Nigerian Equities Decline for Second Consecutive Year

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•NSE All-Share Index Sheds 14.5%
•Nigerian equities now cheapest in Africa

Goddy Egene

Affected by weak investor sentiments and sluggish economic growth, the Nigerian equities market closed 2019 on a negative note, thereby posting the second consecutive yearly decline.

The Nigerian Stock Exchange (NSE) All-Share Index (ASI), which is the benchmark barometer to measure the performance of the market, declined 14.5 per cent at 26,842.07, from 31,430.50. The decline is lower than the 17.8 per cent fall posted in 2018.

But unlike 2018 when the NSE equities market capitalisation fell by 13.8 per cent, market capitalisation rose 10.5 per cent or N2.038 trillion from N11.731 trillion to close higher at N12.958 trillion in 2019 due to the listing of MTN Nigerian Communications Plc and Airtel Africa Plc.

The two telecommunications giants boosted the market capitalisation by N3.265 trillion. Without the two firms, the market capitalisation would have dipped by 17.3 per cent to N9.693 trillion.

However, the decline, which is the highest in Africa, has made the Nigerian bourse to parade the best valuations across African markets, thereby making the market the best investment destination for now.

While Nigerian equities prices are trading at an average multiples of 7.0x, that of Ghana Stock Exchange is 15.4x, Egypt 12.0x, Kenya 12.4x and South Africa 15.9x. This indicates that the bear run that ravaged the market throughout the year has depressed the prices of Nigerian stocks significantly, with some declining more than 50 per cent.

Although most of the listed companies have strong market fundamentals, investors were discouraged from the Nigerian market due to political risks that came with the general election in the first quarter of the year. While the elections were successful and President Muhammadu Buhari sworn in for his second term, investors were still reluctant to return to the Nigerian market. Instead, they moved towards developed markets that have less risk and relatively higher yields.

Commenting on the performance of the market, analysts at Vetiva Capital said the market experienced a slow start in the year, mostly due to pre-election uncertainties.

“Further to this, a general risk-off sentiment towards Emerging and Frontier Markets further hampered investment activity not only in Nigeria, but across Sub-Saharan Africa and the Middle East. In Nigeria, despite the merger of Access Bank and Diamond Bank at the end of first quarter (Q1) driving some interest in the banking sector, the resultant activity did not filter into the broader equity space over time, as the market closed Q1’19 in the red.

Overall, the most positive period for the year followed the listing of MTNN, which drove the market into positive territory in May,” they said.
On his part, an investor and shareholder activist, Mr. Moses Igbrude of Independent Shareholders Association of Nigeria (ISAN), said stock prices were generally poor and extremely undervalued throughout 2019.
Meanwhile, following the low valuations of the stocks, analysts at FSDH Research has urged investors to take advantage of the opportunity to buy into the market in the New Year.

According to them, they expect the various monetary policies the Central Bank of Nigeria (CBN) initiated to boost economic activities and lead to increased liquidity that can flow to the financial market.
“This assumption is based on the availability of complementary fiscal measures that will de-risk the economy, the absence of which may limit the ability of the monetary policies to achieve the desired objectives. FSDH Research believes the current bearish trend in the equity market is an opportunity for strategic investors to take positions in the market. In addition to the capital gain that investors enjoy in the equity market, investors could also benefit from dividends that companies pay and the bonus issue (additional shares that investors earn, for which they do not pay),” the analysts said.

FSDH Research added that it expected the low yields on fixed income securities in Nigeria to provide an opportunity to source long-term debt capital for infrastructure development in Nigeria that will improve the Nigerian business environment.

“Government and corporates can also leverage on the high appetite for debt securities to issue discount bonds. Meanwhile, we see attractive investment opportunities in the following sectors of the equity market: consumer goods, industrial goods, banking and oil and gas,” FSDH stated.

Also speaking, the Managing Director/CEO of Network Capital Limited, Mr. Oluropo Dada, said the market, more than ever before, presented an overwhelming buy opportunity for all investors in the face of the attractive valuations and CBN’s policy banning local corporates and individuals from investing in treasury bills (TBs).

“The market fundamentals, despite the persistent illiquidity, are still very strong and prices of quoted securities can only go up, which will be triggered by both arbitrage income and dividend income. Based on the third quarter results released by the quoted companies, especially the banks, the market is where to be now,” Dada said.

According to him, the market will be bullish this year, noting that fundamentals of the quoted companies remain strong despite the harsh macro-economic variables.

In his opinion, the CEO, InvestData Limited, Ambrose Omordion, said low interest rate regime, increased credit to the real sector and early assent of the 2020 budget would impact positively on the market.
“The market in 2020 looks promising as factors that will shape the economy and stock market are on the increase, in spite of the continuous downgrade by rating agencies. The early implementation of capital expenditure would have multiplier effect on the economy,” Omordion said.