Despite the rally observed in the Nigerian equity space in 2017, there remains a pool of untapped potential in the stock market as most of the listed companies still trade at prices below their book value while a few stocks still trade at prices below recommended target price.
These are among the views of Capital Bancorp Plc –Lagos-based professional investment banking and securities institutions – at its economic review and outlook for 2018. They have projected a 25percent return for the Nigerian stock market in 2018, though downside risks to achieving this target remain visible.
Aigboje Higo, Managing Director, Capital Bancorp Plc who led the team at the economic review and outlook presentation to the media in the company’s head office noted ample opportunities for improved returns in some stocks in the banking sector, consumer goods sector and the industrial goods sector of the equities market.
Also, Chiazor Victor, chief research analyst, Capital Bancorp Plc in his review of the economy and outlook for 2018 noted the possible performance boosters for the stock market in 2018 and the downside risks to the market’s growth in 2018.
They believe the current prices still give room for ample upside and significant return to investors despite the fact that the dividend yield of some companies would have slightly inched lower on the back of rising prices but still remain attractive especially with the potential benefit of capital appreciation in the short to medium term.
“We however advise that investment in the stock market be made mainly on fundamental analysis and not on the back of a band wagon effect which could fizzle out at any moment and keep the investor trapped in a wrong stock,” according to Capital Bancorp Plc.
The Nigerian stock market had an impressive showing in 2017 having closed the year with return of 42.30percent making it the third best performing stock market behind Argentina which returned 77percent and Turkey which returned 48percent, we have projected a 25percent return for the Nigeria Stock Market for 2018 though downside risk to achieving this target remain visible.
The market gains in 2017 were driven by impressive returns in the Banking sector which returned 73.32percent, the consumer goods sector which returned 36.97percent and the industrial goods sector which returned 23.84percent while other sectors of the market recorded gains except for the Alternative securities market (ASEM) which closed down by 8.60percent. The trading aspect recorded significant recovery while the market witnessed increased issues compared to 2016 were there were no issues.
The year 2018 is expected to witness a similar trend observed in 2017 as economic indicators have improved and the world now projects increased investor confidence and GDP growth for Nigerian economy.
Going forward, Capital Bancorp Plc expects to see more trading activities in the secondary market “as listed companies will begin to trade at new highs never seen before even as their profitability soars on the back of a vibrant economy.” The primary market is also expected to be active in the year with expectation of new listings, Mergers and acquisitions, Rights issue, listing by introduction and so on are all expected to drive overall market activity and deepen the market in the process.
From the analyst’s presentation, Capital Bancorp is cautiously bullish in this first half (H1) of 2018 than in the second half (H2) of 2018. “The market moves up and down. Now it is moving up. I do not see a crash but I see the possibility that some people will lose money when the market begins to come down,” Higo noted.
For the investment banking and securities institution, the success of the Nigerian stock market will be hinged on many factors. Amongst them are: The firming or stability of oil prices; constant monitoring and effective management of the foreign exchange market; improvement in corporate earnings for the period; significant focus on the non-oil sector to increase output; enhancing the country’s non-oil sector export proceeds to improve FX liquidity; a lower interest rate regime; effective implementation and communication of government economic policies; and Government focus on the real sectors of the economy to stimulate the economy.
Other success factors include: improved market participation by local investors and domestic institutional investors; continuous robust regulatory oversight of the listed companies by all the market regulators; Passage of Petroleum Industry Bill, unbundling of Nigerian National Petroleum Corporation and listing of the resultant companies; listing of already privatised Companies like MTN, Gencos and Discos; and effective use of monetary policies.
However, they noted the downside risks to the growth of the stock market in 2018 to include: a sudden rise in insecurity which could trigger exit of foreign portfolio investors (FPIs) and increase volatility in the FX market; political instability owing to the forthcoming general elections; a sudden reversal in rise of crude oil prices; decline in government revenue that results from disruption in oil production; an upturn in yields on fixed income securities; rising cost of fund for companies with dollarized loans/bonds and raw materials in the international market may reduce the margins of the companies; and an unexpected shock/failure in the banking sector would trigger a sell off and cause further damage in the entire stock market.
Having seen the nine months earnings result for most of the listed companies, investor will begin to take position in anticipation of the companies audited result, dividend declaration and first-quarter (Q1) 2018 result which we expect to boost stock prices in the immediate and also trigger further activities especially for companies who report impressive performance for their Q1 2018 numbers.
Generally, despite the downside risk to the outlook of the equities market Capital Bancorp Plc is optimistic about the performance of the equities market as they believe that most of the fundamentals are in favour of a further surge in the equities market.