Having recorded a growth of 35.4 per cent in 2012, the Nigerian equities market has opened 2013 on a positive note. Goddy Egene writes on how to sustain that trend in 2013

The Nigerian equities market put smiles on the faces of many investors in 2012 after a dismal performance the previous year. The market, which has been down since 2008, ended last year with a return of 35.4 per cent as measured by the Nigerian Stock Exchange (NSE) All-Share Index (ASI).

That performance was the third best in the world as African markets led the global stock markets. Nigeria was only behind Egypt and Kenya in terms of best returns in 2012. The Egyptian stock market posted the highest return of 49.56 per cent, followed by Kenya with 39.32 per cent while Nigeria posted 34.5 per cent.

Savouring High Returns

In terms of individual stocks performance, investors in the Nigerian market reaped returns as high as 200 per cent. For instance, the top best stocks closed last year with returns of between 275 per cent and 83 per cent.

Specifically, Paints and Coatings Manufacturers (PCMN) Plc fetched investors the highest return of 275 per cent. International Breweries Plc occupied the second position at 184 per cent, while Cadbury Nigeria Plc followed with 154 per cent. Diamond Bank Plc delivered 149 per cent, just as Livestock Feeds Plc and National Salt Company of Nigeria returned 100 per cent and 99 per cent respectively.

Others among the top 10 best performance were: GlaxoSmithKline Consumer Nigeria Plc, Presco Plc (96 per cent apiece) CAP Plc (93 per cent) Okomu Oil Palm Plc (83 per cent).

Bull Drivers

Analysts attributed various reasons for the superlative performance in 2012, ranging from the effects of reforms in the financial sector and attractive valuations of equities that lured more investors to the market.

The Chief Executive Officer of Partnership Investment Company Plc, Mr. Victor Ogiemwonyi, attributed the growth recorded in 2012 partly to the regulators' hard work.

"They have put in place the needed reforms that are now responsible for the gradual return of confidence to the market," he said.

On his part, the Chief Executive Officer Quest Advisory Services Limited, Mr. Bayo Rotimi, linked the performance to the clean up of the banking industry through the efforts of the Central Bank of Nigeria (CBN) and Asset Management Corporation of Nigeria (AMCON).

"This has resulted in stronger corporate earnings driven by the removal of toxic assets from the balance sheets of banks, improved risk management and corporate governance structures, greater disclosure and financial reporting standards," he said.

Rotimi added that improved regulatory oversight and coordination between the various authorities also contributed to the impressive performance in the market.

Sustaining the Growth

However, as investors continue to savour the impressive returns in 2012, the big question on the lips of many stakeholders, is whether it would be sustained in the 2013. In Ogiemwonyi's opinion, the growth and momentum would continue in 2013, stating that the outlook for the market in 2013 is very positive.

"I expect the market to do better than average in the New Year. The factors that will influence things include the rising confidence and the liquidity that will follow, especially with the year starting with an approved budget. The gradual return of investors will see the market rise in the first quarter and slowly correct any spikes that may be too far from the average," he said.

Rotimi said the upswing in the markets could be sustained through the continuation of the ongoing reforms and the faithful implementation of the capital markets reform roadmap.

"The introduction of new products will help deepen and broaden the market and ensure continued inflow of funds into the capital markets. New listings especially by telecoms, power, transportation and other infrastructure companies would undoubtedly boost market performance in the coming years.

"Enhanced market liquidity through the injection of long-term funds arising from the review of the investment guidelines by Pension Fund Administrators, the Sovereign Wealth Fund and the ongoing reforms in the insurance industry will also help," he said.

Mr. Tola Odukoya of Dunn Lorem Meriffied, said: "I remain optimistic about the market and I equally expect the performance recorded in 2012 will be consolidated this year. I expect that the key drivers will remain the usual banking, consumers' goods and cement sectors with a few surprises from other sectors."

