in the listing of Transcorp Power.