1.0  INTRODUCTION

The economic reforms programme of the Federal Government continued to define the operating terrain in fiscal year 2005, coupled with high crude oil prices that boosted the country’s external reserves and enabled a vigorous defense of the Naira exchange rate by the Central Bank of Nigeria (CBN).

Following the Federal Government’s commitment to its economic reforms, there was renewed influx of foreign direct investment (FDI), especially in the non-oil and banking sectors, and there was palpable enthusiasm in the implementation of the Privatisation Programme, which witnessed some milestone transactions during the review year.

However, overall economic activity in 2005 was hampered by the delay in the passage of the year’s Appropriation Bill, inflationary pressure, ethnic crisis in the oil producing areas that prevented the achievement of crude oil production target, and persistent weak infrastructure support for businesses. By end-September, the average capacity utilization in the manufacturing sector stood at about 40%, down from 45% as at December 2004 and 52% in June 2005.

2.0  The Stock Market

There was brisk activity in the stock market during the review period, driven by the general economic condition of the nation, especially the implementation of the banking sector reform, which in specific ways affected transactions in the Primary and Secondary Markets.

2.1 MARKET TURNOVER

The market turnover was propelled in large part by the portfolio re-alignment elicited by the ongoing Banking Sector reforms and the decline in interest rates. Consequently, turnover on The Exchange closed the year at N262.9 billion, up by 16.4% on the N225.8 billion recorded in 2004. Average daily activity rose significantly from 75 million shares worth N882 million in 2004 to 107.6 million shares valued at N1.1 billion in 2005.

The bulk of the transactions were in equities, which accounted for N254.7 billion or 96.9% of the turnover value.

The Federal Government Development Stocks Sector recorded a turnover of N7.32 billion, compared to N300 million in 2004, while the State Government Bonds Sector and the Industrial Loans/Preference Stocks Sector recorded a turnover of N728 million and N165 million, respectively.

The Turnover Ratio improved marginally, ending at 12.42% from 12.38% in 2004.

Not surprising, the banking subsector accounted for most of the Top 20 companies by turnover volume. The subsector recorded a plethora of block trades as major shareholders responded to the consolidation going on in the industry and speculators took early profit on newly listed banks.

2.2 TRADING IN RIGHTS

Our evolving derivatives market recorded some activity, with investors trading rights in four companies. In all, 152 deals valued at N1.04 billion were executed in this market segment in 2005, up by 30.2% on the value of transactions in the previous year.

The companies whose rights were traded last year are:
§  Benue Cement Co. Plc
§  West Africa Portland Cement Co. Plc
§  Flour Mills of Nigeria Plc
§  Union Bank of Nigeria Plc

2.3 MARKET CAPITALISATION

The total market value of 288 securities listed on The Exchange increased by 37.3% to end the year at N2.9 trillion. The listing of new securities (equities and bonds) explains in large part the growth of the market capitalization during the year, especially in the banking subsector, which witnessed many supplementary issues and the listing of scheme shares arising from the mergers and acquisitions elicited by the industry consolidation.

At the end of the year, the following 20 companies emerged with the highest market capitalization, in descending order:

2.4 THE ALL-SHARE INDEX

The Nigerian Stock Exchange All-Share Index rose marginally by 1.01% to close the year at 24,085.76. On 10th October, the index attained its 2005 highest value of 26,221.90 before dropping to its year-end position.

The all-share Index fluctuated substantially in 2005 due to extreme swings in the economy, coupled with the ongoing consolidation in the banking sector, which saw a lot of funds flowing from the secondary market to the primary market. However, despite the marginal growth of the index, the fundamentals of our quoted companies remain good and offer very attractive buy opportunity to discerning investors.

2.5 NEW ISSUES

In 2005, The Exchange continued to meet the financing needs of businesses in Nigeria. This important function of the market was once again brought to the fore with the sustained implementation of the Banking Sector reform during the year. The reform, among other things, compelled many banks to approach the stock market for additional funding. Also, some insurance companies resorted to the market in an early bid to meet the new minimum capital requirement for industry operators.

During the year, The Exchange considered and approved 49 applications for new issues valued at N692.8 billion, as against 37 applications for new issues valued at N235.53 billion in 2004.

