Dear Retail Investors:
As the buying frenzy continues, be wary of where you are investing your money. Most stocks are rising on momentum and vested interests manipulating the share price upward and not because of improved financial performances and near-term expectations.
The banking industry takes the brunt of bulls and bears so, I will focus on this industry. I will mention (briefly) three banks to be wary of when the tide turns and stocks start heading south as investors panic and seek for the exits while trying to hold on to their unrealized gains.
1. FCMB: The bank's nine-month (September 2017) result is not on the Nigerian Stock Exchange's corporate disclosures page. Not surprising given the below...
Pre-tax income declined by 52% year-on-year and Gross Earnings declined by 16% year-on-year. To put this result further into perspective:
Pre-tax income was 7.57 Billion naira in April 2007 (12-month result) and ten years later now operating as a holding company, nine-month pre-tax income in September 2017 is 6.84 Billion naira despite interest income being approximately seven times larger in September 2017 compared to April 2007.
2. Skye Bank: No 2016 fiscal year result has been released while 2017 fiscal year results are about a month away from release every other bank. No news is not good news... Remember when Oando delayed its result for almost a year? Unless you are a thoroughbred speculator, the time to exit is now.
3. Stanbic IBTC: This bank is a holding company that incorporates the largest asset management company in Nigeria. Nonetheless, this bank's gross earnings and assets are less than that of Diamond Bank while trading 13X higher per share. Almost all of the free float is under the control of this asset management behemoth to dictate price movement as and when necessaryto drive its agenda. Interest expense and credit impairment continues to be understated perennially, giving a significant artificial boost to profit.
I will leave it there. The market has gone crazy; do not rub shoulders with it. If a stock does not deserve to rise to the level it has, when it falls, it will take no prisoners on its reverse journey.
It is better to gain less than to lose more. Unbridled optimism is the recipe for unbridled losses.