15 April 2019

Nigeria: Analysts Optimistic Market Will Recover On Low Valuation

Having declined for five straight weeks, the low valuation of stock prices on the Nigerian Stock Exchange (NSE) will drive recovery going forward, analysts have predicted.

The stock market declined by 0.19 per cent last week following continuing bear sentiments that have depressed prices to record low.

Specifically, the NSE All-Share Index closed lower at 29,560.47, while market capitalisation stood at N11.103 trillion. According to analysts at Meristem Securities Limited, while the downbeat assessment of the country by the International Monetary Fund (IMF) loomed large on market sentiment, the World Bank also cut its growth forecast to seal the fate of the bulls. Although the market showed signs of recovery in the last days of the week, it was not enough to prevent the NSE ASI to close negatively.

But analysts said the decline in prices have made the Nigerian market to continue to trade at relatively cheap valuation, both historically and to its peers.

"Price-to-Earnings ratio (P/E Ratio) for the NSE ASI and MSCI Nigeria index dropped to 7.43x and 5.54x, the lowest levels since 2009 respectively. We expect this to drive the next phase of the market. The near-term downside risks to this outlook however lies in policy uncertainty as investors await clarity on policy and reforms post the swearing-in of the newly elected Government," they said.

An analysis of the sectoral performance for the week showed that four out of the five tracked, decline. The lone gainer was the NSE Oil & Gas Index, which rose by 0.3 per cent.

On the negative side, the NSE Insurance Index led with a decline of 3.1 per cent, while the NSE Industrial Goods Index and NSE Consumer Goods Index shed 0.5 per cent and 0.4 per cent respectively. The NSE Banking Index fell 0.3 per cent.

According to analysts at Cordros Capital Limited, they reiterated their negative outlook for the equities market in the short-to-medium term, amidst absence of a positive market trigger.

"However, stable macroeconomic fundamentals and compelling valuation remain supportive of recovery in the medium-to-long term," they stressed.

Apart from Nigeria that closed negatively, three other markets in Africa also declined. Ghana recorded the worst performance for the week with the Ghana's GSE Composite falling 2.7 per cent. Egypt's EGX30 shed 0.9 per cent, while Mauritius' SEMDEX 0.4 per cent.

On the positive side, Kenya's NSE-20 led gainers, advancing by 2.4 per cent. Morocco's Casablanca MASI rose by 0.8 per cent.

In Asia and the Middle East, performance was mostly bearish as four of five markets closed in the red. Turkey's BIST 100 recorded the only gain after advancing by 2.4 per cent. Thailand's SET Index led losers, after declining by 0.9 per cent, trailed by Qatar's DSM 20, which went down by 0.7 per cent. UAE's ADX General Index shed 0.4 per cent, while Saudi Arabia's Tadawul ASI closed 0.3 per cent.

According to report by Afrinvest (West Africa) Limited, without a clear positive economic development last week, performance across the developed market was mixed. In the United States(US), the S&P 500 and NASDAQ rose 0.5 per cent apiece while the United Kingdom (UK) FTSE All Share index appreciated 0.1 per cent. France's CAC 40 advanced 0.5 per cent, just as Japan's Nikkei 225 gained 0.3 per cent.

Conversely, the Hong Kong's Hang Seng declined 0.1 per cent while Germany's XETRA DAX declined by 0.05 per cent.

Across BRICS countries, performance was mixed albeit negatively skewed, as three of five markets trended southwards. The Russia RTS recorded the largest gain, rising 2.1 per cent as investors reacted positively to increased crude oil sales following U.S. sanctions on Venezuela and Iran. South Africa's FTSE/JSE All Share also recorded a gain of 1.1 per cent due to the institution of accommodative monetary policies by the country's central bank.

On the negative side, Brazil's Ibovespa led the decliners, shedding 2.6 per cent just as China's Shanghai Composite and India's BSE Sens shed 1.8 per cent and 0.2 per cent respectively.

Market Turnover

An analysis of market turnover showed a decline as investors traded 1.770 billion shares worth N15.264 billion in 17,015 deals, down from 3.544 billion shares valued at N20.264 billion that exchanged hands in 19,130 deals the previous week.

But the Financial Services Industry remained the most active, recording 1.257 billion shares valued at N12.127 billion traded in 10,760 deals. The sector thus contributed 71 per cent and 79.45 per cent to the total equity turnover volume and value respectively. The Conglomerates Industry followed with 226.767 million shares worth N288.198 million in 864 deals, while the third place was ICT Industry with a turnover of 184.641 million shares worth N76.618 million in 274 deals. Trading in the top three equities which are: Sterling Bank Plc, Transnational Corporation of Nigeria and Guaranty Trust Plc accounted for 648.906 million shares worth N5.831 billion in 2,293 deals, contributing 36.6 per cent and 38.2 per cent to the total equity turnover volume and value respectively.

Also traded during the week were a total of 13,740 units of Exchange Traded Products (ETPs) valued at N215,010 executed in two deals. However, there were no trade recorded for ETPs the previous week.

A total of 787,527 units of Federal Government Bonds valued at N795 million were traded this week in 26 deals compared with a total of 18,042 units valued at N19.685 million transacted last week in 24 deals.

Price Gainers and Losers

The price movement chart displayed 35 equities that appreciated, higher than 14 in the previous week, while 31 equities depreciated in price, lower than 55 equities of the previous week.

Learn Africa Plc led the price gainers with 18.7 per cent, followed by May & Baker Nigeria Plc with 17.3 per cent. Chams Plc appreciated by 16.6 per cent, just as Regency Assurance Plc chalked up 13.6 per cent. Mutual Benefits Assurance Plc, Niger Insurance Plc and Veritas Kapital Assurance Plc garnered 10 per cent each.

Other top price gainers included: Neimeth International Pharmaceuticals Plc (9.8 per cent); Meyer Plc (9.2 per cent) and Transnationwide Express Plc (8.7 per cent).

Conversely, Ikeja Hotel Plc led the price losers with 26.1 per cent, trailed by Associated Bus Company Plc with 16.6 per cent. McNichols Plc shed 14.7 per cent just as Royal Exchange Plc and NEM Insurance Plc declined by 13.7 per cent respectively.

Consolidated Hallmark Insurance Plc went down by 11.1 per cent, while Cutix Plc closed 9.9 per cent lower. PZ Cussons Nigeria Plc shed 9.6 per cent, just as Trippe Gee and Company Plc lost 9.1 per cent.

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