UPDATED: Analysts see 2018 as year of 2 halves as stocks hit N16trn mark

by | January 18, 2018 1:45 am

As Nigeria’s stock market reached new highs on Wednesday with listed equities value hitting N16.080trillion, 2018 may be shaping up to be a year of 2 halves.
Stocks have gained about N2.5trillion in market capitalisation in just 15 days of trading this year.
United Capital analysts say investors should pay attention to sectors/stocks with strong historical correlation with economic cycles, adding that investors should overweight equities in first-half (H1) 2018 and underweight in second-half (H2) 2018.
“The equities market shows potential for further upside, technically and fundamentally. Nigeria’s positive economic growth expectation will also drive the market. The robust outlook for corporate earnings will also trigger a continued bullish performance,” said Kayode Tinuoye-led research team at United Capital Plc.
Amid the risk associated with the build up to the 2019 general elections which is the major downside to the market growth, the analysts base case projects a 12.4percent year-on-year (y/y) uptrend while their bull case projects 27.3percent y/y upside.
Stocks that helped the market achieve the year to date rally include: Cement Company of Northern Nigeria Plc (54.2percent); Diamond Bank Plc (91.3percent), Eterna Plc (58.9percent); FCMB Group Plc (102percent); Honeywell Flourmills Plc (57.1percent); Sterling Bank Plc (103.7percent); Transcorp Plc (58.9percent); Unity Bank Plc (77.4percent); Wema Bank Plc (73.1percent); and Skye Bank Plc (98percent).
The equity market started 2018 at swift speed, achieving 12percent increase in the first two weeks of the year as investors continued the hunt for value stocks.
Remarkably, trading activity at the Nigerian bourse has spiked, with average volume and value traded of 825.4 million and N10billion, compared to 2017 levels of 328 million and N3.6 billion respectively.
At the close of trading Wednesday at the Nigerian bourse, the Nigerian Stock Exchange (NSE) All Share Index (ASI) increased by 1.89percent, while the Year-to-Date (Ytd) return stood at 17.37percent.
The All Share Index reached new high of 44,885.24 points as against the preceding day close of 44,054.72 points. The volume of stocks traded increased by 51.20percent, from 635.4million to 960.7million, while the total value of stocks traded increased by 63.96percent, from N7.6billion to N12.5billion in 8,866 deals.
Mobil Oil Nigeria Plc led the stocks that pushed the market further high after it recorded increase from N199.5 to N216, adding N16.5 or 8.27percent; Dangote Cement Plc advanced from N260 to N273, adding N13 or 5percent; while Guinness Nigeria Plc gained N5.7 or 5 percent, from N114 to N119.7.
In their view, Clement Adewuyi-led team of research analysts at Cardinal Stone expects stock market momentum to remain positive “given optimistic outlook for macro-economic fundamentals.”
The analysts are however cautious in their excitement, saying that “any disappointment in corporate results, or political tension in the pre-election year, can spook the market and cause it to falter. Other than these concerns, we expect the bulls to ride the year.”
Capital Bancorp Plc analysts were bold in their commentary this week and advised investors who are still having doubts about investing in the capital market to start taking position.
Their view is that investor confidence will remain strong and the equities market will continue to see influx of funds “as investor’s appetite for fixed income instruments wane on the back of plummeting interest rates.”
“Given the fact that the Nigerian Naira was devalued by about 82.74percent in the last two years, foreign investors who had earlier exited the Nigerian market on returning will find our equities market far cheaper than the point at which they exited the market given the fact that their dollar now commands more Naira,” Capital Bancorp analysts noted.
Olalekan Olabode-led team of research analysts at Vetiva Capital noted that investor confidence has remained buoyant, driven by relatively strong oil prices (average $70), rising external reserves and a feel-good effect from the Nigerian bourse being the second-best global performer in 2017.
Also for them, this positive is not without possible downside risks as they hold the view that Pension Fund Administrators (PFA) which moved early this year to ramp up their equity allocations in line with the National Pension Commission (PenCom) guidelines will soon reach their desired equity thresholds.
“We still see value on the exchange despite gains recorded so far and whilst market momentum is likely to slow in the near term, we expect the market to notch even stronger gains by the end of the year,” Vetiva researchers noted.
“We still expect market performance for the year to be heavily tied to the expected improvement in the macro economy. Going further, while we expect positive oil market dynamics, we anticipate a slight retreat in oil prices in the medium-term and foresee this slightly dampening market sentiment,” the analysts added.
Iheanyi Nwachukwu