*** Due to the bulkiness of this report, it will be released in 2 parts. Part 2 is on its way ***
Definitions and Introduction
Based on the Nigerian Stock Exchange Code of Conduct for Approved Persons of Dealing Member Firms, insider trading occurs when a person or group of persons who being in possession of some confidential and price sensitive information not generally available to the public, utilizes such information to buy or sell securities for the benefit of himself, itself or any person. Approved Persons are strictly prohibited from participating in, or causing another person to participate in Insider Dealing. Examples of such insiders are directors, officers or an employee of a company, shareholder with shareholding of at least 5%, any agent, representative, nominee or associate including close friends, relatives and business associates of the directors and officers of the company that have obtained material, price sensitive and non-public information from such individuals mentioned.
According to Part C, Rule 111 of the Securities and Exchange Commission;
- Directors and other insiders of public companies shall notify the Commission of the sale of their shares in the company or any purchase of shares in the company not later than 48 hours after such activity and;
- Such notices shall be deposited at the Commission’s head office or any of its zonal offices.
Although trading on insider information may lead to short term profits, in the long run, investors suffer as a whole from such trading. These actions cause investors to avoid the capital market due to them perceiving that the market is rigged in favour of those that have inside knowledge.
Information is “non-public” until it has been disseminated or is available to the market place in general (as opposed to a select group of investors). “Disseminated” can be defined as “made known.” For example, a company report of profits that is posted on the internet and distributed widely through a press release or accompanied by a filing has been effectively disseminated to the marketplace. If it is yet to be circulated to the public, then the information still remains “non-public”. In between the completion of the financial statements and disseminating it to the public, is known as a closed period.
A closed period is therefore defined as the period between the completion of a listed company’s financial statement and the announcing of the results to the public. This period is usually characterized by the company announcing a board meeting for the approval of the financial results and subsequently posting to the general public. Once announcement is made for the board meeting to consider the financial results, then the shares of that company cannot be traded (either directly or indirectly) by any director, employee, person discharging managerial responsibility, and adviser of the company as well as their connected persons. This is necessary in order to take caution of anybody (the directors and their relatives, chairman and his/her relatives, holders of significant shares in the company, etc) that might have information (which is not public yet) about the performance of a company (either positive or negative) and would want to take advantage of that inside information by trading on the shares of the company.
Between January and February 2020, a total number of 10 different companies sent notifications of insider trading to the Nigerian Stock Exchange. This is in respect of the rules governing the capital market of disclosing all transactions relating to the activities of the listed companies. While some of these are tied to financial performance, some are tied to liquidity and some are tied to taking of positions in other ventures. And in some instances, the sale of purchase of shares by an insider may not have any significant effect on the share price of the company.
This research article therefore provides a comprehensive view on the insider trading activities of the 10 companies and also establish the nexus between the trading, financial performance of the company as well as on liquidity.
Wapic Insurance Plc
The chairman of the board of directors of Wapic insurance purchased shares worth N66.69 million on the 9th of January, 2020. Volume bought was 185,253,549 ordinary shares at a price of N0.36 per unit. This came in approximately seven days before the company notified the Stock Exchange about its board meeting to consider the company’s 2019 full year financial results, after which a closed period was declared on the 17th of January.
On the basis of financial performance, Wapic insurance recorded 26% growth in premium income in Q3 2019 while PAT grew significantly by 239% from N287.29 million in Q3 2018 to N972.89 million. This significant growth was as a result of reduction in employee benefit and other operating expenses. In full year 2019, the unaudited financial result of the company shows a YoY growth 9% in gross premium income while PAT grew by 19% to N417.55 million YoY.
Could Mr. Aigboje Aig-Imoukhuede have purchased the shares in anticipation of robust financial performance (which can lead to increase in share price based on buying decisions of investors once the audited results are released) or could he have purchased it based on a pressing personal need?
All insider dealings concerning Access Bank were carried out by Dr. Herbert Wigwe, the group MD/CEO. A total number of 118.500 million units of Access bank’s shares were sold and when multiplied by the prevailing share prices, it translates to N1.23 billion in value. Below is a timeline of the activities that took place from announcement of the old close period to the announcement of new closed period by the company:
- December 30, 2019- Access Bank notified the exchange that a meeting of the Board of Directors has been scheduled for January 29, 2020 to consider and approve the 2019 FY Audited financial statements of the Group.
- January 8, 2020- Access Bank notified the exchange that it has suspended the board meeting and hence, the closed period is suspended and any insider may deal in the bank’s shares subject to extant rules and regulations.
- January 15, 2020- Access Bank notified the exchange that it has obtained the approval of the CBN to expand into the republic of Cameroon through the setting up of a banking subsidiary. This is subject to the approval of Cameroon’s regulatory authorities.
- January 17, 2020- Access Bank notified the exchange that it has secured regulatory approvals to acquire Kenyan based Transnational Bank PLC.
- January 21, 2020- Access Bank notified the exchange that Dr. Herbert Wigwe sold a total volume of 55.61 million shares between January 10 and January 15 2020.
- January 21, 2020- Access Bank notified the exchange of Dr. Herbert Wigwe’s sale of 28.86 million units of shares at N10.32. The date of the transaction was January 16, 2020.
- January 22, 2020- Access Bank notified the exchange of Dr. Herbert Wigwe’s sale of 15.53 million units of shares on January 17 and 202, 2020.
