One Overlooked Profitable Micro-finance Banking Stocks To Buy Right Now

Best Banking Stocks to Buy Right Now In Nigerian – Learn The Best Stock Market Investing Strategies That Tells You Top Financial Stocks To Invest In

It’s not every time you will read my recommendations on popular stocks in Oil and Gas, Banking, Consumer, Healthcare sector, today I decided to share one unpopular and overlooked financial stock no one is talking about. The amazing thing is that, when I find unpopular top-performing stocks, I am always surprised because no one is talking about it on financial news websites in Nigeria.

Which stock are you talking about? My dear, it is one Micro-finance bank’s stock, the company is a niche stock that focuses on providing financial products and services, including retail banking, loans and advances, money market activities and financial advisory services to Nigerian police. I am talking about Nigerian Police Force Microfinance bank.

Let’s see what the stock’s performance had been: In the last 6 months, 3 months and 1 months, the stock is up by 84.35%, 69.6%, and 13.98% respectively. NPF Microfinance bank’s share is N2.02 and as this writing, I expect the price to go up.

What is responsible for this growth you may ask? Let’s take a quick look at the company’s financial statement on the quarterly basis to ascertain the fundamentals.

NPF Micro-finance bank recorded growth on key figures across the board; from Q1, Q2, Q3 to audited result, the stock grew its gross revenue, interest income, profit after tax, and EPS. Besides, all financial ratios like the cost to income, net interest margin, return on equity etc indicates that the financial stock is worth paying attention to.

You can also check this post to see my practical approach to analysing banking stocks including all the metrics that will help you pick the right stocks in the banking sector. All you need to do is plug in the figures from the company’s financial statement, available on the financial section of Nigerian stock exchange website and get a quick overview of the bank’s performance.

Using the Q4 result, let’s understand the core business of NPF Microfinance bank, how they get their money, and performance metrics like return on equity, net interest margin, efficiency, loan risk, EPS and expected growth rate.

The core business of NPF Microfinance bank:

NPF has a total asset value of N15.9bn, out of which N9bn was advanced to customers and N16m held as investment securities. Without further analysis, NPF Microfinance bank is a loan driven bank it relies more on credit to generate interest income more than investment in securities.

How NPF Microfinance bank get money

Continue reading One Overlooked Profitable Micro-finance Banking Stocks To Buy Right Now

How to Analyse the Latest Financial Result of your Stocks

How to Analyse Financial Statement of Companies In Stock Market – Learn How to Check Latest Quarterly Statements of Nigerian Companies – Profit or Loss, Balance Sheet & Cash Flow

I love Nigerian stocks that consistently beat analyst estimates, outperform NSE index without getting ahead of their fundamentals nor risking a massive sell-off. The best stocks to buy are not companies that are rising fast on the temporary news but the ones with sustainable market-beating gains, with robust and improving financial metrics that support strong price growth.

In this guide, I will be sharing practical tips (using Transcorp & Dangote Sugar stocks) to analysing your current stocks so you can quickly get a first-hand buy or sell alert before others.

Transcorp and Dangote Sugar Refinery Plc had just released there audited financial statements to the investing public, you can check it out on the official Nigerian stock exchange website right here for Transcorp and here for Dangote Sugar.

If you own stocks in either or both of these companies, you may want to quickly check whether these stocks are good to hold, or sell-off since the financials tells you how they have performed compared to a previous period. Well, I have been following the companies and can confidently say that, up till their Q3 result, they are absolutely great stocks to own.

Transcorp is not just a profitable penny stock but one of my selected turnaround stocks that are poised to do well this year. One of its subsidiaries is Transcorp Hotel, a hospitality unit that will definitely enjoy higher room booking from top politicians in the forthcoming election. Dangote Sugar was also a top performer, delivering over 200% return in 2017.

Now that they have released their audited statement, should I continue to hold these stocks, you may ask?

Let’s take a look at what the recent results of these stocks tell us about their potential for future gains or sell-off.

Continue reading How to Analyse the Latest Financial Result of your Stocks

How I Analyse & Pick Profitable Insurance Stocks

How I Analyse Insurance Stocks Using Companies Financial Statement Like Profit or Loss, Balance Sheet (Financial Positions) And Cashflow – Top Financial Ratios to Find Best Insurance Companies In Nigeria

I had a conversation with a friend, this guy loves penny stock so much that he doesn’t trade stocks that sell above N10 per share. Besides, most of the penny stocks he bought early this year have earned him double-digit return.

I always tell him that I love his confidence when it comes to picking penny stock but you know his major concern? His least performing stocks are insurance companies, while the banking stocks are doing well on a year-to-date return basis YTD), the insurance stocks are underperforming compared to the overall sector index.

The insurance sector is up by 9.5% year-to-date which isn’t impressive when compared to the other indices. As of this writing, the NSE insurance sector, after a 5-day fall, is forming a pin bar at the 20 moving average line, a signal that shows the end of a downtrend.

 

The truth is this, Insurance is the most difficult financial products to sell in Nigeria and if you really want to invest in the sector, you need to find companies that are really making consistent profits, highly efficient and are generating healthy cash flow.

How then can one pick good insurance stocks to buy?

My simple guide to picking great insurance stocks to focus on the best-performing company in the sector, the usual way of analysing the strongest sector isn’t applicable as the sector had always been behind its peers for a long time, a reason not to even give it a shot. Take a look at the 5-year performance, 5-9% is low compared to the banking, industrial, healthcare and even the overall market index, so why would you still take the risk of buying stocks in the insurance sector? The only reason is the opportunity to cash out from penny stocks. When you buy into a big cap stock like Zenith bank, a 50k increase might not necessarily make much money compared to the result of a 50K gain on a penny stock. Why? the low price per share of penny stocks make larger volume purchases easy, hence offers better opportunities to cash out faster. Insurance sector offers more penny stocks than others.

Don’t get too excited about this, the same 50k gain on penny stocks that made millions can also wipe out a larger percentage of your portfolio, so it’s advisable to exercise due diligence when trading stocks in the insurance sector.

Follow me as I share proven and experienced trading strategies to uncover profitable insurance stocks to buy in the NSE market.

Find top performers

Unlike the sectoral performance strategy where you start by scouting for the top sectors, analysing insurance stocks doesn’t require the same strategy, we are already aware of the low contribution of the sector to GDP, less than 1%, a simple reason to skip the sector. So, how then should one find top performers? I look for insurance stocks that had appreciated more than the strongest sector index. In my video, “Top Gaining Stocks“, I share the best period to look at when comparing top-performing stocks, this will help you avoid stocks that have increased too much and are about to fade out or stocks whose performance are temporary.

As of this writing, NEM insurance is the top performing insurance stocks. The stock is up by 65.66% year to date.

Check the fundamentals of the selected insurance stocks.

I am a big supporter of fundamental analysis, no matter how fast a stock is moving, if it doesn’t pass my strict financial ratios, I don’t buy. I do this to avoid pump and dump stock; stocks that are only driven by temporary market news.

There are four metrics I use to analyse the performance of an insurance stock.

The first key figure to check which would help you calculate the key ratios for insurance is Net Earned Premium.  When you pay your annual insurance premiums, the proceeds is called Gross Written Premium (GWP). But, what we’re more interested in isn’t the Gross Written Premium but Gross Earned Premium (GEP), which includes the portion of the premiums earned during a financial year. In turn, insurance companies take out insurance themselves. It’s called reinsurance and protects against unusually large risks. Reinsurance costs are deducted from the insurer’s GEP to arrive at Net Premium Income (NPI).

Now that we have sorted out some crucial figures, let’s get cracking on the ratios.

Continue reading How I Analyse & Pick Profitable Insurance Stocks

Top Gaining Stocks to Watch: 26th, March

The NSE All-Share Index and Market Capitalization depreciated by 1.11% and 0.14% to close the week at 41,472.10 and N14.982 trillion respectively.
Similarly, all other indices finished lower during the week with the exception of the NSE CG, NSE
Banking and NSE Pension Indices that appreciated by 1.07%, 3.31% and 1.67% respectively.

We draw our top stocks to watch from the previous week’s top gainers believing that they may sustain their current trend for 5 days.

Zenith Bank

Investors sold the stock despite the impressive the financial result released. Last week, it bounced back from a low of N27.6 to N30.2 representing 9.42%. The stock had just tested its support region (marked yellow) and is already trending upward on increased weekly volume.

Eterna Oil

The stock gained 7.54% last week to close at N6.13. Eternal oil stock had also bounced from the 20-moving average an increased volume. We also expect the momentum to continue this week.

top Nigerian stocks to watch

Would you like to learn how to pick stocks that will rise? click here to order my book.

How To Know When Your Stock Sell-Off Is Over

Best Time To Buy Nigerian Stock After Market Sell-Off – Learn Stock Market Investing Strategies That Tells You When To Hold Your Stock and Buy More.

If you haven’t read my guide on “What to do when your stock continues to fall“, go to this link here to understand how smart investors handle market sell-offs. Unlike a beginner who is emotionally attached to his trade because he doesn’t have a trading system and had picked stocks randomly, an experienced trader with consistent winning strategy don’t take a quick sell decision when they see one of their stocks tank. His equity wasn’t selected out of thin air, they had been subject to historical price performance, fundamental analysis and strength test before they added the company into their portfolio and as such isn’t easily sold-off because the price sank by a certain percentage. This set of traders already know that when profit taking is on it helps them take advantage of emotional traders who out of fear of loss, eventually make good stocks available in the market at a much lower price than what they are valued at.

In the post link above, I also shared practical and actionable steps to take when you see your best performing stock’s price fall sharply like the NSE index in the last one week. As of this writing, most high-cap and fundamentally sound stocks are currently down on a month-to-date basis despite impressive earnings releases and EPS growth. Why? certain investors have already priced the expectations. But now that the seller had created a big bargain opportunity, is it all stocks that are good to buy? absolutely no! The fundamentals of a stock remains a key factor for me. In my book “My Little Secrets That Make Big Money In Stock” I share how to look beyond the market price and focus on the fundamentals of a stock because no matter the direction of the price, it will definitely catch up with the fair value.

One big secret I also discovered in stock is that earnings expectations are more powerful than the earnings itself. When a company financials reveal great numbers across board in the last quarter or previous year, earnings expectations for the next quarter will naturally become high, hence, drive the share prices high as more buyers take position ahead of the release but when the results come out, its natural for the price to sink as the earnings have been factored into the share price.