The banking sector accounted for most of the new issues approved in 2005, with 34 applications valued at N517.6 billion, with N34 billion non-bank corporate issue while the Federal Government bond issue accounted for N140 billion of the total amount approved to be raised during the year. The bulk of the money raised by the banking sector was in pursuant of the Banking Sector reform, which, among other things, stipulated new minimum capital requirements for Nigerian banks.

An analysis of the new issue approvals in 2005 showed that the sum of N138.9 billion was raised through Initial Public Offering (IPO); N130.6 billion through supplementary issues by already listed companies; N45.8 billion through rights issues; and N146.9 billion through bonds issue including the federal government bond of N140 billion. Listing by Introduction accounted for N90.2 billion, in addition to four applications for supplementary listings valued at N8.2 billion. Shares Placing and Offer for Sale accounted for N0.71 billion and N1 billion respectively. The Bureau of Public Enterprises (BPE) sought and obtained approval to privatize the National Aviation Handling Company (NAHCO) with the sale of 180 million ordinary shares and subsequent listing of the entire shares of the company on The Exchange.

Five merger applications valued at N95.5 billion were approved during the year. By year-end, three of the mergers have been concluded.

2.6 New Listings in 2005

The number of securities listed on The Exchange rose by 12, following the listing of new securities and delisting of some existing issues. The new listings are:

EQUITY

1.	Investment Banking & Trust Company Plc
2.	Japaul Oil & Maritime Services Plc
3.	Fidelity Bank Plc
4.	Diamond Bank Plc
5.	Great Nigeria Insurance Plc
6.	Prudent Bank Plc
7.	Platinum Bank Plc
8.	Guardian Express Bank Plc
9.	Unity Bank Plc

BOND

1.	2nd FGN Bond 2008 Series 1
2.	2nd FGN Bond 2007 Series 2
3.	2nd FGN Bond 2008 Series 3
4.	2nd FGN Bond 2007 Series 4
5.	2nd FGN Bond 2008 Series 5
6.	2nd FGN Bond 2007 Series 6
7.	2nd FGN Bond 2008 Series 7
8.	N6bn 1st Akwa Ibom State Floating Rate Redeemable Bond

Industrial Loan
1st Access Bank Plc Secured Variable Rate Redeemable Convertible Loan Stock

Upon the listing of Japaul Oil & Maritime Services Plc, The Exchange created a new subsector in the Equity Section of the Daily Official List – “Maritime Subsector” - that brought to 28 the number of subsectors on The Exchange. Also, there was the Memorandum Listing of A-Z Mutual Fund and Coral Growth Fund.

2.7 Delisting

Following the merger of United Bank for Africa Plc and Standard Trust Bank Plc, the latter was delisted from the Daily Official List. Also, M-Net Supersport was delisted on the advice of the directors of the company, with the approval of the shareholders. One Federal Government Stock (19th Federal Govt. Dev. Stock 2005), a State Government Bond - First Yobe State Floating Rate Redeemable Bond - and two industrial loans – Smithkline Beecham Nig. Plc Redeemable Debenture Stock1995/1998 and Vono Products Plc Redeemable Mortgage Debenture Stock 1996/98 - were delisted due to maturity.

2.8 Foreign Portfolio Investment

Investors from across the globe are increasingly investing in Nigeria through The Exchange. Available statistics, so far, showed purchases by foreign investors to be in excess of N10 billion, last year, excluding strategic foreign investments in the banks under the recapitalisation programme.

8.0 Market Development

There were activities during the review period to broaden participation in our market and bring new liquidity into the market. Highlight of the various initiatives in this respect include:

§  New Branches/Trading Floors

A new branch of The Exchange equipped for electronic trading was opened in Benin City, Edo State to cater for the investment needs of residents of Edo State and the neighbouring states. Also, during the year, arrangements were made for the opening of additional branches/trading floors in Uyo, Akwa Ibom State, and Bauchi, Bauchi State, and work commenced on the automation of Kaduna and Ibadan trading floors of The Exchange. The automation of both branches would enable investors in those places to have their orders executed online/real time, thereby offering them greater opportunity for best execution. These projects will be concluded in 2006, along with the automation of the Onitsha branch/trading floor.