On his part, the Chief Executive Officer of Lambeth Trust & Investment Company Limited, Mr. David Adonri, said the equities secondary market has started 2013 on a positive note. "Sustaining the trend will depend on the continued attraction of the Nigerian financial market to foreign investors that now dominate. Secondly, the market making machinery must continue its intervention to ensure price stability," he said.

Adonri noted that for orderly growth to be achieved in the capital market, rules and regulations must be enforced. "However, the zero budgetary allocation to Securities and Exchange Commission (SEC) in the current Appropriation Bill, which may cripple the institution is a serious threat to the sustenance of the positive trend in the capital market," he said.

Market Outlook

Analysts at Meristem Securities Limited, one of the stockbroking firms the closed among the best 10 stockbrokers in 2012, said they expected the market to post further positive returns in 2013, explaining that they expect local investor confidence and NSE-driven reforms to drive returns.

Giving their outlook for some key sectors of the market in 2013, analysts at MSL, said the banking stocks remained relatively underpriced given the simple average price-to-book ratio of 0.96x. "Impressive banking industry average earnings growth of 90 per cent in 2012 should give way to 20 per cent growth in 2013 as it reverts to mean. As yields decline, we envisage the re-aligning of industry-wide focus from the current use of treasuries to towards risk-based asset income," they said.

Regarding consumer goods, MSL said expectations on market returns remain modest, as some of the stocks appear over-priced at current levels given their outlook - driven perhaps by the significant interest in international businesses looking for acquisitions as entry into Nigeria.

On insurance stocks, Meristem said the trading price-to-book values for the insurance sector, which were as high as 4.0x at the height of the stock market rally in 2008, are now on average below 0.60x providing attractive opportunities.

"However, despite our optimism for the insurance sector in 2013, this is an industry in a state of change. Some significant structural changes are required to lower consumers' risk to the insurance providers, and instill investor confidence in the sector. In addition, asset portfolios are heavily invested in short-dated interest-bearing investments and lower rates in 2013 will impact non-premium revenue," the stockbroking said.

Assessing the outlook for the brewery sector in 2013, MSL said the sector will grow turnover and earnings on average by 16 per cent and 11 per cent respectively in 2013. "Nigeria's youthful demographics, economic growth and increased disposable income are key sector growth drivers. Nigerian Breweries Plc and Guinness Nigeria Plc within the sector will grow earnings on the back of reduced cost through locally sourced inputs," Meristem said.

For the industrial goods sector, the firm believed performance in the sector was expected to be driven by increased construction and building activity in the country as efforts aimed at closing Nigeria's huge infrastructure gap is sustained. "Cost efficiency in production is particularly expected to buoy earnings performance for the cement companies in the sector," Meristem noted.

Task before Stakeholders

As another good year is envisaged for the Nigerian market in 2013, it is still believed for the growth to the achieved, stakeholders must play key roles.

Rotimi said that regulators must continue to drive the reform agenda, increase market efficiency and expand scope of monitoring and enforcement activities in order to ensure that market participants comply with existing rules and regulation.

"Operators should build capacity in order to develop new products to deepen our markets, while companies should adopt more disclosure, stronger corporate governance guidelines and have access to affordable long-term capital.

"On the other hand, the economic managers should ensure increased fiscal discipline, diversification away from oil and gas and price stability," he said.

A shareholder activist and founding member of Nigeria Shareholders Solidarity Association (NSSA), Alhaji Gbadebo Olatokunbo, said there should be constant reviews and monitoring of policies in the capital market in order to checkmate and sanction errant operators.

He said: "No stone should be left unturned in ensuring serious surveillance of the market, especially in the area of market making. There should be incentives to encourage the listing of telcos and energy companies in the market. This will result in increased investor confidence and full recovery of the market.

"However, I passionately appeal to the National Assembly to reconsider its stand on SEC because all hands must be on deck in the investment drive of the capital market for the growth of the entire economy."