In stock market, emotion is more powerful than results. Positive sentiments alone can drive a company’s share that trades at N2 to N10 when there is no financial result just like we saw in Japaul Oil and Maritime Services. The $250m capital injection into the oil firm by Milos Global drove the share price from 0.46k to over 0.80k as investors expect the firm to report better numbers in the future. Well, I didn’t buy because I needed to see at least a quarter result before entry. My trading strategy doesn’t push me into any stock, I trade like a sniper and if my setup isn’t complete, I won’t buy.

Back to the sell-off saga, one of my best stocks in the oil sector had tanked by 11% right now and I am even happy not because I love losing money but the new opportunity to buy more. When you do your fundamental analysis well and is confirmed by the company’s recent revenue, profit and cash flow growth, you should always welcome every share price fall as an opportunity to buy more. This company is a top performer in the sector, made loss last two years following the fall in global crude oil price but is staging a great come back as its solidify its gas business and had rebuilt alternative export routes to cushion the effect of re-emergence of militant activities in the Niger Delta while expanding crude oil production beyond pre-crisis level. I had already shared the simple steps I explored to uncover this stock in my book (click here).

Continue reading How To Know When Your Stock Sell-Off Is Over

What To Do When Your Stock Price Continues To Fall

What To Do When Your Stock Price Continues To Fall – Learn The Best Time & Strategies To Sell Your Stock For Profit In Nigerian Stock Market

The expectations of a lot of traders are currently cut short right now as I write this guide to knowing when to hold or sell your stocks. Why? The full-year earning season is here and we had hoped for more appreciation of the share price of some selected big cap banking stocks. Besides, a friend of mine bought 500,000 combined units of two top banking stocks as he had speculated a double-digit share price increase when these companies disclose their revenue, profit and EPS figure this week. But, you know what, the reverse is actually happening: the two stocks are already down and It’s looking so strange to him.

The first bank released her financial result two days ago, great numbers, improved cost to income ratio and an impressive EPS figure, he was excited and waited patiently for the stock to run up on market opening but was clearly disappointed as the stock declined by 2% before market close and already down by 7% in the last 2 days. Another was a great popular and most profitable bank, in terms of return on equity, they released their full-year result today with market-beating numbers, but the same trend followed. Right now, both banking stocks are falling sharply and he is asking if he should just sell off to protect his current portfolio value?

I also own shares in one of these banks but no panic, not because I am too confident or don’t lose money but I had already subject myself to a sniper trading strategy that delivers 80-90% winning rate if I hold my portfolio for 3-6 months and that alone, is the discipline that keeps me going on in the stock market.

But, this my friend is already panicking because the red flag on his account is driving him to just sell off. Here is how I helped him regain his foot and confidence which I think will help you know what to do when your stock continues to fall:

  • Check whether there is a company-specific news or policy announcement? Sometimes, when you see a massive sell-off, it could be a result of breaking news about the company, government policies or inter-market effect. Inter-market occurs when stocks fall in response to other global equity sell-offs just like we saw in the 2008 market crash. But if none of these reasons is there and the stock is falling continuously, that is most like a profit-taking activity, you don’t have to panic.
  • Did the fundamentals of your stock change? As long as the company you had bought reported great numbers and still on a growth path, remain calm. In the stock market, the price is only a reflection of emotions and if it falls out of fear, buy more, eventually, the value of the company in the future will determine what investors will pay. A stock has delivered good results and now it’s falling, don’t you think, the expectations are already priced in and you bought at the peak of the trend? why not wait for the next quarterly results? earning expectations is stronger than the result itself. When a company that had posted impressive numbers, is about to release its next quarterly or full-year result, expectations always drive the share price.
  • Locate a key support level. The sell-off you are seeing is a temporary market activity and as existing holders take profit, there are still firm believers of fundamentals who will not sell but hold on to the stock, why not find a key support level price had touched previously before a retracement. Let me use the chart of a banking stock to explain this:

Continue reading What To Do When Your Stock Price Continues To Fall

How Long Should I Hold My Stock As a Short Term Trader

How To Make Real Money Trading Nigerian Stocks – If You Want To Make Real Profit Consistently Here Is a Strategies To Adopt & Apply Today.

One fear you would definitely need to overcome if you want to be a confident trader in the stock market is “selling too quickly to cut your loss” because the market is going faster in an opposite direction. This was a big issue for me. I analyzed a stock, checked all fundamentals about the company but the moment I bought the stock, a new emotion sets in, this emotion eroded all that I stood on to enter the trade, the next fearful question was, oh! this stock is going down, should I sell now, after all, half bread is better than losing all?

Several times. I had picked great stocks with all fundamentals intact but because of impatient, I couldn’t wait to see my expected return materialize, immediately price swings to the south several times and to the north, it becomes an issue.

Let me share an experience in 2016 when I bought Okomu Oil stock. The palm oil stock had a 100% + impressive run in the last 2014/15, the same period the NSE all share index fell more than 10%. a key driver of the company’s profit is the exchange rate gain from palm oil export.

I did a complete analysis of the stock as thus:

  • Growth & Valuation

Okomu Oil Plc had positive and increasing top-line revenue growth of 47.51% from 9.74bn to 14.36bn while net income improved 84.62% from 2.66bn to 4.91bn. Its EPS growth was also quite impressive, from N2.7 to N5.15 per share (Over 90% surge, still less than a 1-year change of 71.35%)

Okomu Oil is an agri-processing company that deals in palm oil business – Aside from the economic importance of the product, they also export to countries abroad, a model that lets the stock enjoy more value from forex transactions ( as Naira losses against the greenback, this company benefits from exchange rate gain on palm oil export). The improvement in net income and EPS signified efficiency in managing expenses while rewarding more profit on sales to shareholders. An EPS growth of 90% + compared to the 71.35% growth in share price also earned Okomu Oil a good buy as it had more room to appreciate.

  • Opportunity

Here, we looked at return on equity and debt to equity – Okomu oil has a healthy equity value driven by improved retained earning. It’s ROE grew by 37.84% while debt to equity was at 0.12 which indicateed less reliance on external debt, hence reduced interest expense and grew net income.

  • Cash Position

The cash position of a company was another important factor I looked at; what percentage of profit earned was available as cash at the bank. A great place to look at was the cash flow statement. Okomu Oil cash flow in the latest 2-3 years had been impressive, from 3.2bn to 5.95bn – this was  a key reason the company has been consistent in dividend payout to equity holders.

  • Share Price Performance :
If you had bought equity shares in Okomu Oil in 2014 at N30-N35 per share, your portfolio should be up by 40% – that’s even an additional unrealized gain – plus the dividend income receivable annually.

This was a typical analysis of Okomu Oil price – one of the best stocks to buy Nigeria then – a stable company with positive operating income, impressing profit, improving cash flow, low debt to equity and top performing stock price year-on-year.

But you know what? after I bought into this company, it was like the whole game changed completely, my emotion took over, anytime the share price dropped, I get scared and ask, should I sell this stock or wait for a rise so I can break-even?. This went on to a point Okomu oil fell by more than 30% in two weeks, I had to sell off so I could protect my portfolio. Someone that was already asking if he could sell or wait had now seen a sharp fall, what did you expect?

Take a look at the region marked “yellow”, that is the period I sold to protect my money.

The following week, Okomu Oil reversed the downtrend and quickly increased from around N40-N41 support level to hit N60 with ease, grew further to N75. Then I ask myself, how long should I hold my stock, irrespective of market news, to become a confident trader?

It was the answers to that question that had helped me hold on to different stocks for 3-6 months without fear of losing out:

Here are take away tips to survive any market sell-off:

  • Have a trading strategy like a sniper does for a hit mission- It’s only when you pick your stocks randomly that you will find it difficult to hold on to it when prices fall sharply but for stocks you picked based on a detailed, well-planned and working strategy, sell-offs are always your buy opportunity. As of this writing, a top bank has just released its full-year result which was impressive and great but the market prices didn’t move in the direction people expected, so I started receiving calls on why the bank’s stock went down, I looked at the chart on a medium-term to see what investors’ sentiment was, guess what I discovered? the stock is very bullish and is set to attract new buying volume that could push the price higher, I am already buying more units as it approaches an oversold region, where there will be no more sellers. I had already shared the tool I use for timing my entries in my new video – “Top Gaining Stocks”.
  • Make sure the stock is fundamentally sound – When a stock had risen too much, sell-off or profit taking is normal, so I really don’t get frightened when I see a stock, that has good fundamentals, falls, besides, I believe that “if you have done a good job and trust your strategy, why not buy more” at least, when the stock’s value becomes visible via its financial results, fresh buying interest will help you push the price up again.
  • What is the latest quarterly result? This is the most important of all I mentioned. A stock had just released its quarterly result which came out impressive and better than the previous quarter in a comparable period, don’t you think the sell-off you are seeing is driven by “profit takers”? That alone should let you know that it’s a normal reaction but in the longer run, the price will definitely reverse to reflect the next earnings expectations.

Back to the main question, how long should I hold onto a stock? My personal answer, at least 3 months, allow your stock to pass through a quarter, if you had done your fundamental analysis before picking the stock, then wait for earnings expectation to drive your stock after the close of the recent quarter before you consider a sell-off and if the result comes out great, you can as well ride it for the next 3 months. Seriously, this is how I trade.

So, when next you see one of your top performer’s stock price falls and the fundamentals remain the same, don’t panic again.

I hope you enjoyed these tips? find a more detailed guide in my video.

Top 3 Reasons Your Stock Prices Won’t Go Higher

How To Pick Fast Rising Nigerian Stocks To Buy Now – Learn To Avoid Low Priced Stocks & Select Top Gaining Growth Stocks In Nigerian Stock Market Today.

I had a discussion with someone (name withheld, but let’s call him Michael) who wanted to understand the reasons some shares rise faster than others. His portfolio had more “low-priced stocks” trading below N10, which he deliberately selected to take advantage of volume-driven profit; what I mean is, the stock units he owns ranged from 100,000 – 300,000, then I asked why he adopted that trading strategy, he said he believed that “someday” those shares would increase by N1 and he’ll make millions of Naira.

If you take a closer look at his expectations, they aren’t far from reality, those penny stocks might rise and earn him a minimum of N100k profit on each share. But, here is the sad reality, his portfolio return had been on the negative territory for 2 years now, the stocks, which were “randomly selected” had been down. As at when I checked his purchase price against the current market price, some stocks nosedived to less than 50k after NSE lifted the 0.50k minimum price per share restriction.

My next action plan:

I started teaching him some principles of stock market trading, one of such was understanding the key drivers of a stock price.

The truth is a stock isn’t cheap because the price is low compared to industry peers, besides, top stocks like Nestle, SEPLAT, Zenith trading for N1300, N770 and N30 per share could be cheaper than an Insurance stock that trades for 55k, you may ask how? how can I say N1300 is cheaper than 55k, isn’t that a deceit? Let me share what you don’t know, in the stock market, being cheap is not about what a share price is but it’s on how fast the company is growing compared to what investors are currently paying which is measured by its price-earning ratio.

