Goddy Egene writes that the bearish state of the stock market offers opportunity to buy stocks of companies that pay interim dividends as half year earnings are being expected
The Nigerian equities market is set to close the first half year (H1) of 2021 on a negative note following weak demand for stocks by investors. As at Monday, the Nigerian Exchange (NGX) Limited All-Share Index (ASI) had suffered a year-to-date decline of 6.49 per cent. Many equities have witnessed higher price moderations making them to be more attractive to investors considering their strong fundamentals and prospects.
Hence, it is believed by market stakeholders that the decline in prices of equities in H1 is an entry opportunity for investors to take position and reap good returns on their investments. Stakeholders stressed that it is even a better opportunity for investors to position for companies that pay interim dividends given the fact that the H1 earnings season is around the corner.
Companies will soon begin to announce their results for the H1 ended June 30, 2021, which will indicate their financial performances and what investors should expect at the end of the year. According to operators, this is a development that would also determine investors’ demand for the stocks going forward.
However, THISDAY checks have shown that investors targeting stocks that regularly pay interim dividends have a good opportunity to move in now at good bargain because most of the stocks are trading below their year’s opening prices.
When the market is highly volatile or bearish, the payment of dividends is what investors look up to as a good form of returns on their investment. Apart from dividend paid at the end of every year, some companies have developed the habit of paying interim dividends, thereby improving the liquidity of their shareholders.
And as the market awaits the H1 earnings reports of companies, opportunities have opened for investors to take position in interim dividend-paying companies at very attractive valuations.
Companies known for the payment of interim dividends include: Access Bank Plc; Custodian Investment Plc; Guaranty Trust Holding Company Plc; MTN Nigeria Plc; Nigerian Breweries Plc; Nestle Nigeria Plc, Stanbic IBTC Holdings Plc; United Bank for Africa Plc (UBA) and Zenith Bank Plc.
A look at the prices of the stocks showed that they offer very attractive valuations opportunities for discerning investors eying undervalued equities ahead of interim dividend announcement.
For instance, Access Bank Plc, which opened the year at N8.45 per share, traded at N8.50 on Monday. The bank is known for regularly interim dividends. It paid an average interim dividend of 25 kobo per share in the past three years. Custodian Investment Plc closed at N6.00 per share on Monday, compared to N5.85 at which it had begun 2021. The company has paid an average interim dividend of 10 kobo in the past three years.
Investors buying into GTHoldCo Plc now would be getting the stock at a lower price of N30 per share as against its year’s opening value of N32.35. The bank has rewarded investors with an average interim dividend of 30 kobo every year since 2018.
For MTN Nigeria Plc, its Monday’s price of N163.00 is lower than its year’s opening value of N169.90, which an entry opportunity.
The leading telecommunications firm has paid an average interim dividend of N3.50 per share in the past two years.
Nigerian Breweries Plc, which has paid an interim dividend of 45 kobo in the last three years, was traded at N54.85 per share as at Monday down from its opening price of N56.00 per share.
Nestle Nigeria Plc traded at N1, 400 per share, compared with N1, 505 at which it began 2021. The firm has rewarded shareholders with an interim dividend of N23.33 per share in the past three years. Stanbic IBTC has paid an average dividend of 80 kobo per share, while its share price stood at N40.05 down from N44.05 at the beginning of the year.
UBA, which traded at N7.35 per share on Monday, compared to its opening price of N8.65, has paid an average dividend of 19 kobo, just as Zenith Bank Plc paid an average interim dividend of 30 kobo. The stock ended Monday at N23.65 per share, down from N24.80 at which it opened for 2021.
Analysts at InvestData Consulting noted that H1 interim dividend stocks are becoming more attractive at this point for income investors and traders, even as the market anticipates positive news.
While advising investors on what to do in this bearish trend, the analysts said: “Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.”
Although the actual level of dividend would only be known when the companies unveiled their H1 results, the first quarter (Q1) earnings and assurances given for improved performance, are pointers to a very attractive harvest.
For instance, Access Bank Plc recorded gross earnings of N222.1 billion in Q1 of 2021, up by six per cent from N2029.8 billion posted in the corresponding period of 2020. Profit Before Tax (PBT) rose by 30 per cent to N60.1 billion, from N46.2 billion, while Profit After Tax (PAT) grew by 28 per cent to N52.6 billion compared with N40.9 billion in 2020.
According to the Group Chief Executive Officer of Access Bank Plc, Mr. Herbert Wigwe, the Q1 the performance showed the strong capacity of their business to generate sustainable earnings on the strength of their balance sheet, diverse revenue streams and their dedicated people.
