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Regulatory sanctions, unimpressive earnings trigger sell-off on NSE

By on November 2, 2015

The sequence of “bad news” relating  to unimpressive earnings announced by companies and regulatory sanctions on   three banks significantly eroded investors’ confidence in the Nigerian  stock market last week,  leading to a season of sell-offs on the bourse.
Consequently, market capitalisation shed N370.1 billion to close at  N9.9 trillion while   the benchmark equities indicator,  the Nigerian Stock Exchange (NSE) All-Share Index (ASI) tumbled 2.7 per cent week-on-week (W-on-W)to close at 29,190.54.
Thus, month-to-date decline  of the ASI  settled 6.5 per cent for the month of October, while year-to-date decline worsened to 15.8 per cent.

The  NSE market report for the week ended October 30 showed the list of the top 10 price decliners which include Oando Plc -39.66 per cent, Learn Africa Plc-19.75 per cent, UACN Property Development Plc-17.97 per cent, Stanbic IBTC Holding-17.78 per cent, FBN Holdings Plc-14 per cent, United Bank for Africa Plc-13.58 per cent, Transnational Corporation Plc-12.56 per cent, Guinness Nigeria Plc-12.10 per cent, Unity Bank Plc- 11.69 per cent and FCMB Group Plc-10.50 per cent.

Capital market watchers attributed the sell-off to a combination of the hair-raising post-tax loss for year 2014 by the Oando Plc, Nigeria’s integrated oil and gas operator – listed on the Johannesburg and Nigeria stock markets; the crackdown on Stanbic IBTC Holding by the Financial Reporting Council of Nigeria (FRCN) over alleged infractions on the company’s results and the Central Bank of Nigeria (CBN’s) sanctions on FBN Holding and United Bank for Africa Plc, for their failure to fully comply with the directive to remit all deposits relating to the Federal Government MDAs into the Single Treasury Account (TSA) by September 15.

Therefore, performance  across sectors trended southward week-on-week, mirroring market performance. The Oil and Gas sector took the most hit tumbling 6.0 per cent as investors dumped   Oando (39.66 per cent), placing the counter on full offer throughout the week. The banking sector followed with a 3.4 per cent W-o-W decline on the back of  sustained pressure on FBN Holdings (14 per cent), UBA (13.58 per cent) and Stanbic IBTC (17.78 per cent).

According to a report by a financial and investment research firm, Afrinvest, Consumer goods sector index dipped 2.0 per cent despite modest earnings numbers submitted by sector bellwether – Nestle- which recorded a modest revenue and  profit after tax (PAT) growth of 5.2 per cent and 2.2 per cent respectively, and declared a N10.00  dividend per share. The industrial goods index did not miss the bullet either closing 0.7 per cent W-o-W lower while the Insurance index (+0.2per cent) closed as the sole gainer for the week, rising by 0.2 per cent.

The report showed that, Oando’s share price tumbled 40 per cent last week. The company, which turned in its much-awaited audited FY: 2014 earnings result, a fortnight ago, reported a monumental post-tax loss of N183.9 billion, the highest loss ever recorded by any NSE listed company. The company attributed the massive loss to provisions made for the inability of its Joint Venture partners (JVs) to make payments for over lifted oil, the currency devaluation, which led to foreign exchange losses in its downstream division as well as impairment and write-downs on its upstream assets.
According to Afrinvest, the inability of the company to efficiently manage shareholders fund – as reflected in bloated administrative expenses, non-issuance of a loss warning and long delays in releasing the 2014 annual reports and  first quarter (Q)   and second quarter (Q2) 2015 results have also raised questions about regulatory compliance level as well as corporate governance practices of the company.

In the case of Stanbic IBTC, its share price at the end of trading on Friday, fell by 17.4 per cent. Last week, the FRC, after concluding its investigation of NSE-listed Stanbic IBTC Holdings Plc for alleged regulatory breaches, ordered the company to withdraw its financial statements for years ended December 31, 2013 and 2014 and restate them in accordance with relevant provisions of the FRC guidelines. The council also suspended the FRC’s numbers of four directors of the company for alleged negligence and further reported the company to the CBN and EFCC.  Consequently, the shares of Stanbic Plc  went down by 17.4 per cent to settle at N18.9 per share. The company, in its nine-month results showed that gross earnings expanded by 10.0 per cent year-on-year (Y-o-Y) to N104.4 billion while PAT fell 46.0 per cent Y-o-Y to N13.5 billion.

Investors also responded to the fine imposed on FBN Holdings and UBA (N1.9 billion and N2.9billion, respectively) for their failure to fully comply with the directive to remit all deposits relating to the Federal Government MDAs by September 15 into the Single Treasury Account (TSA).
Afrinvest’s report showed that “investors dumped the shares of both banks as the Tickers fell 14.0 per cent (FBNH) and 3.5 (UBA) last week.”

It explained, however, that while the losses sustained by UBA may have been moderated by its impressive Q3:2015 earnings release which  indicated that the bank’s gross earnings expanded by 17.3 per cent to N247.2 billion  even as PBT and PAT surged 34.8 per cent and 44.4 per cent to N57.4 billion and N48.6 billion respectively for the  nine months period, that of FBNH was compounded by the bank’s audited   nine months earnings numbers which indicated that gross earnings expanded 16.9 per cent to N390.0 billion but PBT and PAT declined significantly by 19.2 per cent and 9.7 per cent to N59.6 billion and N50.2 billion respectively.

The research company, however, believed that the sanction will go a long way in encouraging adherence to the principle of corporate governance in private sector in the country although it expressed reservations at the timing of the sanctions.
It stated: “Although we believe the timing of the above unsettling news flow is rather bad for the market given the mammoth of macroeconomic headaches besetting the capital market at the moment. We opine that the series of regulatory sanction dished out on Monday (26/10/2015) is positive for regulations and corporate governance in Nigeria if these companies are found liable as indicted.

“While we understand the circumstances  surrounding the monumental loss posted by Oando Plc, we believe the oil and gas firm should have submitted this result earlier in accordance with the guideline of the Exchange as waiting for over seven months post – regulatory deadline raises a number of corporate governance questions.

 

[ThisDay]