I had once overlooked a great consumer goods stock because it sold for N15 and picked an insurance stock that sells for N1.65, you know what happened? I watch the N15 stock move faster to N34.5 in 2 months while the N1.65 was consolidating between N1.65-N1.9 until it fell to N0.75. The low-priced company didn’t beat analyst expectation when they released their first quarter result while the “high-priced” stock posted a double-digit growth in sales and profits.

I shared this experience to let you see that the price of company’s shares doesn’t determine how cheap the share is but beyond that, you need to understand the key drivers of shares and check whether they are present in the company you are buying irrespective of the market price.

Back to the discussion I initially started, I requested for a review of all the equities in Michael’s portfolio so I could share 3 cogent reasons his shares have been stagnant for a long time.

Investors perception about the sector

This is one of the biggest drivers of a company’s performance. The direction of a sector is largely driven by government policies, programme and fund support level. A company stock tends to do well if recent sectoral laws and policies will help boost local business activities, save cost or make operation performance better.

When government enact policies, as seen in the recent CBN dividend payment policy for banks, investors always interpret how companies, in the host sector, are affected. As a smart investor, it’s important for you to follow the latest sectoral news in Nigeria. A key reason the insurance sector isn’t growing as faster as its peers in other countries hinges past government policy on insurance, though few stocks are really doing well in that sector, I still tag it a cautious sector to invest in, except you follow my guide on how to pick best-performing stocks to buy now.

Here is a downside to following the latest news every day, you might not have the time or could miss a major breaking news about certain sector of the economy but you know what I do, I use the top-down strategy, I look for top-performing sector and try to find out top news that is driving the sector.

I had also shared tips on how to spot the right sector to focus and why you should never ignore the fundamentals of a sector before buying your next stock.

Company-specific news

As of this writing, Japaul Oil and Maritime Service Plc is currently attracting huge buy interest after the news of additional fund injection from Milos Global, a US-based private equity firm broke out. The stock had suffered massive sell-off last year, a dump that wasn’t unconnected to the falling oil price in the global market. This affected the servicing firm’s clients who were exposed to the crude oil market, and as they began to scale down operations, the company couldn’t recover her receivables. But now that there is a new capital injection to help Japaul Oil repair damaged vessels, diversify its revenue sources and become less reliant on oil, the share price is staging a comeback.

The company had started enjoying investors patronage after it announced a $350 million financing deal from Milost Global, a private equity firm based in New York. The chairman of Japaul Oil, Mr Paul Jegede, had disclosed that Milost will invest $250 million in equity and another $100 million in convertible loans in the company. He noted that fresh injection of capital will enable the company to fix grounded vessels, finance new contracts and expand into mining. Consequently, the sustained investors’ interest resulted in rising in the company’s share price to N0.97 from N0.63 within the week.

Source

Another example of company-specific news is that of Oando Plc. Investors are currently following the outcome of the forensic audit currently going in the company. Besides, the stock was on a bearish trend as the news of insider activities broke out.

This is a typical example of how company-specific news can drive a company’s share. A

Financial result – quarterly and annual report

This is one of the biggest drivers of a company’s share price. In the stock market, smart investors are constantly searching for companies whose fundamentals are great and if you can spot such stocks, I bet you, making a consistent profit on your investment is becomes a sure outcome. Here, I pay attention to the sales or earnings figures, operating efficiencies, profit margin, debt level and cash positions. When a company surpasses analyst expectations, investors tend to buy the stock for dividend income or price appreciations.

You can read up my complete guide on how to easily pick top-performing stocks.

I believe you now have a perfect understand of the reasons some stocks rise faster than the others, so when next you want to check or select stocks, use these to guide your choice of companies.

How To Trade Nigerian Stocks Like A Sniper

I received a mail from someone who wanted to know the hottest growth stocks to buy right now so he could invest his idle N4million and cash out in 2 months. His mail reflected his curiosity and how my response would greatly assist his choice of stocks to buy. But you know what? I disappointed him, I told him,” no stock to buy”. Why? he replied, then I said the stocks available doesn’t fit into your trading style.

A lot of stock market traders and investors lack patient when it comes to picking stocks, they really do not understand that there are perfect buying and selling opportunities. Don’t always force yourself to pick stocks rather let your trading strategy you. It’s time you began to trade like a sniper who doesn’t shot at anything but focus on a particular target. A sniper will not shot a closer or related targeted but is mandated to take on the exact person on the radar, even if there is someone in front of the target, he has been trained to wait until setup is complete.

Many traders just pick different random stocks; they lack the discipline to focus on few top-performing stocks. Anytime, a broker or someone mention stock A, you will see them rush in and you know what? they rush out too. Stock market trading doesn’t reward impatient trader with no consistent strategy, you need to exercise patience in order to survive those scary daily up and downswing.

This is how your trading style should be. There is always a targeted time to buy or enter a stock but you know what? you can’t spot it if you don’t have a trade setup. How do you know when it is time to buy your next stocks if you have not perfected or backtested your trading strategy?

To be a sniper in the stock market, you must create your own proven and tested strategy, a strategy that, when backtested, is able to spot buy or sell opportunity several times with more winning than losing. No trading strategy is perfect but if you have one that has over 70-80% winning rate, stick to it. Successful traders win and lose but you know what keeps them? they make more winning than losing besides, I already shared a strategy you should adopt on one of my investing guides, leverage on trading volume not price. A stock may rise by 10-15% and not make small investors much money but did you also know that the same little increase had made institutional traders millions of trading profits? the difference is in volume traded. These guys buy millions of shares when they trade.

Let’s use NEM Insurance, the shares gained 35k last week to close at N2.25 as at 2nd March 2018. A top trader that bought 1,000,000 units would have made N350,000 in 5 days while a smaller trader that bought 10,000 units is still waiting for the price to double or even triple because the 35k gain is only N3,500 in his account.

When a sniper takes on his target, he expects the shot to be highly profitable, hence he doesn’t target low-level personalities.The best way to start a profitable trading business as a sniper is to focus on buying in large volumes so you can take advantage of the moderate share price growth on a weekly or monthly basis. Leave the zone of small traders and trade like the big boys. I am not saying you should buy 1,000,000 units on every trade but at least focus on larger units compared to your previous volume; if you have been buying 10,000 units of 5 different shares, that’s like 50,000, why not cut the stocks and increase the unit on the best picks. You can buy 20,000 and 30,000 unit of the two top performing stocks in your portfolio.

The second strategy to trading like a sniper is to create a trading journal. Snipers have a history of successful shots and how they locate their target.

Your trading journal lets you document all your trading decisions and why you selected a stock. For instance, I bought Zenith bank at N22 because it is one of the top drivers of the bank sector index, it has good fundamentals like increasing earnings, low cost of risk and profit margin, and currently trade below its intrinsic value of N37. Technically, the stock is bullish on all indicators.

Comments on a trade like this will help you spot a winning strategy over time. What I do is to check my top performing stocks and look for a common comment I documented in my trading journal about them before again. When next you want to buy a stock, make sure the reasons you bought your best-performing stocks are also visible to increase your chance of picking the right stock that will make money.

The third strategy to trade as a sniper is patient. Snipers don’t rush into their target region, they take calculated time to perfect their shot. This is one of the biggest flaws of many traders today, they just jump into a stock because it’s one of the top gainers for the week, no due diligence or fundamental analysis. I think they actually skipped the simple valuation metrics I shared here otherwise they would wait to buy the stock at a cheaper price.

And lastly, know your exit before taking a shot. Professional snipers already have a perfect plan on how to leave or the next best exit door before hitting their target. As a stock market trader, you need to learn how to plan your exit before buying. You might enter a trade at the right time but leave at a loss because you never had a selling strategy that tells you when to pocket your profit. I already shared one of my mistakes here. Successful traders already know their profit target or the market reaction that will prompt immediate exit.

Here are investment guides that will help you become a better sniper:

A summary of these investing guide is that you just need to be patient and wait for your trade setup to complete before placing a buy order with your stockbroker.

SEPLAT Stocks – Best Turnaround Oil Stocks To Buy In 2018

The exceptional skills that will make you stand out in the stock market are not just your abilities to spot growth and dividend stocks, even though they are one of the big money-makers, but being able to uncover turnaround stocks that are making a huge comeback.

What are turnaround stocks you may ask? These are stocks that were affected by a temporary economic trend which eventually led to massive sell-offs and are rising again. You will see affected companies, like this, report declining sales figures on quarter to quarter basis, year on year and even make a loss, and at the end return to profitability after restructuring.

A look at Nigerian stock market

Oil and gas companies in the Nigerian stock market were worst hit by the collapse in oil price coupled with numerous attack on oil facilities by Niger Delta militant that led to low production output. This crisis was largely reflected in their share price performance in 2014, 2015 and 2016, but as the price of crude oil reversed its year-long downtrend after an agreed-OPEC output cut, we saw an increased inflow of petrodollars into the economy. Now that the activity of these militants at near zero level, some of the stocks have begun to rise again as manager of these companies had concluded facilities repairs and built alternative export routes to control future loss.

As a stock trader, I had taken time to single out one perfect turnaround stock you should focus on this year.The stock is SEPLAT

Seplat is a leading independent oil and natural gas producer in the prolific Niger Delta area of Nigeria and a leading supplier of gas to the domestic market. As a full-cycle upstream oil and gas exploration and production company, our focus is on maximising hydrocarbon production and recovery from our existing production and development assets, acquiring and farming into new opportunities in Nigeria (specifically those which offer production, cash flow and reserve replacement potential with a particular focus on the onshore and shallow water offshore areas) and realising the upside potential within our portfolio through focused appraisal and exploration activities. A strong track record and high-quality asset base Our portfolio comprises direct interests in five blocks in the Niger Delta area, four of which Seplat operates, and one further revenue interest.

One interesting discovery on SEPLAT chart is that the price pattern of the stock on a monthly chart mimics the global crude oil market price trend and NSE all share index. As of this writing, the stock is already posting weekly gain as investors’ sentiment turn positive; they had just released a full year result that beats 2016.

Here is my personal analysis that reveals the big upside potential of SEPLAT in 6 months.

Let’s talk about the company performance from 2016.

As culled from the SEPLAT’s 2016 result:

Oil price weakness continued into 2016 with Brent touching a low of US$26.01/bbl in
January. Although prices staged a modest recovery over the remainder of the year,
exiting 2016 at a peak of US$54.96/bbl following the announcement of production
cuts by OPEC members and certain other producers, they remained well below the
average of US$103.43/bbl and peak of US$128.14/bbl that was seen from the start
of 2010 to September 2014 when the abrupt decline set in.
• The challenge of adjusting to the low oil price environment was further compounded
by significant levels of price volatility in the year and uncertainty created by the overall
fragile market state.