“As a result of effective implementation of our cost reduction strategy, operating expenses remained flat, despite the inflationary environment and increased regulatory cost. Our retail banking business also showed steady growth with a 112 per cent increase in revenue to N57.5 billion and a 941,631 new customer sign-on via our financial inclusion drive during the quarter. This improvement is evidenced by the consistent and robust savings account growth to N1.3 trillion , leading to asignificant reduction in our cost of funds,” Wigwe said.
He said that with the increased adoption of digital channels and the growing customer base, the bank recorded a 29 per cent growth in USSD transaction value and 40 per cent increase in mobile and internet banking transaction value.
“In line with our risk appetite and efficient risk management, our asset quality continued to improve as guided with NPL Ratio of4.0 per cent (Dec. 2020 4.3 per cent), as we intensified our recovery efforts. Likewise, we expanded our loan portfolio cautiously as reflected by the marginal growth in our net loans and advances to N3.65 trillion year-to-date (Dec 2020: N3.61trillion).Furthermore, we maintained robust capital and liquidity positions, well above regulatory levels with a Capital Adequacy Ratio of 22.2 per cent and a liquidity ratio of 48.3 per cent, positioning ust o support our customers across various markets and adequately execute our expansion strategy,” he added.
Wigwe stated that in furtherance of their vision to be the World’s most respected African bank and Africa’s payment gateway, they remain committed to a disciplined and thoughtful expansion strategy.
“Leveraging the African Continental Free Trade Agreement (AfCFTA), we will focus on key markets to drive outside Africa and intra-Africa trade. In alignment with our objectives, we recently announced our intention to acquire a majority shareholding in African Banking Corporation of Botswana Limited to further strengthen our Southern African footprint. Looking at the quarters ahead, we are poised for strong earnings growth fueled by our retail momentum, robust balance sheet, and operational efficiency,” he said.
On its part, UBA recorded a growth of 5.5 per cent in gross earnings in Q1 of 2021 to close at N155.4 billion compared with N147.2 billion recorded in the corresponding period of 2020. The bank leveraged on modest growth in both interest and non-interest income as well as increased efficiency to deliver an impressive 24 per cent in profit before tax (PBT), which printed at N40.6 billion, compared with N32.7 billion in 2020. PAT grew faster by 26.8 per cent from N30.1 billion to N38.2 billion.
A further breakdown of results, showed that interest expense fell from N43.69 billion to N34.209 billion, the biggest of which was the reduction in expense incurred on deposits from banks, which depreciated from N26.633 billion to N18.51 billion, resulting in net interest income of N74.381 billion, up from the previous N65.417 billion.
Also, fee and commission income rose to N34.955 billion from N28.237 billion, helped by the N12.483 billion income from electronic banking, which increased from N8.301 billion, while commissions on transactional services rose from N4.733 billion to N5.535 billion.
The bank’s total assets also rose by 2.5 per cent to N7.9 trillion in the period under review, compared to N7.7 trillion recorded at the end of the 2020 financial year whilst shareholders’ funds grew to N762.4 billion up by 5.3 per cent from N724.1 billion as at full year 2020.
Commenting on the results, the Group Managing Director/CEO of UBA Plc, Mr. Kennedy Uzoka, expressed satisfaction with the performance, stating that the result reflected the bank’s capacity to sustainably grow earnings even in a highly uncertain macroeconomic environment.
He explained that its robust capital and liquidity have positioned the bank as it continues to support its customers across diverse sectors and markets, guided by prudent risk management practices.
“This impressive Q1 results reflect the capacity of our business to sustainably grow earnings even in a highly uncertain macroeconomic environment. We remain upbeat on the macroeconomic outlook of the countries in which we operate, especially as the COVID-19 vaccine distribution gains traction globally, whilst commodity prices and currencies continue to stabilise. Our robust capital and liquidity positions have positioned us to continue to support our customers across diverse sectors and markets, guided by prudent risk management practices,” he said.
Uzoka noted the bank’s effort towards diligently executing its priorities for the year 2021, saying it is leverages people, process, and technology to deliver the best customer experience across all its channels and touch points, achieving industry leadership and dominance.
He said: “The bank is making strong progress in Nigeria where our continuous market share and efficiency gains are translating into higher profits. We are committed to sustaining this strong start throughout the year, leveraging our customer-First (C-1st) philosophy and unparalleled execution to deliver even stronger returns to our esteemed shareholders in 2021 and beyond.”
