Monthly Performance Report (June 2024)
Are we headed in the right direction?
Hello again!
It’s been a while since I last posted, and that’s because work has been keeping me on my toes. Nevertheless, I still use my spare time to scan the market and evaluate the performance of my portfolio (composed mainly of stocks in the Nigerian banking sector).
If you’re learning about this portfolio for the first time, you can read the behind-the-scenes on how it was constructed by clicking below.
Before we dive into our performance for June let’s recap what happened in June in the sector.
The CBN revoked Heritage Bank’s license after the bank failed to improve its financial performance. The CBN stated that the move was necessary as the bank posed a threat to financial stability within the country. A major contributing factor to the bank’s failure was its high costs, which consumed more than 99% of its operating income, resulting in sustained losses and consequently eroding the shareholders’ funds. The market quickly showed its disappointment as investors rapidly sold off the bank's shares, bringing the index down by -0.63% WoW in the first week of June.
Next…
Fidelity Bank, to meet the ongoing recapitalization exercise, announced plans to raise NGN127.20bn through a right issue and a public offer. The rights issue program offers 3.20bn ordinary shares at a ratio of 1 for every 10 shares held as of January 5, 2024, priced at NGN9.57 per share, while the public offer presents 10bn ordinary shares to the general public at NGN9.75 per share. The stock price reacted positively, albeit with subtle gains (NGN10.20 per share as of the last trading day in June).
Portfolio Highlight
In June, 5 of the 7 stocks in our portfolio closed in the green, with GTCO emerging as the top gainer, while FBNH disappointed despite beginning the month on a positive note. Furthermore, GTCO was the only stock to post three consecutive week-on-week gains. Stanbic ended the month flat, despite starting on the right trajectory.
There are no particular fundamental risks evident in any of the stocks. Earnings are still expected to grow, but interest rates, which are primarily driven by inflation, could impact the banks if the current macroeconomic uncertainty persists.
How?
Banks provide loans to businesses and earn interest from those loans. If interest rates are too high, it might exacerbate the non-performing loan ratio of the banks, as businesses may find it difficult to repay their debts on time. This remains one of the key risks for banks going forward.
Our portfolio achieved a return of 5.23% month-to-date (MTD) for June, which was 1.12% higher than the NGX Banking Index at 4.11% MTD. Both started the month on a negative note, with the index initially outperforming our portfolio in the first week of June. However, starting from the second week, there was a shift in performance, leading to a widening of the performance gap between the two.
On an individual stock basis:
FBNH: We anticipate a minor selloff in the first week of July based on our technical readings, followed by an increase in buying activities from mid-July onwards. Additionally, we have revised our target price down from NGN30.24 per share to NGN28.20 per share for 2024, reflecting our current outlook.
UBA: Our target price has been revised downward from NGN34.63 per share to NGN25.00 per share for 2024.
GTCO: Our target price has been revised down from NGN55.24 per share to NGN49.00 per share for 2024, based on the current outlook.
ACCESSCORP: Our target price has been revised down from NGN29.42 per share to NGN24.50 per share in 2024 based on the current outlook.
ZENITHBANK: Our target price has been revised from NGN49.79 per share to NGN40.60 per share in 2024 based on current outlook.
WEMA: The target price remains unchanged at NGN8.61 per share for 2024.
STANBIC: The target price remains unchanged at NGN64.90 per share for 2024.
1 Month Performance (Financial Service Industry)
We continue to maintain our bullish stance on the index. Please see below for more details.
Closing Remarks
Before we close the curtain, I want to express my gratitude for reading this far. My goal is to make my articles as practical as possible because analyzing a market and actually trading it are two different things. Similar to equity research, improvement comes from consistent practice and refining your skills. Thank you again for your time.
News flash…
I've built a portfolio tracker in Google Sheets that allows you to monitor your investments globally, in any currency you prefer. What's more, it includes a cryptocurrency tracker. I'm working on making it available to the general public soon.
You can click this link to see a view-only version of it alongside the component of this portfolio.
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Disclaimer
The contents of this publication are for insights only and do not direct you to trade the stocks mentioned. The stock market is subject to volatility, which may not be suitable for all investors. Please consider your investment objectives and risk tolerance before making any commitments. Past performance is not indicative of future returns. By reading this, you agree to indemnify us from any losses you may incur if you choose to invest in the aforementioned stocks.
i enjoy your read especially how you articulate your points. well done