More details about the effect of oil price on SEPLAT stock:

• Nigeria’s oil production in 2016 was severely impacted by elevated levels of militancy targeted at key export infrastructure throughout the Niger Delta, and in particular the export terminals that the onshore producers have relied upon to monetise their production.
• Seplat was significantly impacted by this and, like many other producers, was forced to halt exports via the Forcados terminal when the terminal operator, Shell Nigeria, declared force majeure on 21 February 2016 following disruption by militants to the terminal subsea crude export pipeline. The terminal remained under force majeure for the remainder of the year meaning operators reliant on that system were faced with an unprecedented level of disruption in 2016.

Financial Highlight of SEPLAT

The company’s revenue fell by 43%, from a high of N112b in 2015 to N63b in 2016 which is not unconnected to the suspension of oil export via the Forcados terminal following incessant attacks by militant. As you would also expect gross profit figure in the same period declined from a high of N49b to N16b. The huge loss on the foreign exchange market was another major driver of the N45b loss after tax in 2016.

The company had been adopting an alternative strategy to limit the impact of a possible lower price by expanding its gas business aggressively and also avoid imminent production output cut by constructing alternative export routes.

The gas business has been the single factor for consistent revenue stream throughout the period.

Current outlook and future prospect of SEPLAT:

SEPLAT is poised to deliver impressive performance in 2018 as the global oil market recovered significantly in third quarter 2017 which is responsible for the positive full year revenue growth.

Let me take you through the numbers so you will understand the continuous progress SEPLAT has made and why you should jump in now for a bumper 2018, at least the 6 months return is estimated at 48-50%.

Quarterly Report:

The company reported a decline in revenue from $83.4m to $47.3m but a significant reduction in the cost of sales, general and administrative expenses, finance cost and tax helped limit the loss after tax position from $22m in 2016 to $19m in 2017.

Financials reflect lower oil exports via the Warri refinery route whilst jetty upgrades and repairs were undertaken – Revenue US$47.3 million and gross profit US$19.1 million; 22% year-on-year reduction in G&A helped narrow operating loss to US$1.3 million; loss for the period after net finance costs US$18.3 million and loss after tax US$19.1 million – Cash generated from operations US$51.6 million versus capex incurred of US$4.9 million – Average oil price realisation US$48.34/bbl (2016 :US$35.4/bbl); average gas price US$3.05/Mscf (2016: US$2.98/Mscf)

First Quarter Opportunity in 2018

At a current estimated average oil price of $60 in the first quarter of 2018 which far better than $35 in 2016 and $48 in 2017, I believe SEPLAT will record a minimum revenue growth of 20% and stronger profit figure against the loss recorded in the same quarter last year. This should naturally drive the stock price higher.

Second Quarter Opportunity in 2018

The company grew revenue by 27% to N40.3b in 2017 but recorded loss after tax in the same period. On a half-year comparison, there was an improvement in gross and operating profit which also supported the reduced loss recognised against the previous year.

If the average oil price for 6 months remains steadily above $55, I am also forecasting a better revenue figure that will be better than the N40.3b reported in 2017. Assuming a modest 20% growth driven by a higher oil, improved production output and growing gas business, SEPLAT should deliver an estimated N48b revenue in 6 months. The planned sales of Eurobond which the company will use to finance its long-term debt at a lower interest is also a profit booster in the future as it will help lower interest repayment.

Third & Fourth Quarter 2018

If the company also maintains the level of growth recorded in Q3 and Q4 2017, then revenue for the full year 2018 should beat that of 2017.

Profit for the period before tax adjustments was US$44 million, compared to a full year loss before tax of US$173 million in 2016. This return to profitability was driven by performance in the third and fourth quarters where net quarterly profit before tax of US$24 million and US$46 million respectively offset the US$26 million loss before tax recorded at mid-year. Net tax credits of US$221 million, owing primarily to the deferred tax credits of US$224 million, increased the overall profit after tax for the year to US$265 million. The resultant EPS for 2017 was US$0.47 compared to an LPS in 2016 of US$0.29.

Maintaining the same growth in Q3 and Q4 2017 for 2018 on the basis of a $55-$60 average oil price signals a positive prospect for SEPLAT.

Estimated value:

Using the simple formula I shared on how I value growth stocks before buying again, SEPLAT is undervalued by 48%. The company reported an EPS of N144 which when divided by the 10-year average bond yield of 13% revealed an estimated share price of N1,107. What is the market price of SEPLAT? As of this writing, the oil stock is N740.

Besides, the current price-earnings of 5.34 and an assumed minimum 15% growth present a PEG ratio of 0.35 which is another indicator that SEPLAT is a good buy.

Technical Analysis:

On the chart, SEPLAT stock just surpassed the high of N700, the price it last reached before the sell-off began; this is not far from the positive investors’ sentiment towards the oil company as its return to profitability.

All my key indicators are also pointing to an uptrend; though there might be a sell-off as short-term traders take profit that should be an opportunity to buy more.

As of this writing, SEPLAT stock is part of my current portfolio.

4 Growth Stocks That Made Investors Money Last Week Ended 2nd March, 2018

The NSE All-Share Index and Market Capitalization appreciated by 0.72% and 0.82% to close the week at 42,876.23 and N15.403 trillion respectively. Similarly, all other indices finished higher during the week with the exception of the NSE ASeM, NSE Banking and NSE Pension Indices that depreciated by 1.14%, 0.59% and 0.09% respectively.

Here are stocks that made investors good money last week with my analysis of their potential move:

Japaul Oil & Maritime Service Plc

The stock increased by 50% to close at 63k from N42k. This is not unconnected to the $350 million private equity injection (by Milos Global) into the oil and maritime company as the management seek to make it less reliant on the oil sector by diversifying into other revenue centres. The stock has suffered massive sell-off from the oil price dip and is now staging a comeback.

Let’s take a look at the chart for a potential move:

Technically, Japaul oil stock is bullish on all our four key trading signals but because of the sharp positive price increase so far, I would recommend you wait for a pullback from an imminent sell-off/profit takers, then buy the stock. As of this writing, the stock is currently on a full bid, no offer which means price may rise further this week.

Unity Bank Plc

The stock increased by 18.79% to close the week at N1.77 from N1.49. Just as we shared on Japaul Oil, Unity Bank stock may enjoy more patronage if the rumour of a potential buyout, which is driving the stock, turns out positive.

Technically, Unity stock had just reversed its previous downtrend after the news broke out but there isn’t a solid bullish signal on major tools except for the relative strength index.

Recommendation: Wait for a buy signal on all technical indicators.

NEM Insurance Co

This is one of my best insurance stock to watch this year. As investors sentiment turns positive after an impressive result, I am currently waiting for a buying opportunity after sell-off.

NEM insurance stock gained 35k to close the week at N2.25; a key driver of this stock is investors sentiment. The company grew its gross premium by 22%, profit before tax by 35.42%, and profit after tax by 35.47% in Q3 2017 which is better than the figures reported in 2016. I expect the company to post a better full-year result.

Technically, the stock has more upside potential and is fast approaching the level investors will sell off to take price as all indicators point to an overbought region.

Recommendation: Wait for sell-off after a full-year report and buy; insurance sectors will benefit from this year’s growth.

Cement Company of Northern Nigeria

This stock is also on my radar this year. I had already shared a full analysis of the company’s fundamental, go check it out here. CCNN share increased by 17.80% to reach N19,85, the company is already trading at an all-time as investors await 2017 financial report.

Technically, the stock has risen too high, all indicators already signal an overbought stock so expect the price to retreat shortly after the full year result is released expect the EPS beats expectations.

Recommendation: Wait for a major reversal before buying.

Nigerian Banking Stocks – 2018 Sector Outlook & Key Growth Driver

Best Nigerian Banking Stocks To Buy – 2018 Outlook & Forecast – Learn How To Trade Nigerian Stock Markets Online, & Pick Top Performing Shares

I read a very interesting article on Bloomberg website, one of the top global financial news. The review covers everything you need to know about the Nigerian banking sector, performance in 2017, outlook and key profit drivers in 2018.

find the analysis and forecast for this year as culled from Bloomberg:

The spring in the step of Nigeria’s economy is likely to show up in the results of the country’s banks when they start reporting 2017 earnings from this month.

 An improvement in unpaid loans, higher interest income from holding government debt and a rise in profit will have helped lenders bolster their capital buffers, according to Renaissance Capital analysts including Olamipo Ogunsanya and Ilan Stermer.

The gross domestic product of Africa’s largest oil producer expanded for three straight quarters last year after a 1.6 percent contraction in 2016, with year-on-year growth reaching 1.9 percent in the final three months of 2017. An increase in crude prices and the introduction of a new foreign-exchange system that ended a crippling shortage of dollars helped attract more investment flows into the country, while improving liquidity for the nation’s lenders. 

Here’s a closer look at some of the major drivers and points of interest that investors will keep an eye on as they assess the outlook for banks. 

Yield Benefit

Record high-interest rates of 14 percent since July 2016 means there is no shortage of yield for banks, many of which parked their funds to profit from the safety of Treasury bills and other fixed-income securities rather than lending, where there is more risk.

A drop in those yields from a record highs in August means that 2018 will be more challenging for lenders, despite the positive macro backdrop, according to Ogunsanya and Stermer. Volatility in foreign-exchange related gains, limited scope for cost efficiencies and rising political risks before elections in early 2019 also cloud the outlook for this year, the RenCap analysts said.

Lenders Lending

Banks will be able to close the revenue gap created by declining interest rates by lending more into a strengthening economy, according to Stanbic IBTC Holdings Plc analyst Muyiwa Oni. Some banks may boost loan growth to 15 percent this year compared with 10 percent in 2017, he said.

“Credit growth will be a big driver” in 2018, Oni said. While lower rates may reduce the cost of funding for banks, net interest margins may still narrow by anything from 100 basis points to 200 basis points this year, he said.

Fewer Sour Loans

The recession in 2016 hampered the ability of companies to meet their obligations to lenders, prompting a surge in bad debts. Non-performing loans as a percentage of overall credit peaked at 26 percent for FBN Holdings Plc, the country’s largest lender by revenue. NPLs will continue to trend downward after improving to 20 percent in the nine months through September, Adesola Adeduntan, the chief executive officer of FBN’s First Bank of Nigeria, said on Feb. 22.

