Current valuations of most stocks at the Nigerian bourse present attractive entry opportunities for risk tolerant investors to position ahead of the earnings season.
In line with the post-listing requirements of the Nigerian Stock Exchange (NSE), most companies have notified the Exchange of the closed period for the trading of their shares, in the run up to the announcement of their 2016 Full Year results.
The value of listed equities which opened this year at N9.246trillion lost about N274billion last month to N8.972trillion as stock investors were fairly reluctant to make big bets ahead of the FY’16 earnings season. In line with most analysts’ outlook, most market watchers expect bargain-hunters who eagerly seek for entry points to see recent dip as opportunities to increase stake in value stocks ahead of future rebound.
Also, the NSE All Share Index (ASI) which opened for trade this year at 26,874.62 points declined to 26,036.24 points at the close of trading last month.
Gregory Kronsten led team of research analysts at FBN Quest noted in their report, “So much to do; so little time” that after three years of consecutive losses, “we expect equities to regain some lost ground this year. We forecast the ASI to return 10%, implying an end-year target of 29,560.”
Research analysts at SCM Capital Limited said recently that they expect a combination of bargain hunting and profit-taking activities to hold sway in the market.
“Although, some income focused investors may begin to position for dividend declaration expectation of some selected banking stocks, particularly the tier 1 banks,” the analysts added.
Recently, Fitch Rating downgraded Nigeria rating outlook to negative from stable due to concerns that the existing lack of foreign currency in the country could hurt the nation’s economic recovery. The rating agency affirmed its B+ rating on Nigeria, four levels below investment grade.
Kayode Tinuoye -led team of research analysts at United Capital plc are modestly positive in their outlook for Nigerian equities in 2017, “as domestic and external macro headwinds are expected to subside in the medium term”. The analysts in their recent outlook titled “Green Shoots Amid Thorns” based their forecast of market returns solely on domestic macroeconomic condition anchored on the trajectory of oil prices.
“Given the possibility of disruption to crude oil production, we think the impact of oil price movement on macroeconomic conditions in 2017 will be less direct similar to the trend in 2016”, United Capital analysts added..
The analysts also recognise the strong linkage between oil price and the Nigerian equities market, “we chose to model the All Share Index (ASI) against the level of external reserves with a view to indirectly capturing the combined impacts of oil production, foreign exchange (FX) trajectory and Foreign Portfolio Investments (FPIs).”
Also in their 2017 outlook, Saheed Bashir-led team of research analysts at Meristem Securities Limited, expect activities in the equities to remain largely weak in the first half of 2017, “on the back of subsisting macroeconomic uncertainties, while we anticipate a modest recovery towards the tail end of the year”. In their report titled, “In Murky Waters … Wading Through Uncertainties”, Meristem Securities analysts hinged market recovery partly “on stability in the foreign exchange (FX) market and moderation in exchange rate gap between the interbank and parallel markets”.
The analysts noted that in line with the lacklustre state of the economy amid fiscal and monetary policies misalignment, the Nigerian All Shares Index (NSEASI) closed 2016 “below waters” at – 6.17percent, adding that the “market breadth, which measures the number of price gainers relative to price losers in the year, settled at 0.39x, representing thirty (30) gainers and seventy-seven (77) laggards.”