“The returns outweigh the risks”
Wole Abegunde, Managing Director of Meristem Securities Ltd, a four-part investment banking group that seeks to add value and create wealth for its clients, discusses with World Report what is on the horizon in Nigeria’s financial sector and the importance of having a strong research department and market analyses to produce accurate, valuable information.
We have seen that the NPR has remained at 12%, and this is reducing inflation, which is forecasted at 9.6% this year. It is driving down bond yields as well. This has caused many market commentators to say that the time is right for equities and the development of equities in portfolios. How do you envisage the performance of equities in 2013?
Several factors have helped the equity market over the past month. There is a very low PE ratio and bond yields have fallen, which has all helped the market to turn around. But we at Meristem Securities expect the market to only grow by 11.05% in 2013. This is based on our fundamental analysis of companies that are quoted on the Nigerian Stock Exchange. Other things may push the index up higher than we predicted, but if we were to look strictly at the fundamentals our projection is 11.05%. The financial sector is going to be the key growth driver. Insurance companies will also follow suit.
In terms of the dynamics of the marketplace, there has been a reticence for telecom companies and big agro-processors to securitize and become listed on the stock exchange. Do you expect there to be an increase in IPOs (initial public offerings) this year in terms of the large telecom companies getting involved in the marketplace?
We are not likely to see IPOs in the first half of the year, because the market is only just recovering now. Before the market can develop, you need enough confidence for IPOs to come in. You are likely to see rights issues over the first half of the year, and we are likely to see special placement. The telecoms are being encouraged to come and list in the market. Therefore, we may see a listing by introduction, but not necessarily fresh shares.
The Nigerian marketplace for international investors is quite a sought-after market after Uganda, with the highest performing stock exchange last year. However it does have its own intricacies. Last year was a big year in terms of dynamics and the introduction of market makers. What effects have the market makers had and the development of the full quote system within Nigeria? How far away is that?
I think the current management is moving the Exchange forward little by little, and they have made significant progress in this regard. Prices have moved up slightly to 10%, whereas before it used to be 5% and under. The volume of shares that can be used has also changed, especially for the high-cap stock. All of this has contributed to helping the market recovery that we have witnessed.
Market makers have been appointed, but the volume of trade they produce has not been significant enough to have a full market impact. We have just experienced a partial impact of market making. It has had an impact, but it could be more.
Volume is crucial, and international investors are very wary, and they always look at what domestic investors are doing. It is very interesting to know that international participation in the stock market has increased from 8% to 56% today. Everybody is watching what the PFAs are doing. Have you noticed an increase in PFA activity within equities?
Definitely. The PFAs and all the local asset managers and institutional investors have increased their activities. At the moment, market confidence has been restored. Before now, foreign participation in the equity markets was as far as 80%, but that has gone down to an average of about 50% now. That means that local participation has increased, and foreign participation is less dominant in the equity market.
Last year was a great year for your company. How did you manage to do so well? Can you tell us a little about the story of Meristem, and why you are a good local partner for UK investors who are looking to invest?
There are about four companies in the Meristem group and all of these companies come together to render investment banking services to our clients. Our goal is to add value to our clients through wealth creation, and good relationship management. These are our two interfaces. When it comes to adding value or creating wealth for our clients, we believe that we need a very strong research department to be able to do that. You can only add value when you have information, and for that reason, Meristem Securities has a very strong research department in the market. That is why our index beats the NSE Index. We intend to continue in this regard, and work hard to produce good quality information and analyses the market, and make this available to our clients for them to increase their wealth.
Meristem is trading primarily on the Nigerian Stock Exchange. Do you have any expansion plans?
As of now, we are only operating in the Nigerian Stock Exchange, but we have plans in other parts of the world like Europe, America and southern Africa. We hope that in the very near future, we will be able to establish alliances that will enable us to become a pan-African company.
Could you please tell us a little about your own personal background in finance and your future vision for Meristem?
I started my career in Afribank in 1991. Before I joined Meristem in 2003, I worked at NAL Bank, which is part of Sterling Bank today. I was in NAL Bank’s capital market group. I joined Meristem as CEO in 2003 with just six employees, but today we have about four companies in the group, with over 100 employees.
What message would you like to send to the readers of World Report and The Independent? Why should they come to Nigeria and partner with you?
Nigeria is a good investment destination. The risks may be there like in many developing countries, but the returns outweigh the risks. Companies come to Nigeria and break even within one year. You can hardly find that in other parts of the world. The exchange rate has been relatively stable over the past five years, and our GDP has grown by an average of 7% over the past 10 years.
We have a democratic government, which is making an effort to ensure that the investment climate is good. Infrastructure has been privatized, and they are putting other things in place to ensure that investors come into Nigeria. Security has been a challenge, but government is also working on this, to ensure that the security issues are taken care of.
Meristem is able to help investors. We are an indigenous company, and we know the terrain. We know where the landmines are, and where to go and where not to go. We are able to hold potential investors’ hands, and take them around Nigeria.