An improvement in operating conditions, the restructuring of loans, recoveries and some write-offs will see the pace of unpaid loans ease into 2018, Fitch Ratings said in October.

Capital Challenges

At least three small- to medium-sized banks will run into difficulties with their capital levels this year and will need to raise cash, said Robert Omotunde, the head of investment research at Afrinvest West Africa Ltd., without naming the lenders. “A lot of tier two banks have issues with NPLs and it’s eating into their capital buffers.”

Stanbic IBTC’s Oni predicts that the capital adequacy ratio across the industry will probably drop by 100 to 200 basis points, mainly because of the introduction of IFRS 9 reporting standards, which will require higher provisioning.

Bigger lenders including Zenith Bank Plc, United Bank for Africa Plc and Access Bank Plc were able to raise funding in the Eurobond market last year, while smaller ones struggled to boost their buffers. Stress tests showed that the capital adequacy ratio across the banking industry worsened to 12.8 percent in April from 13.6 percent in February, according to the central bank.

Taking Stock

There is still some room for shares to rally even after the Nigerian Stock Exchange Banking 10 Index surged by a record 73 percent in 2017, according to Lekan Olabode, a bank analyst at Vetiva Capital Management Ltd. in Lagos, although the pace won’t match that seen last year. Smaller lenders may also show faster earnings growth and biggest share-price gains.

“The banking sector is significantly undervalued,” he said. “This year, it is the small banks that we expect to do more.”

What you should expect this year:

While banks that were badly hit by non-performing loan will enjoy increased loan repayment this year and improved asset quality,  tier two banks that have a lower cost of risk and higher capital adequacy ratio will benefit from increased credit to the private sector. The unrestricted dividend payout rating assigned to these banks will attract lots of institutional interest from income investors.

Top picks based on positive sentiments and earnings expections for 2017 and 2018 outlook:

  • Zenith bank
  • UBA
  • GTB

I had already shared tips to pick the best banking stocks to buy, read here.

How I Spot Profitable Growth Stocks To Buy

How To Pick Best Profitable Nigerian Growth Stocks – Learn How I Pick Fast Growing Undervalued Companies At Cheapest Price Per Share

I get so excited when I discover new stock market investment topics that will help you invest well, find good stocks to buy and become a profitable Nigerian stock trader. Today, I will be sharing interesting secrets to finding true growth stocks that will appreciate.

Let’s spend some time to find the perfect answer to this typical question, would you rather buy a stock that is selling for N5 or invest in a bigger company’s share at N500 per unit? A better way to explain this: if you have N10,000,000 to invest in stock, would you invest in Nestle stock that is already at a very high price of N1,300 per share or choose Diamond bank that is selling at just N3 per share? When I asked this question a few weeks back, the majority of the answers favoured Diamond bank shares because it’s cheaper at N3. Well, that isn’t the right way to advise a beginner on how to pick his first stock.

I had been in a situation like this, where I decided on buying stocks that were selling at a high price or go for a stock that was cheap since quantity matters too. The truth is, a stock is not considered cheap because the price per share is low neither is it expensive because it has risen too high, you need to focus on a simple metric called growth rate before picking the best stocks to buy. Nestle share price increased from N20 to N500 at some point and a lot of investors felt it was too high at that level, the same share broke through that level to hit N1000 and now at N1,300, my big question is do you still think the share is already high? Before I help you find an answer to that using my personal check, there is a number you need to understand or else, you might be misdirected if the price of the stock is the only factor you watch out for before investing. The number is the projected growth rate of a stock based the fundamentals. Smart investors were not putting more money into Nestle stocks because they were fools, they knew the company was a growth stock with great fundamentals. This is how you should think when investing in a company.

Good companies have common positive metrics before they start rising faster than their peers, you need to spot these secrets features because of one fact: they uncover companies that had shown resilience in the midst of difficult operating environments, posted impressive profit figures and recorded outstanding appreciation in share prices.

This is what I called growth stocks. A lot of investors think growth stocks are stocks that have been growing their share price, no! they are not, growth stocks are stocks that are growing sales and profit faster and at some, smart investors expect the price to reflect the actual value of the company. You can find more details on how I value Nigerian stocks before buying again. If you had thought of growth stocks as one with fast-growing price, look at Nigerian Breweries, the stock which as of this writing hasn’t posted good result but trading at approximately 31 times its earnings; price is growing faster than the profit which is a time bomb. A closer look at the chart trend reveals that institutional investors are gradually dumping the shares as it underperformed the NSE index in 2017 and already down on a look at the year to date performance.

When a stock price is growing fast and posting stead weekly gain, don’t just rush into it and get trapped, look at all the criteria that make a company stock to be referred to as a growth stock before waiting for the perfect time to buy.

How to spot growth stocks.

Here are important checks you should do before picking growth stocks:

Sectors

A true growth stock can’t thrive in a sector that is not supported by government policy, for instance, the CBN micro credit policy aimed at boosting agricultural outputs will no doubt help Agric-business access finance to scale up faster. This is a typical example of how growth stocks can emerge from policies and initiatives. We saw how the CBN’s Investors’ and Exporters’ Window provided FX liquidity, stabilized the exchange rate and reduced material input cost that were initially high due to the high cost of access forex from the alternative market.Such policy should drive consumer goods stocks that rely on imported materials as the cost of sales will likely reduce, and help improve profit figures.

You can subscribe to business dailies, follow top blogs for the latest news that could drive sectoral growth.

See – How to know which sector to focus on

Sales

This is the starting point of every growth stock pick, make sure the stock you analyse has a consistent sales growth history of at least 10-20% in the last 3-5 years. When you compare their sales revenue with the overall industry figure, it will help you check percentage market share a company currently occupies;       portrays market leader and brand loyalty.

Also, good sales figure don’t come from extraordinary or one-time business transactions but from their real line of business – operating activities.

Manage Cost

If cost is rising faster than sales, this is a clear red flag that something is wrong. True growth companies keep their operating cost under control, they have a high level of operational efficiency and can utilise available resources to produce greater results and impressive numbers. The best way to measure this is what we call “cost to sales/income” ratio, a measure of how much is incurred to produce 1 naira sales, the lower the better. I love to look at this metrics on quarter to quarter basis.

Avoid stocks that are intentionally cutting cost to manipulate profits, you will such stock when sales growth is stagnant.

Lower debt and increasing return on equity.

A true growth doesn’t channel the bulk of its earnings to finance expenses or debt servicing as they have a lower debt figure compared to their equity. Such company reports increasing return on equity above 15% year on year and can pay dividend to shareholders. As of this writing, the CBN has just released a dividend payout policy that restricts certain banks, that have a high non-performing loan and below the required capital adequacy ratio (CAR) , not to pay dividend above a certain threshold. Of all the banks listed, only 4 banks can pay dividend without restriction as they have a lower cost of risks and higher CAR.

This is a perfect example of what you should look at when picking the perfect growth stocks, the lower the debt issued, the lower the interest expense, also known as finance cost and the higher the profit attributable to shareholders and dividend payout.

The cash flow from operating activities is growing inline with or faster than the profit after tax.

It is not all the figure declared as profit are available in the bank as cash. A company may declare N10 billion Naira profit after tax but when you check their bank account, the only figure you see is N2billion, what does it mean? they are not able to convert profit to physical cash and as such might not pay dividend. This is a sign that something is wrong.

The cash flow statement is a very important financial statement you shouldn’t ignore: a company can manipulate a lot of stuff to show you big figures but at the end, it the actual cash generated from operating activities that matter.

When I check the historical cash flow trend of growth stocks, I love to see a growth percentage that is close to or greater than the net income growth or EPS growth in the same period.

For instance, if a company reports a profit after tax of N10 billion in 2017 against N5 billion PAT in 2016, that’s like 100% growth, the cash flow from operating activities in the same period should grow by at least 50%, 100% or even more.

The next check on cash flow is, what percentage of the profit declared is available as cash? using the first example, if I have N2billion available as cash when I declared N10 billion, then I have 20% cash conversion ratio. This ratio will help you see the ability of the company to raise more cash to finance growth without borrowing more.

Earnings Per Share

This is the profit attributable to shareholders in a company, besides, it is the key metrics all investors watch out for as it tells whether a company will pay a dividend or not. Most dividend payouts come from the profit after tax.

EPS is also a major factor I use to estimate the intrinsic value of a company; I divide the figure by the average yield on the 10-year FGN bond. This is the metrics I used to confirm my buy signal on Zenith bank’s stock when the bank released a Q3 EPS of N4, the estimated share price I arrived at was N38 but the stock traded at N22, presenting over 60% potential upside.

Is it all stocks that trade below estimate value are great stocks? No, do your background check to be sure that it’s only sell-offs attributed to profit taking and not a fundamental issue. What should I do when a stock trades above it’s estimated value based on its most recent EPS figure?

Know the PEG ratio (price-earnings to growth rate). 

This is a very important metrics that helps you uncover the potential of a stock. Every stock has a price-earnings ratio, a number that tells investors’ perception about a stock and the premium they are willing to pay to own that stock. Stocks with high price-earnings ratio indicates that expectations are high while a lower number tells the reverse. What if there is a way to check how fast the company is growing, compare the result with what investors’ expectation of sentiments, would you take advantage of the gap discovered and inject more cash into the stock? Here is price-earnings to growth, the light metrics that does the magic for you.

With PEG, you can easily tell whether a stock is growing faster than what investors really think or slowly which could eventually give you an idea of a future trend.

An easier way to calculate PEG ratio is to find out

  • the price-earnings multiple of a stock by dividing the share price by the current EPS figure
  • the average EPS growth in the last 3 years and use it as the projected growth rate.
  • divided the price-earnings multiple by EPSS growth rate.

Stocks with PEG less than 1 means that it is highly undervalued and above 1 indicates an overvalued stock. Proper care should be taken when projecting the EPS growth rate of a company to avoid over-estimating or under-estimating the figure. I love to use a modest EPS growth range of 15%, 20% and 25% to estimate a stock intrinsic value at various growth levels; this had helped me discovered what a stock’s value was in worst case scenarios.

Share Price Growth

When I talk about fast-growing stocks, I really do not think a stock actually qualifies to be called growth stock if the share price hasn’t performed well in the last 3 years. A modest minimum price appreciation of 50% growth in 3 years and last year is what I use to screen for top performing stocks because if all the metrics I have shared above are actually present, the performance should reflect investor’s perception or sentiments. So, before you conclude that the stock you are about to buy is a true growth stock, check how the stock had performed in previous years for better decision or else, you might miss out a key reason institutional investors or big market movers are not buying the stock.

Please read my guide on the perfect time to buy your next stock so you don’t jump into a good stock at the wrong time.

