Traders’ Voice…All Shades of Red

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It is still the month of love. We hope you had a fantastic Valentine’s Day, besides the crazy traffic that usually comes with it. While most of us know Valentine’s day to be a day of showing love to your significant other or family members, we at Comercio Partners would like to encourage you to take it a step further and show love to everyone around you.

After all, with everything going on around the world, I think it is safe to say we all need love. Lest I forget, it is Black History Month, and we would like to commend all the fallen heroes and everyone fighting for racial equality and justice.

We truly appreciate you and stand with you. Speaking of Black excellence and gender equality, we would like to congratulate our very own Ngozi Iweala for becoming the first female leader of the WTO.

Nevertheless, while so many of us wore the usual Valentine uniform, a touch of red, to church, on our dates or family gatherings, the Nigerian Bourse which was the best performing stock market index last year, was also in all shades of red last week (is it just me or did the song “blood on the dance floor” by the great Michael Jackson just come to mind?)

Bulls or Bears? – You Decide

Although illegal in several parts of the world, allow me to crave your indulgence in an animal fight between two terrestrial mammals – a bull and a bear. Now keep this strictly within your realm of imagination and place your imaginary bets on the likely victor.

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Hold that thought for a second and let us discuss an identical sport that is being played in a real market, which is the equities market. Most players in this market had envisaged a scenario where the bulls maintained dominance in the earlier part of the year, after which we see the bears get a hold of the bourse following the earnings season.

The premise behind this was that dividend plays will dominate the year’s start, after which we would see yields in the fixed income market retrace as we moved into the year, which would not bode well for equities given the history of a strong inverse correlation between fixed-income yields and equity market performance.

So, the oracles were half right; yields are retracing as we move into the year, but at a much faster pace than envisaged. Hence, the market bulls are losing control of the local bourse during an earnings season that should be somewhat positive.

NGSE ASI

Traders' Voice…All Shades of Red

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Over the past two weeks, the benchmark index for the local bourse lost -4.65%, erasing most of the gains recorded in January 2021, where the market ticked up by 5.32% by the month’s end.

As at the close of the market last Friday, the year-to-date return stood at 0.42%, following a second consecutive weekly decline of -3.04%. While profit-taking activities could bear some of the blame for the downtrend, the major driver behind the selloff was the increase in yields in the fixed income market.

The major signal of a retracement in yields was seen two weeks ago after the OMO auctions, and the nail to the coffin came from last week’s treasury bill auction.  

PMA RESULT 

The result of the NTB auction of 10.02.2021 for settlement on 11.02.2021

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(91-Day)

(182-Day)

(364-Day)

Stop Rates (%):

1.0000

2.0000

4.0000

Previous Stop Rates (%)

0.5500

1.3000

2.0000

 

Before we posit our expectations for the equities market, it is imperative that we briefly note three key points. First, at current prices, the market is still performing at a discount when compared to its emerging peers, and there are still several attractive stocks in terms of both fundamentals and dividend yields.

Secondly, the current tone of the fiscal authorities implies that given their plans for increased domestic borrowings, they are still looking to keep rates low, but the levels achieved last year might prove difficult to achieve; and lastly, a review of the equity market performance from 2005 till date, shows that what succeeds a yearly gain that is above 40% is a bearish year for equities.

Traders' Voice…All Shades of Red Brandspurng1

The keyword for an approach to the equities market is caution. While the pockets of bargain hunters are expected to continually hunt for fundamentally attractive stocks after every market correction, the underlying theme of the market appears to be bearish.

Hence, while several factors that would determine the market performance by year-end could still change, the current facts and historical precedence point to a bearish close. So, taking you back to our earlier imaginary fight between a bull and a bear, I wonder which animal your bet is on.

As for us, our take on the animal fight is the same as our view on the equities market – when all is said and done, the omnivore wins. 

New Eurobond issuance: ECOTRA 26s 

Ecobank Nigeria successfully issued the first Eurobond out of Nigeria in 2021, with a total outstanding of US$300m for 5-year paper and a 7.125% coupon. The paper was highly sought after with a 3x oversubscription despite the current macroeconomic headwinds and covid-19 induced disruption. Which begets the question “is this the best time for Nigeria to issue a sovereign bond?”

Issuer

EBN Finance Company B.V.

Borrower

Ecobank Nigeria Limited

Borrower Rating

B – / B – (S&P / Fitch)

Expected Issue Rating

B – / B – (S&P / Fitch)

Status

Senior Unsecured

Format

144A/RegS

Settlement

16 February 2021 (T+4)

Tenor

5 Year

Coupon

7.125%

Size

USD 300mn

Books

USD 900mn (excl. JLM interest)

Read Also:  Global Smartphone Market Falls 3.4% in Q1, Led By Contraction in China

 

We expect to see sustained interest in coming weeks given as ECOTRA 26s remains the most attractive Nigerian bank Eurobond paper in terms of yield. We see it settling at around 6%.

