Small-cap bank stocks take early lead on NSE in 2018
by Micheal Ani & Dipo Oladehinde
January 15, 2018 | 1:15 am| | | Start Conversation
In the early days of 2018, small capitalised companies (less than N100 bn in capitalisation) on the Nigerian Stock Exchange (NSE) are outperforming the large capitalised firms and also displaying remarkable performance year to date (YTD).
The best performing stocks were highly dominated by the banking sector with six banks making the top ten list highest gainers list just 9 trading days into the New Year.
Sterling Bank with a market capitalization of N54.9 billion tops the list, recording a YTD increase of 76.85 percent, followed by FCMB with market cap of N51.1 billion and a YTD increase of 71.62 percent, and Diamond Bank with market cap of N58.8 billion and a YTD increase of 69.33 percent.
Skye Bank with a market cap of N11.6billion was also up by 68 percent, Honeywell Flourmill with a market cap of N27.9 billion has a YTD increase of 67.62 percent, and Eternal Oil and Gas with market cap of N8.6 billion has seen YTD increase of 62.56 percent.
While Unity bank with market cap of N9.4 billion, Wema bank with market cap of N30.4 billion, Transcorp with N85.7 billion and Champion breweries with market cap of N23billion completed the top ten with 54.72 percent,51.92 percent,44.52 percent and 41.83 percent gains this respectively.
Analysts predict a good year for the stock market following sound economic fundamentals so far.
“It’s as a result of a generic market rally that is being driven by crude oil prices. As crude oil price moved up from 68 to 70 dollar, it shows a positive outlook making investors more comfortable,” said Tajudeen Ibrahim, Head of research Chapel Hill Denham.
“During such generic market rally, small cap stocks will rally far higher that companies with large market cap because most of them have good valuations because they are fundamentally strong leading to a faster rerating by investors in those stocks compared to large cap stocks,” Ibrahim added.
Increase in international oil price has not only reflected in the stock market’s performance as the nation’s external reserves hit a new level of $40.4bn, the Central Bank of Nigeria data show.
The last time the foreign reserves hit the $40bn mark was January 2014. The foreign exchange reserves reached a low of $23.6bn in October 2016.
“With the improvement in the economy, investors look for where there is a higher growth prospect thereby looking for companies with low cap stocks,” said Ayo Akinwummi, Head of research FSDH merchant bank
Akinwummi added “When investors are looking out for market were opportunities are with the improvement in the economy, they look out for sectors that haven’t done well but can grow, they realign there portfolio from the highly capitalized stocks to low capitalized stock that has growth potentials.”
“The banking sector, consumer goods and building materials will do well this year,” Akinwummi concluded.
The worst five performing stocks so far in 2018 are DM Meyers plc with a decrease of 12.86 percent, followed by NEM insurance with a decrease of 6.63 percent, Nestle Nigeria with a decrease of 4.24 percent, while Trans-nationwide express plc and Mobil Nigeria completed the list with a decrease of 3.85 percent and 2.36 percent respectively.
“What we are seeing is as a result of Market sentiments as most investors feel they can easily double their money on speculations. However, investors have to be weary of value trap for stocks that appear cheap,” said Ayodeji Ebo, Head of research Afri invest Ltd.
Micheal Ani & Dipo Oladehinde
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