Did you find this guide on how to pick best profitable Nigerian growth stocks interesting? Please share your ideas and opinion.

When Is The Perfect Time To Sell Your Stock?

The Best Time To Sell Your Stocks In Nigerian Stock Market – Learn The Best Nigeria Stock Trading Strategies Using Technical Analysis And When You Should Sell.

A memory I won’t forget easily during my early years of stock market investing was when I watched one of my profitable stocks climbed from N15.7 to N34 in 3 months, but regrettably saw my profit nosedive from that peak level to N12.2 and eventually sold the same stock at a loss. Each time I recall that experience, I wonder why I never sold when it climbed to N20, inched up to N25 and greedily left it to N34 before selling at N12. The stock has been delisted from the market now but the bad experience isn’t what I would allow to repeat itself again.

See – When is the best time to buy stocks for short-term gain?

Knowing when to let go or sell a stock is an attitude you should master if you must succeed in the stock market. A number of times, I tell my friends, it is not only a winning stock that is ripe to sell, losing stocks isn’t suppose to be held for a long time. When you buy a stock at N3.15  and its fall to N2.47, that’s like 27% loss, will you still hold on to the stock, hoping that it will rise again? As a short-term trader, I quickly sell all units to protect my portfolio. I have made lots of mistake in stock picks, which was a result of bad waggon effect; I wanted to take advantage of the price run but entered at the peak of the trend but now I cam well equipped to limit such error.

Back to the main discussion, when is the perfect time to sell your shares? The time to sell your shares isn’t all about cashing out or taking profit but also protecting your portfolio from losses on bad decisions. A stock could be bad for you and good for others, it all depends on your investment horizon. For a long-term trader who is looking for an opportunity to buy more shares in a good company, sell-offs are always their perfect time but for short-term traders looking for swing trading profits in 1-2 weeks, such fall may be disastrous.

To answer your question on when you should sell your stock, I will be sharing my personal opinion from the point of a short-term trader who is looking for 15-30% gain in two (2) weeks to two (2) months.

Target Selling Price

This is my best decision so far, I am not interested in taking all the profit from a bullish market, a modest and realistic percentage gain of 15-20% is all I need to sell off. While it is not going to double my cash overnight, it surely has a magical way of earning passive income to your pocket. A lot of stocks that rise faster have historic percentage limit they can’t exceed, so you need to ensure that whatever your target profit from a stock is, falls within an achievable return in weeks or months.

Let me tell you the truth, banks, insurance companies, pension fund and asset managers do not wait for a 200% when they trade stocks for short-term profit, 15-20% maximum gain is what makes the billions of trading profits, how? they trade millions of units which means that a 100 basis point increase in price equals millions of Naira. This is a modest realistic gain you should start adopting, it is not about the price but the quantity you bought. On several occasions, I see stocks gain up to 10-25% in 2 weeks to 2 months, which is a good return for short-term traders.

Let’s assume you bought 1,000,000 units of a share at N2 each, that is N2,000,000 investment, right? Now, imagine a 15% increase in your share to N2.3, that’s like N300,000 profit achievable in 2-3 weeks, would you still hold on to the share for another 50-100% increase? I bet you, the possibility of you losing that 15% and selling at a loss is higher than the potential for further increase, except there is a major news driving the share.

A return like 15%, 20% and 25% maximum is achievable in the stock, so why not capitalise on volume to make more money than wait for 200% growth overnight, the secret is in the consistency of your return.

Use your chart

Chart analysis is another favourite strategy to knowing when to sell a stock. The reason stock charts are great is that you can’t follow all news about a company, you may miss out on certain information that could cause the uptrend to reverse but will definitely not miss out on the time to sell when you follow price trend on the chart. Share prices always reflect market news and inventor’s perception about a company and as you follow chart trend, you will notice the effect of a bad news on your share.

When a company releases impressive quarterly result, you will definitely see the share price rise sharply while a-not-so-impressive financial result leads to an obvious and notable sell-off. Stay close to your chart, especially daily and weekly signals.

How do I know when to sell on a chart? I use four powerful technical tools which you will find in my book “The Little Trading Secret That Makes Money”, the guide contained in the book is all you need to make passive income from Nigerian and foreign stocks.

How I Value Nigerian Stocks Before Buying Again

How I Value Nigerian Stocks With Earnings Per Share & 10-Year Bond Yield – This Short Term Trading Strategies Will Help You Find Undervalued Growth Stocks At Cheap Price

When it comes to stock investing, a lot of short-term traders make the mistake of buying stocks simply because the price is rising faster than the others. This method of stock trading will no doubt give you a quick return of 5-10% in a shorter time but can you absorb the downside risk? The same way the price rose faster, that is also how you will watch your portfolio lose its value faster with a bigger loss. One thing I discovered during my stock market investing journey was that just the way traders love to hold their winning stocks for a long time, they also find it difficult to sell a losing stock as they believed it will bounce back. But, you know what? this is the worst strap anyone can find himself.

This experience reminds me of how stuck I was in diamond bank’s shares, although I knew my mistake in that trade, no proper financial analysis to check whether I was buying at the peak price, after two (2) days, the stock fell by 16% but you know what? I wasn’t ready to let go due to the loss figure, it was high to let go. Anyway, I eventually sold the stock but here is the point, never buy a stock just because the price is rising, you may get trapped for a long.

This doesn’t mean that buying a fast-rising stock is bad, my point is it shouldn’t be the only reason, validate your pick first by learning how to pick the best-performing stocks, follow market news and determine their intrinsic value. I had already shared a detailed analysis of how I pick stocks to buy but the next key point is how to know what the stock is really worth. Understanding what a stock is really worth lets you to quickly see if the fast-moving price is an opportunity to buy more or stay off. The strategy isn’t 100% foolproof but it had helped me to screen stocks to avoid and wait for a pullback.

Let’s use Zenith bank, when I calculated the intrinsic value of the stock in 2017, I saw an opportunity to buy more units at N22 because the stock had an upside potential of 68%. Now, Zenith bank share is at N31.5 with another estimated 15% growth expected before I sell off. I will be sharing an analysis of this stock shortly.

See – How to analyse banking stocks

Why should one bother about the intrinsic value of a stock before buying? The simple truth is, if you take just 5-10 minutes to estimate a stock’s value, you may not be 100% accurate but it will definitely help you know which stock has more upside potential than others. There are lots of stocks that were mispriced in the market due to massive sell-off, so due diligence is required to pick which stocks are fundamentally great but technically cheap.

Another reason is that I had bought shares in a company at peak prices and it was like the market was waiting for me before it fell by 13% in 2-3days; I didn’t know the stock was already overvalued but was carried away by the straight three weekly gain recorded, now imagine that I had estimated the value of such stock and timed my entry? it would have helped me avoid the stock and wait for a pullback.

When you buy a growth stock that is selling below the estimated value, you have a higher chance of making more money in the market.

My next question is, how do I estimate a stock’s value? I am not going to bore you with complex calculations since we are not investing for a long-term, but show you how I adopt the warren buffet approach to valuing a stock using the 10-year bond yield, a formula that uncovered Zenith bank, and UBA shares, my biggest stable portfolio winners so far.

My idea of valuation as a short-term trader hinges on finding an estimated price range of stock, then compare with the actual market price and find a perfect gap to leverage on. My advice is this, avoid stocks that are 5%-10% below or above their estimated value because of a margin of safety; you are calculating an estimated value so don’t buy when what you arrived at a figure already close to the market price.

Here is how & why warren buffet uses 10-year government bond yield:

If an investor decides to leave a risk-free investment like 10-year government bond for a riskier asset, it is wise not to accept a return that is lesser so he decided to use the yield as a basis for calculating the price he would pay for the asset. The big opportunities arose when he discovered stocks that sell below their estimated value due to temporary sell-offs and market news.

Recall that I mentioned Zenith Bank shares, here is how I picked the stock: The bank had an EPS of 4.11k and will release its full-year result soon. It is expected that latest EPS figure will stand at N5, the question is how much should I pay for the bank’s share to justify an EPS of N5? using the Nigerian government bond yield figure of 13%; the rate of return on a risk-free asset, I will divide the EPS figure by this risk-free rate which gives me N38 (N5/0.13).

As at when I estimated this bank’s stock again, the market price still sits at N31per share which presents a further 15% upside potential. I had first valued the stock when it was selling for N22.

One thing you must know when valuing a stock as a short-term trader is that the yield on government bond reflects the current economic risk. The yield tends to rise when economic risks are extreme; this is evident in the average FGN bond yield in 2017; the 10-year bond yield reached a high of 18% as economic risk from falling oil prices, higher exchange rate value and rising inflation worsened. The government uses this high-level yield offers to lure local and foreign investors looking for fixed income investment opportunities.

But, as oil price surges to the north, the yield nosedived to a 4 year low of 13% as the government borrowed less from domestic lenders and issued more Eurobond at a lower rate.

The real effect of economic risk is that, when it is high, bond yield follows to compensate risk takers which eventually affect stocks value as analyst re-price their portfolio holdings.

I can even relate this to our local stocks, as the yield on long-term securities fell to a 4-year low of 13% from an all-time high of 18%, re-valuing securities using their expected EPS gives rise to a high estimated value lower than the market price.

Let’s look at the EPS figure of some selected stocks and their current market price.

EPS Figures:

How I Value Nigerian Stocks With Earnings Per Share

Using my simple method of valuing stock as a short-term trader looking for a consistent 15-25% upside potential in 1-3 months, let us look at each of the stocks’ estimated value (our current 10-year bond yield is 13%):

  • Dangote Cement: N104 (13.53/0.13)
  • GTBank: N37 (4/0.13)
  • Nigerian Breweries: N31 (4.05/0.13)
  • Zenith Bank: N39 (5.09/0.13)
  • Stanbic IBTC: N33 (4.34/0,13)
  • Wapco: N86 (11.27/0.13)
  • UBA: N17 (2.28/0.13)

Now let’s also look at the current market price of these listed equities:

How I Value Nigerian Stocks With Earnings Per Share

So what did you see from these simple metrics? For me, I see Zenith Bank, Wapco and UBA as potential picks. The reason is simple, they currently trade below their fair value when you divide their EPS figures by 10-year FGN bond yield at 13%. Please note that I didn’t say best stocks to buy, I used the term potential because one, two or all may not be the best pick as you would have to check their growth rate. A stock is cheap for a reason, so make sure the fundamentals are great before buying.

You may ask, does it mean other stocks are not a good buy? No! but I feel that buying growth stocks that trade below their fair value increases your chance of making more money than buying at a higher price per share.