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Latest News

Vivocom’s Group Game Changer – Multi-Billion Sand Project Secured

  • Initial contract worth RM3.79 billion for three years
  • Aspires to be a major industry player 'with exponential growth prospects'


KUALA LUMPUR, MALAYSIA - Media OutReach - 26 February 2021 - In a filing to Bursa Malaysia this evening, Vivocom Intl Holdings Berhad ('Vivocom') announced that V Development Group via one of its subsidiaries has secured a 'massive win' worth approximately USD934.7 million or the equivalent of RM3.79 billion.

Rain International Sdn Bhd ('Rain International') is a 97% owned subsidiary under the V Development Group which was recently merged into the Vivocom Group. The Company's proposed acquisition of V Development Group had been recently approved by the relevant authorities.

Rain International is principally involved in the mineral trading and exportation business, supplying sand to its client mainly in Hong Kong and China for reclamation and construction works. The Company had recently signed a contract for the supply of marine sand for a minimum period of three years.

The contract is for the supply of sand to Zhen Hua Engineering Company Ltd-China Communications Construction Company Ltd-CCCC Dredging (Group) Company Ltd. (ZHEC-CCCC-CDC), a Joint Venture contractor appointed to undertake the main reclamation works for the Hong Kong International Airport Three Runway System Project.

Director Mr William Chan Ching-Kee said: "As the appointed agent for the ZHECC-CCCC-CDC Joint Venture, we are looking forward to the exportation of sand from Malaysia to our client in Hong Kong to commence without any further delay."

Dato Seri Chia is optimistic that the contract would be extended for another two to three years and could potentially generate revenue of up to RM6 billion.

"The sand business is a major boost because it gives us tremendous visibility. The potential revenue is huge, recurring and highly scalable," its jubilant CEO, Dato Seri Chia Kok Teong exclaimed.

"The potential for explosive growth in the sand business is real and tangible, and bodes well for the Group in the next few years."

"We are starting with 3 years but the contract can easily be increased to 5 years and beyond, with higher tonnage shipped every 6 months. The exportation of sand will increase sharply over time," he added.

Besides the reclamation works for the Hong Kong International Airport, the rapid pace of construction and reclamation works in China and Singapore also requires heavy demand for sand, which is a considerable boon to Malaysia.

"The market for sand export is extremely humongous and will fuel the Group's rapid growth for the next several years. The RM3.79 billion Win is the first of many more to come."

"I have in fact urged my team to secure up to RM10 billion worth of sand contracts by the end of 2021. This is part of our overall transformation strategy to become a multi billions conglomerate," declared Dato Seri Chia.

"It is our core strategy to strengthen and diversify the Group's revenues generation capabilities and capacities and not be too narrowly focussed."

"Presently, we are already in negotiations for another RM2 to RM3 billion sand contract. Once finalised, we will make the relevant announcement as per Bursa Malaysia's requirements," Dato Seri Chia elaborated.

The sand would be procured from an approved permit holder to export sand overseas, and sourced from concession areas in Sandakan and Sungai Beluran in Sabah and throughout Malaysia.

"Even with this massive sand contract already secured, we will not be complacent. I have earlier promised to transform Vivocom into a behemoth Conglomerate and I will work non-stop to deliver on the promise," Dato Seri assured.

Since Dato Seri Chia's entry into Vivocom in January 2020 when its price was at 15 cents, the share has climbed sharply and last closed at RM1.06 on Thursday, 25th February 2021.

"I am very optimistic that Vivocom shares will continue to grow strongly and be worth a lot more than presently over time. I'm proud to say that we are no longer a penny stock," he reflected.

"My team is totally committed to building Vivocom into a reputable and profitable public company, one with solid fundamentals, sustainable profits and healthy cashflows."

"As a priority, we will work towards getting the Group elevated to the Main Board of Bursa Malaysia and be a dividends-paying company soonest possible," quipped Dato Seri.

To show his commitment, Dato Seri Chia has undertaken a voluntary self--imposed moratorium (or SIM) in that he will not dispose his personal stakes in Vivocom for the next 3 years. This will ensure the company's long-term price stability and sustainability.

"We want a stable and strong share price so that the Company can use its shares with its high liquidity as a currency for M&A activities to fund and fast-track expansion and growth," he explained.

"A strong share with high liquidity is a most valuable and prized asset. We will use it to buy Companies with game-changing and disruptive strategies. To look for the Next Big Thing."

"The enormous followings in the Company are what is driving in tremendous liquidity and momentum giving our share price added impetus," Dato Seri proudly asserts.

"We aspire to emulate Berkshire Hathaway strategy started over 40 years ago by Mr Warren Buffet. Mr Masayoshi Son built SoftBank Group of Japan along the same philosophy and Alphabet in US adopted similar strategies."

"These three companies are presently amongst the most valuable and admired companies in the world. I have the same dream for Vivocom. I am determined to leave behind an enduring legacy for all our valued shareholders," concluded Dato Seri Chia.

Traders' Voice…All Shades of Red - Brand Spur
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