Analysts: Equities Market Rally to Extend to 2021


By Goddy Egene

Analysts at Cordros Securities have said the bull run in the equities market will extend into 2021.
After shedding over 20 per cent in the first quarter of 2020, the equities market witnessed a rapid recovery that has led to a gain of about 44.5 per cent so far.

However, in a report titled: ‘Nigeria in 2021:Positioning for New Normal,’ analysts at Cordros Securities said mix of elevated liquidity, low interest rates, attractive dividend yields, and earnings recovery argues in favour of an extension of the equity bull market into 2021.

According to them, the performance in the fixed income market will be a tale of two halves, saying they expect yields to remain in the low single-digit territory through first half (H1) of 2021 with a moderate uptrend to account for reduced market participation as investors seek yields in other asset classes.

“However, in the latter part of the year, we believe that a combination of weak market participation, revision of monetary policy to a tightening cycle, widening fiscal deficit, and fragile macroeconomic environment will lead to an increase in yields over 2021.

“Similar to the fixed income market, we also expect it to be a tale of two halves for Nigerian equities in 2021, with the market delivering further upside in the first half of 2021 before retracing slightly in the second half on an expected reversal in fixed income yields. The sources of risks remain plenty, the macro story remains uninspiring, and valuations are elevated,” they said.

Looking at some sectors of the market, the analysts stated that they are overweight on Nigerian banks as they expect a combination of strong dividend yield expectations, and resiliency of sector players into the FY-21 financial period to support price performances.

According to them, in Nigeria’s cement sector, volume growth in 2021e will be modest due to the lingering impact of the pandemic on government finances and household income.

“Although the stiff competitive landscape coupled with soft industry conditions will deter industry players from raising prices substantially, we still see scope for marginal increases in prices,” they said.

The analysts noted that for consumer staples, it’s a mixed bag, while agriculture stocks are likely to benefit from improved volumes from new maturities. “However, the border reopening is a significant risk to pricing and by extension top-line growth.

“Brewery stocks are expected to record better volume growth in 2021FY, mostly due to the low base from 2020FY. However, the ability of brewers to increase prices above inflation remains constrained. Surging inflation and FX illiquidity will also put pressure on input costs and margins,” they said.

They added that on Telecoms, there is a potential negative impact on Q1-21 revenues and earnings if the Nigerian Communications Commission (NCC) does not extend the NIN registration deadline and lines are disconnected.