How I Value Nigerian Stocks With Earnings Per Share

The year to date performance of Zenith, Wapco and UBA are 22%, 16.51% and 15.53% respectively, which isn’t a bad return in 7 weeks.

It still doesn’t mean that GTBank, Stanbic IBTC, Dangote Cements are not a good buy, but your decision to buy depends on a popular growth metrics called PEG.

PEG means price earnings to growth rate. a simple way to check whether a stock EPS growth rate in 3-years will continually support the upside potential. It also shows whether a price is far higher than what you should pay.

Let’s look at Nigerian Breweries, the share price is already at an all-time high of N128, a price-earnings ratio of 31 that reveals what investors perceptions about the stock are; they are willing to pay 31 times the current value. The question is does the company has an EPS growth to support and justify that expectation?

This next snapshot of the company’s five-year financial statement has a lot to reveal:

How I Value Nigerian Stocks With Earnings Per Share

This is the summary of the Nigerian Breweries financials from 2013-2016:

  • profit after tax fell from N43b to N28b in 3 years.
  • EPS, our main figure, also fell from N5.63 to N3.53 representing 31% decline in profit attributed to shareholders.

I really do not expect anyone to buy this stock except there was an additional information that could turn the company around, besides, a look at the weekly chart below reveals that investors have been selling their shares in the company. The company might have reported a disappointing quarterly result that led to this drastic fall.

How I Value Nigerian Stocks With Earnings Per Share

I used Nigerian Breweries stock to let you know that before buying a stock at a price higher than the fair value,  confirm that the expected growth rate outweighs the price-earnings ratio. As a rule of thumb, your price earnings to growth result shouldn’t exceed 1 if you must take the risk.

The strategy to valuing stock that I shared here works well when a company is close to releasing her full-year audited result or have already released its interim result for the half year; you can then use your intuition to estimate its full EPS figure.

On 10-year FGN bond yield, check BusinessDay Nigeria for latest figure.

See – When is the best time to buy your next stock

As of this writing, Zenith Bank, and UBA stocks are part of my equity portfolio.

How I Pick Profitable & High Dividend Paying Stocks In NSE

Highest Dividend Paying Stocks In Nigeria – Profitable Strategies To Pick & Buy The Best Nigerian Stocks For LongTerm Investments

I hope you enjoyed the detailed analysis I shared on how to pick the best banking stocks for a better portfolio performance? As of now, that investment strategy is the longest article on my blog, so don’t read it as a poem but understand how I reviewed Zenith bank’s stocks with a modest estimated value that revealed a 15% upside potential from now till March 2018.

As a continuation to the discussion I had with my friends on bank’s stock, another good guy asked, do you plan to invest for just price appreciation, or how can one find the best dividend paying stocks in Nigeria stock market? Well, that was another interesting question because a lot of stock market traders don’t have a clear idea of the opportunities in the market, they just want to enjoy price appreciation, and miss out on the residual income from dividend payouts to shareholders. I know a friend who had invested a huge sum into five (5) stable sectors stocks last year and is already expecting his first five (5) figure income this year, besides his portfolio is up by 27% as more institutional investors position themselves ahead of the full year audited report, 2017.

This post focuses on how we jointly picked the best highest dividend paying stocks in Nigeria stock market using a simple method I will be sharing right now:

See – My 6 Checklist to Pick Dividend Stocks With Double-Digit Yielding  Above CBN-Treasury Bills

Check the overall economic indicator – let Oil price guide you.

Anytime I look for stocks to pick, the first step I don’t skip is to ascertain the general economic environment using global Oil price trend. This post on how to find the best sector stocks to invest in explains everything you need to know about the effect of oil price on the Nigerian economy and opportunities in different sectors.

In summary, I said that an uptick in the price of oil helps the government generate more petrodollars which reduce overall economic risk, so expect more fund to be channelled to key sectors like industrial sector as infrastructural projects are re-visited or more capital projects embarked upon, while reserve is also boosted to help cushion the effect of exchange rate.

Continue reading How I Pick Profitable & High Dividend Paying Stocks In NSE

How To Analyse & Pick Top Nigerian Banking Stocks Today

How To Analyze & Pick Best Nigerian Bank Stocks – Learn How I Select The Top Performing Bank Shares To Buy, Invest In Using Quarterly & Audited Financial Statements

A few weeks ago, I had a training session with some group of friends to share strategies to picking stocks to trade and when to buy. While we explored some company’s financials to validate our buy or sell ratings, I quickly opened my live account on Meritrade.com platform to reveal my current stocks and reasons I picked each of the stocks. At the end of my analysis, a friend asked, why is a major percentage of your equity portfolio exposed to the banking sector? I knew someone will ask that question because, on the pie chart presented on my dashboard, they assigned percentages to sectors accountholders have more shares in. It was my response to that question that I am sharing this 4-day article on how to analyze and pick the best performing banks’ share to trade.

This doesn’t mean that banking stocks are the best of all the listed equities, after all, investors reaped a bountiful harvest in certain stocks outside the banking sectors, look at Dangote Sugar, May & Baker, Fidson Health Care, and Cement Company of Northern Nigeria, these stocks surged more than 100% last year. But, here is a catch I see more in the banking sector that I don’t joke with – it is called liquidity. Banking stocks record most trading volume in the Nigerian stock market which means institutional investors; fund managers, investment bankers, pension funds administrators, insurance companies are more active in that sector compared to others. I had shared an experience of how I was stuck in the insurance sector for two weeks, I couldn’t sell my shares in one of the listed companies in that sector as no one bid for stocks until the price from N1.75 fell to 50k.

The second reason is that the current economic cycle driven by rising oil price will support banking stocks to the upside as asset quality is going to improve, the value of non-performing loans is already at the peak and expected to fall as firms in various sectors like consumer good, industrial goods and oil sector are also expected to generate more cash from operating activities to financing their short term and long term obligations. The positive impact on banks financials will be reflected in their interest income and as the cost of borrowing reduces, finance cost is also expected to be lower compared to the similar period when economic risk was higher.

Also, banking stocks have shown resilience in the face of a difficult operating environment. These guys know how to pass their operational cost to account holders via charges and fees. I know two banks that are good at that, you can’t withdraw more than N10,000 at a go via ATM, so if you want N100,000 to finance emergency needs, be ready to make N10,000 withdrawals multiple times at N65 per withdrawal. These e-business channels drive their non-interest income.

And lastly, Investors love dividend income, banks are one of the consistent dividend payers in the Nigerian stock market.

These are the four key premises I stood on to build more of bank’s equity portfolio, but the question again is, does that mean all the banks are good to buy? Well, Yes/No. The sentiments on banking sector right now is positive so expect both performing and non-performing banks to have a share of that wave. Early this year (2018), we saw how Tier two banks (even when there was no fundamental news) like Skye Bank surged from 50k to N1.26, Wema, Unity Bank, and FCMB stocks, hence rewarded early investors as they all doubled their portfolio value in less than 30 days. The growth is generally attributed to the expected positive impact of the rising oil price on the banking sector.

Does it mean you should start picking any banking stocks randomly? No, the simple truth is “no matter how high or low a stock is, it will definitely correct itself to reflect the true fundamentals of the company”, so don’t just rush into any banking stock because prices are on the increase, do your homework, learn how to check key figure and estimate the value.

To help you find a better path, I will be sharing my researched steps to analyze and pick the best banking stocks to buy.

The way you analyze stocks in the banking sector is totally different from other sectors. Banks don’t sell physical products so you shouldn’t expect the normal sales growth calculation, cost of sales, inventory turnover ration, etc to suffix here.

See – How to pick best-performing stocks in consumer or industrial good sectors

If Dangote Sugar is on your watch list, the way you interpret their financial statement cannot and shouldn’t be the same as Zenith or UBA.

So, follow me as I share my practical strategies to pick best performing banking stocks.

Find top gaining banks

The mistake a lot of stock traders make is that they don’t have a planned and well-organized strategy to picking the best-performing stocks, They rely on their broker or financial adviser and whatever these guys say, they do. It’s not wrong though but here is a simple guide to picking one of the best-performing banking stocks:

See – How to know sector stocks investing are buying more.

  • Look at the banking sector’s index performance on a YTD ( year to date) and QTD (quarter to date) basis. The banking index closed the year 2017 at 73%, making it the best performing sector, so that is the first step.
  • Compare all the bank stock’s performance with the overall index.
  • Select the banks whose YTD, QTD, and MTD (month to date) stock price outperform the index; pick stocks that increased more than 73%.

Although you may see some bank stocks that lagged last year now ranked as the top performer this year, I still believe selecting banking stocks like this will help you focus on the best bank to invest in. 

Some of the banks that emerged from my picks are GTB, Zenith, FirstBank, Access Bank, and Stanbic IBTC.

See – How to pick best-performing Nigerian stocks

Understand the core business of these banks

Don’t just pick Zenith, UBA or GTB bank because you love the name but rather do your simple maths to understand the business of the bank. When I say “business of the bank”, I mean try to find out what the bank does and how they make money. As simple as this is, I will share a calculation that easily reveals the type of business a bank does. Never be too smart to say, I already know that banks accept deposits, pay a meager interest on savings and then give it out a loan at a higher interest, that’s all. You may be right but if you invest in that mindset, I bet you, you could miss out on the best bank to invest in right now. The reason is that it’s not all bank that is in the business of earning interest alone, some are investment driven.

Let’s use Zenith bank financial statement for the 9 months Sept 2017 to illustrate this:

As at 30th, Sept 2017, Zenith bank had a total of N5.1tr in asset out of which loan and advances were N2.1tr, that is 41%. If you look further, you will also see that the total investment in both fixed and equities is N961b (addition of N718b in treasury bills and N242b investment securities), which is 19% of the bank’s total asset.

Now, we can say that Zenith bank is a loan driven business because it has 41% of its asset in loan and advances. From this, you can also say that Zenith bank is exposed to loan risk because their major core revenue is interest income. At least, we saw how the bank’s exposure to Etisalat loan default affected its profit as its provided for non-performing loans.

On the other hand, if the bank’s asset had been exposed more to investment in securities, I would have said, it was an investment-driven bank.

How does the bank get the money?

Just as we have looked at the type of business a bank does, we also need to know how they source for the money. A bank can either get more deposit from customers or issue debt securities. Deposits are great for banks for the same reason you complain about getting low interest on your savings or fixed deposit account, banks are equally happy as you are lending them cheap money to lend out at a higher interest rate. If a bank can’t attract enough deposit, it has to issue debt securities like commercial papers or sell the equity side which is generally more expensive to finance. So, you see why banks will push their marketers to any extent in order to get that cheap deposit from you.

Using Zenith bank’s financials, let’s see how to get more money to give out as the loan by comparing their deposit to liabilities.