§  New Branches/Trading Floors

The Exchange sustained its investor education initiative during the year. The 6th National Essay Competition for secondary schools and tertiary institutions was organized, culminating in an award ceremony in Lagos on November 29. More than 10, 000 entries were considered for the various awards.

Two international roadshows were organized for The Exchange and some market operators. The roadshows took participants to London, United Kingdom, and Nashville, Houston, Newark and Washington DC, United States of America.

Ahead of the introduction of new products aimed at expanding and deepening the market, The Exchange organized training programmes for market operators on derivatives trading. Also, we collaborated with the Pension Reform Commission to organize a stakeholders’ meeting on the new Pension Reform. The meeting was well attended by the target group.

On November 22, we held the 28th edition of The Nigerian Stock Exchange Annual President’s Merit Award ceremony in Lagos. Former Head of State and Commander-in-Chief of the Armed Forces, General Yakubu Gowon, was the Special Guest of Honour. Oando Plc retained the Quoted Company of the Year award for the second consecutive year, while Guaranty Trust Bank Plc was the runner-up. Awards were conferred on 17 quoted companies drawn from 15 industrial groups.

§ Dual Listing of Oando Plc
In November, Oando Plc, one of the eight companies listed in the Petroleum (Marketing) subsector was granted secondary listing on the JSE Securities Exchange of South Africa. The listing, which was facilitated by a Memorandum of Understanding (MOU) between The Exchange and the JSE Securities Exchange of South Africa, comes with a bundle of benefits for our market and the economy, especially as it widens the corporate financing options for our companies and works to reduce the domestic cost of capital to our companies.

§ Revocation of Dealing Licences
In keeping with the commitment of The Exchange to investor protection and the maintenance of discipline in the market, the Dealing Licenses of six stockbroking firms were revoked during the year. The Licences of Apex Securities Limited, Beachgrove Securities Limited, Viva Securities Limited, Akitorch Securities Limited, Asset Plus Securities Limited and Halsec Securities Limited were cancelled because of the failure of the board of the companies to discharge their functions and the companies’ violation of the rules and regulations of The Exchange, including unauthorized sale of clients’ shares and conversion of proceeds. It is expected that other market operators will take a cue from this development and act professionally at all times in their dealings with clients and one another.

§ NSE/CSCS Trade Alert
The Trade Alert was launched on 24th March 2005 to further secure the market against unprofessional conducts, especially unauthorized sale of clients’ shares, which are capable of eroding investor confidence. Also, the device functions as a medium for communicating market-related information (like corporate actions) to subscribers. Investor response (through subscription) has been satisfactory.

9.0 Future Outlook

Global economic projection is that there would be further growth for Sub-Saharan Africa in 2006. For oil producers like Nigeria, growth would be driven by elevated crude oil prices.

However, the first quarter of the New Year would be critical for the banking sector and the economy, as the merging banks confront the challenges of integration. The regulatory challenges are enormous and daunting. The Exchange expects significant changes in the number and size of listed banks, but we are encouraged by the quality of the banks that would remain on our Official List at the end of the day.

The Primary (New Issues) Market promises to be busy this year, as insurance companies move to recapitalise in keeping with the Federal Government’s directive in 2005 on minimum capital requirement for industry operators. As with the banks, The Stock Exchange will work with other regulatory agencies in the financial district to ensure the attainment of the desired objective.

The Exchange commends recent government economic initiatives, which have further propelled the stock market towards sustainable development and growth. However, the business environment requires urgent improvement in the New Year, as the cost of doing business remains high and would not be helped by the proposed increase in Value-Added Tax (VAT).

It is good that government proposes to commit more resources to the provision of electricity supply, motorable roads and security, and we are hopeful that the Bureau of Public Enterprises (BPE) would consummate its decision to list the shares of NITEL and Power Holding Company of Nigeria (PHCN) on our market in 2006. The market has enough capacity to absorb these and other issues.

During the year, The Exchange will continuously work to support government and its agencies towards the realization of Nigeria’s economic development and growth objectives, working closely with the SEC and other members of the Financial Sector Regulation Coordinating Committee (FSRCC), while maintaining relationship with operators in the international arena with a view to facilitating the flow of international investment capital to Nigeria.

Thank you and Happy New Year.