- January 23, 2020- Access Bank notified the exchange that Dr. Herbert Wigwe sold 4.67 million units of shares at unit price of N10.11 on January 21, 2020.
- January 24, 2020- Access Bank notified the exchange that Dr. Herbert Wigwe sold 13.831 million units of shares at prevailing price of N9.86 per unit on January 22, 2020.
- January 24, 2020- Access Bank notified the exchange that a meeting of the Board of Directors of the Group has now been rescheduled for February 10, 2020. Accordingly, no director, employee, person discharging managerial responsibility, and adviser of the company as well as their connected persons may directly or indirectly deal in the share of the company in any manner from January 25, 2020 till 24 hours after the board has approved the Audited financial statement of the Group.
It is pertinent to note that based on financial performance, Access bank recorded improvement in all key metrics reviewed in Q3 2019. Interest income grew by 37% from N254.92 billion recorded in Q3 2018 to N349.20 in Q3 2019. PBT grew by 46.7% while PAT grew by 44% to N90.74 billion.
Therefore, it can be concluded that the sale of shares worth N1.23 billion by the Group MD/CEO of Access bank was not in any way connected to abysmal financial performance. Going through the timeline of key activities that built up after the suspension of the board meeting, it can be deduced that Dr. Herbert Wigwe sold the shares in order to take a new position in the acquisition of Kenyan based Transnational Bank PLC which is very logical. It could also be mean that Dr. Herbert Wigwe anticipated a drop in the share price of the company, and as such, decided to sell part of his stake in the company. Between January 22, 2020 and March 5, 2020, the share price of Access Bank has dropped by 11% from N9.86 to N8.80.
Between January and February 2020, there were 6 inside trading activities carried out by the director, an officer and relative of the director. A total volume of 1.43 million shares were sold at unit price of N2.61, thereby leading to share value of N3.82 million. Analysis of the individual shares volume purchased by Mr. Adeyemi Okunnubi, an officer of the investment bank, shows it was an insignificant purchase, but that of Mr. Emmanuel Nnorom represents 0.016% of the total share outstanding of the company.
All purchase decisions took place before the announcement of a closed period by the company. The last purchase decision took place on 16th January while the company’s closed period was announced 29th January. The Q3 2019 financial result of the company shows 11% decline in gross earnings from N5.97 billion in Q3 2018 to N5.32 billion in Q3 2019. As such, PAT declined by 10% to N2.76 billion while total equity grew by 4% to N16.53 billion. The full year 2019 financial performance also shows 7% decline in gross earnings. However, PAT improved by 15% to N4.97 billion majorly as a result of tax credit of N23.70 million accrued to the company (compared to tax expenses of N1.88 billion in Q4 2018).
From the analysis, it could be concluded that the purchase decisions of the three insiders was not in any way connected to the financial performance of the company. They are also not substantial orders and are not out of tune with established trading pattern.
United Bank of Africa
On 17th January, 2020, UBA sent a notification to the NSE that Mr. Bili Odum (through Workfield foundation limited by Guarantee) sold 1.78 million units of shares at N8.40 and 2,019 shares at N8.45 on 10th January, 2020 which translates to a value of N14.93 million. This transaction occurred the same day that UBA sent a notification of board meeting for the approval of the audited financial statement of the company which held on Monday January 27, 2020.
UBA recorded 11% growth in interest income to N297.90 billion in Q3 2019 and 32% growth in PAT. In full year 2019, the company declared final dividend of N0.80k as PAT grew from N78.61 billion in Q4 2018 to N89.09 billion in Q4 2019. Interest income growth for full year 2019 was 12% while PBT grew to N111.29 billion from N106.77 billion recorded in Q4 2018.
On this basis, there is no reason to think the sale was based on financial performance. This could mean Workfield foundation or Mr. Bili Odum were in a cash crunch position, as such, needed the liquidity. Or there is an urgent and pressing need they need to attend to of which the sale of shares to get money was the best option.
The analysis above critically explained insider trading by listed companies on the NSE as well as provided a rational explanation for each of the dealings. From the analysis therefore, it is seen that no matter the situation, information cannot by symmetric in the market as some insiders will still try to scale through some loopholes with the rules and regulations.
For example, between Friday 21st February 2020 and Friday 28th February 2020, the shares of Law Union and Rock Insurance PLC was the toast of the market, gained each of the days (with the exception of Wednesday 26th when its price movement was constant and Thursday 27 when price movement was down marginally) and thereafter topped gainers list for the week at 23.29% change in price from N0.73 to N0.90. Someone without any information begins to wonder what is happening, until the company posted a notification on the NSE that Verod Capital Management is proposing to acquire its paid up capital at 208% premium price to the 60-day volume weighted average share price and 140% of the company’s closing price on Wednesday 26th February. Fine-tuning this in relation to the share price movement indicates that some investors had prior knowledge of this before the information became a public knowledge. This shows that there is information asymmetry and as such, investors continue to bypass the rules and gain advantage despite the rules set by the Nigerian Stock Exchange as well as Securities and Exchange Commission.
The research only provided an objective view of insider trading by listed companies as well as objective analysis into the reasons that could have warranted the decisions. All data used for this research are publicly available on the NSE and the companies’ websites. As such, the research does not in any form provide investment recommendation to the readers as it was only written for information and educative purposes.
This writer can be contacted on twitter @K2ice_Jr.
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