Zenith bank has over N3tr in custody as customers’ deposit, N4.3tr as total liabilities and that is over 75% deposit/liabilities which is quite reasonable and equally 70% customers’ deposit is advanced to customers. All these confirm to me that Zenith bank takes the deposit (cheap money) and gives out a loan with those deposits at a higher rate.

So, if I had said that banks improving margin will come from a higher interest income from reduced non-performing loan this year, Zenith bank is one stock you should watch out.

Look at the bank’s earnings figure

We have already deduced that Zenith bank is a loan driven business which means, the bank is expected to generate more profit from net interest income and compliment it with income from fees and charges, also known as noninterest income. Net interest income measures what how the bank makes money from borrowing from you at a lower rate and lend/invest at another higher rate via loans and securities.

Using the statement of profit or loss and other comprehensive income, let’s see how Zenith bank is fairing based on what they reported in 9 months Sept 2017, against 9 months Sept 2016.

Zenith bank earned N154b on net interest income down from N167b in the same 9 months period, 2016. This is attributed to more than 100% increment in the impairment charge from loan losses. Non-interest income, in the same period, grew from N94m to N169m; the bank was able to generate more money, outside interest repayment, from fees, charges from e-business channels. An increase in noninterest income (NIR) helps cushion the effect of interest rate volatility and loan risk but at times CBN regulation on fees may influence NIR; for instance, the suspension of ATM withdrawal fees a few years ago wasn’t good for banks as most of the posted a negative growth in their non-interest income.

From the statement presented, profit after tax grew by 35%, from N95b recorded in 9 months 2016 to N125b in the same period, 2017

To analyze the profit of Zenith bank, I check interest, noninterest earnings, and profit after tax, then compare with the previous quarter or fiscal year.

You see, there are many lines to look at in the financial statement of a bank, but these are the things I focus on first before doing my next check using ratios.

Metrics to analyze your bank

We have looked at the profit figures of Zenith bank and I can say that they are great but does that really mean shareholders are happy? Let’s see what the earnings power, strength, and value are:

Earnings power of your bank

Here, I always look at three things: return on equity (ROE), return on asset (ROA) and net interest margin.

The 9 month Sept 2017 ROE of Zenith bank is solid at 16.8% (N129b/N767b) against 13% report last year. ROA in the same period stood increased to 2.5% from 2% in 2016.

Breaking earnings power down further, you can look at net interest margin and efficiency.

Net interest margin measures how profitable a bank is making investments. It takes the interest a bank makes on its loans and securities, subtracts out the interest it pays on deposits and debt and divides it all over the value of those loans and securities. In general, it’s notable if a bank’s net interest margin is below 3% (not good) or above 4% (quite good). Zenith bank is at 4.95% (N154b/N3.1tr) against 5.5% in 2016. The fall, which is still among the highest in the banking sector, is not unconnected to the double-digit growth in impairment charges.

While net interest margin gives you a feel for how well a bank is doing on the interest-generating side, a bank’s efficiency ratio, as its name suggests, gives you a feel for how efficiently it’s running its operations.

The efficiency ratio takes the non-interest expenses (personnel and operating cost) and divides them into revenue. So, the lower the better. A reading below 50% is the gold standard. A reading above 70% could be cause for concern. Zenith bank’s operational efficiency improved from 36% in 9 months 2016 to 30.4% in 2017.

A bank may have unfavourable efficiency in certain quarters or financial year. This doesn’t mean they are not doing well, they could be investing in technology like banking channels or improving their customer service. Take note!

My next focus is the loan risk since banks make more money from the interest charges on loan and advances, it, therefore, means that an increase in impairment charge affects the interest earnings potentials. According to creditexplained, Loan impairment charges are basically money that is put aside by a bank in case its customers cannot make the required loan repayments, but which will leave a huge dent in a company’s profits. For Zenith bank, 2% of loan and advances were written as impairment charge compared to less than 1% provision in 9 months Sept 2016. 

I always use this to check whether the bank is good at lending money to customers who aren’t going to default. No bank can achieve 100% on this but the lower, the better. Zenith bank is one of the banks with the lowest non-performing loan ratio.

Lastly, let’s look at the bank’s share value using EPS figure. Zenith bank’s EPS figure is at N4.11 compared to N3.03 in 9 months 2016. Using Warren Buffet valuation approach, I divided the figure by 10-year bond yield of 13% to arrive at an estimated stock value of N31. Zenith bank shares, as at 7th, Feb. 2018, is N32.

Now, this is just third quarter EPS, if I project a full year EPS of N5, then Zenith bank’s estimated value will be N38 (5/0.13) which is 15% above the current share price.

I started buying the shares from N22, then added more units as the price drop and reversed from a key support region.

See – When is the perfect time to buy shares in a company?

To confirm my estimated value, take a look at GTB, the shares traded at N38 region when the bank reported an EPS of N4 in 2017. So, there is an upside potential in Zenith bank’s share.

Update: Zenith bank reported a 2017 full year EPS of N5.66 which presents an estimated value of N43.

Did you find this guide on how to analyze banking stocks interesting? please share any other banking stocks you feel will do well this year.

See – My Top Stock Investing Strategies 

When Is The Perfect Time To Buy Shares In A Good Company?

Best Time To Buy Into Nigerian Stock Market – Technical Analysis Of Share Prices Lets You Know When To Trade Cheap & Sell High Using Price Levels & Charts

While economic and fundamental analysis lets you uncover the top sectors to focus and the stock to rightly invest in, as I have shared on how to find best-performing stocks, you still need to perfectly have a good grasp of timing as a strategy in the stock market. As the saying goes, you can buy a good stock at the wrong time or buy the wrong stock at a good time. The latter has a higher chance of adding profit percentages to your portfolio even though the company’s fundamentals are not impressive while the former can drag you to a loss position. It all boils down “when you bought the shares”

Besides, one bad experience that made me take this advice seriously was when I invested in international breweries, I had shared my experience here on how I started trading the stock, mistakes and finding a better path to profit. I bought the company’s share at N24 and in few days, the price dropped to N16 and I quickly sold off, only to see the same stock reversed and surged to a new high. What would have been the missing knowledge that made me sell off quickly? I never perfected timing as a good stock trading strategy.

So, how then should I time my stock, after following your guide to picking the best-performing stocks to buy? The simple answer is, pay attention to stock price action at key levels and validate it with trading indicators. This is what we generally tag technical analysis of Nigeria stocks market.

Technical analysis is the process of analyzing and forecasting the direction of share price based on past movement or repetitive patterns. It helps you look at the overall market trend to ascertain investor’s sentiment about a company’s share.

A lot of traders have tried to compare technical analysis and fundamental in a bid to find which is perfect for stock trading but I am here to boldly say that “if you have preferred one to the other, you might be making a big trading mistake: fundamental helps you uncover the safest sectors and stocks to buy while technical drills down to the right time to buy”.

Let’s take CCNN – Cement Company of Northern Nigeria as an example. We have already done our analysis of the company’s financial positions using key metrics like profitability, liquidity, stability and rated the share a good buy, but did you know that, in the midst of the buy rating, you could buy at N21 and see the price fall to N15? The reason is simple, the price might have skyrocketed to the peak, buyers were already exhausted and if the volume of purchases is not strong again, investors will start taking profit by selling their holdings. Technical analysis lets you check the status of the market direction, so you wouldn’t lose out on entry.

I am not saying that CCNN will fall but the short term correction is something you need to watch before buying your next share in the company, except you are investing for a long term. Even, in long-term, you still can’t rule out the importance of technical analysis because you can apply it to the daily, weekly and monthly chart.

Why do we need to analyze stock technically before buying?

  • It tells you whether the market is going up or down
  • It tells you whether the trend (up or down) is strong or weak.
  • It also tells whether the market is about to reverse to the other side; if it is going up, you get to know when it is about to change to the downside and vice versa.

Here, I will be sharing my personal combination of tools to trade profitably in Nigerian stock market using a secret finance blog. I only reveal this website to my subscribers in my exclusive trading club.

The first step to take when analyzing stocks for a perfect buy and sell time is to locate the key levels. Key levels are share price regions where a lot of buying and selling activities takes place. Buyers struggle to keep price going up and sellers were able to take over, or sellers dragged price to a region they couldn’t sustain then buyer push the price upward.

I always watch these key levels on every stock before deciding on the perfect time to enter. Let’s take a look at the chart below for better insights:

best time to buy nigerian stocks

The yellow line labelled “A” is the upper key level known as resistance; it is that region price increases to before reversing. At least you can see how price reached the key level “A” twice before eventually breaking out. The same applies to “B” which we call support, the share price touched that region twice too before going up. My advice is this “When you see regions share prices approached several times before reversing, that region is referred to as the key levels.

The key levels are very important as that’s where buy opportunity surfaces if the price had been going down and close to key level “B”, it signals the potential of reversal to the upside. But, you might be at a risk of losing part of your portfolio value if you buy at a region close to key level A as price reversal to the downside is likely.

The next technical tool I explore is directional movement index, this tool never fails as it accurately reveals the general market trend instantly. I don’t need to interpret the chart or do the analysis but on display of three signal lines – strength, bull and bear, I already know what investors’ sentiments are.

Let’s take a look at directional movement index:

best time to buy nigerian stocks

The directional movement index is the graph that contains, red, blue and black signal line. The blue represents an upward trend, the red is for downward trend while the black is the strength of the trend.

Here is how to interpret the graph and take trade decisions:

  • When the blue and black line are trending up and above the red line, it signals a strong and bullish trend; the share price is going up as indicated by the yellow lines tagged “1” & “3”.
  • When the red and black lines are trending up and above the blue line, it signals a strong bearish market; the share price is going down as indicated by the yellow line “2”.
  • What if the blue and red lines are above the black line? it means that the share price is consolidating, that is no up and down market, just in a straight line. I have seen this play out several times on some company’s share, the price is neither going up nor coming down until a major news is released. In such situation, watch out for a breakout soon.

This pattern had once emerged on Cement Company of Northern Nigeria shares before it broke out and went to a new higher.

Look at the regions painted yellow on the chart below: the blue and red lines were above the black line, and price consolidated (no up, no down move) until the black line crossed the red line to sign a major upside.

best time to buy nigerian stocks

I really can’t stress how powerful this tool is as it had helped me find the perfect time to buy.

So, if you refer to my fundamental analysis of CCNN stock, I can now conclude that the crossing of the black line above the red line signals the entry of new buyers and eventually price went from N16.20k to N20 in 2 weeks representing 62% return.

Please note that the ADX indicator is not 100% accurate, In my book, you will learn how I use it with three other leading indicators to confirm my buy or sell signal.

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