" />
Published On: Sun, Feb 11th, 2018

Nigeria’s tumbling stock market: Five stocks to watch


Nigeria’s big leader board stocks may take further tumbles in the course of the week as global equity markets head south, but that has been a trigger for a number of investors to take a long position in the market, especially as it relates to five stocks. ‘’The market might have lost some of its early steam’’ says Peter Aletor, Chairman Apel Assets and Trust notes that, ‘’but we can still expect an upward reversal as price earnings (p/e) ratios crash and traders begin to sniff stocks going on the cheap’’.

Aletors’s forward view is shared by Charles Okungba of Duniya Capital based in Kano who believes that, ‘the recent bull bust in the Nigerian market appears to be the result of a number portfolio managers taking profit to cure losses suffered in other global bourses. Savvy investors will stick to a number of prime local stocks that are bound to reverse their directions in days ahead’’. Five stocks that fit the bill for a bungee bounce back are; GT Bank (recent price N49.00), Dangote Cement (recent price N265.00), Access Bank (recent price N12.50), CAP Plc (N38.85), and UBA Plc (recent price N12.35).

Judging by recent stock analyst projections these companies look good for future price gains based on their low corporate price earnings multiples, p/e’s (a measure of price attractiveness). ‘So far the economy looks fairly stable, with robust foreign reserves at about $40 billion, inflation at 15.35 per cent and fiscal deficit likely to shrink to 2 per cent of GDP, we look good for growth in 2018’, enthuses Juliet Nwanze, economist and market analyst at Capital Investments Limited. Nwanze’s optimism seems to be reaffirmed by the World Bank’s recent growth projections for the country in 2018 at 2.5 percent or 1.1 per cent higher than the 1.4 per cent growth rate it recorded in the third quarter of 2017.

The five stocks are strongly pro-cyclical meaning that they grow like muffins in the same direction as the economy. With expectations that fiscal looseness would add stimulus to economic growth in a pre-election year, banking sector stocks can be expected to do well with stronger earnings based on improved liquidity, lower cost of funds and higher levels of private sector credit creation.  Investment analysts note that growth in bank loan assets and an increase in aggregate domestic consumer demand should add flesh to bank bottom lines. Besides, stronger economic growth should see corporate gross earnings rise and reduce risks associated with lending to the real sector. ‘We could finally enter a new age of safe corporate lending not seen since the middle of the 1990’s’ notes Chuks Nnaji of Perfecta Capital. This might be a bit exaggerated but a stronger economic outlook does seem to be in the offing.

If this prediction pans out the construction sector may be a major beneficiary of the cheerier forecast. Companies in the cement and building materials business are likely to witness higher gross earnings on traditionally lucrative operating margins. In other words, companies such as Dangote Cement and Lafarge Africa could sew up tidy year end profits as construction work grows apace by government trying to convince an increasingly skeptical populace that they are interested in the common good. Says Nnaji, ‘government statements are now as credible as German master propagandist Joseph Goebbels during the second world war; the more government officials talk about economic issues ranging from employment, investment, government savings and consumer spending the more you want to throw up in disbelief’.

But what do analysts say about the Household and Consumer goods industry during the year? The outlook looks far better than it was in 2017. True enough, the Central Bank of Nigeria has kept a lid on money supply by serial sales of Treasury bills and by keeping interest rates high but the predictability of these policies has fashioned greater certainty for business decision making and reduced concern about macroeconomic aggregates. This, according to economists, means that enterprises are less worried by unexpected policy shocks allowing them to plan further down the line. Suraj Akinyemi, economist and CEO Surak 713, an agricultural processing company notes that, ‘the predictability of policy allows business people take actions consistent with existing assumptions about factors such as exchange rates, input prices, bank credit costs and to a certain extent labour expenses. Manufacturers could do with more credit access and cheaper rates but as things stand at least we cope with the familiar’.

READ  2019 election will be credible, knowledge-driven-Abia REC

With politics heating up as party loyalists get ready for campaign rounds prior to the 2019 elections more naira would be put to play in the economy, but most of it will be salted away into dollars, pounds and Euros as politicians and their followers look for ways of warehousing their windfalls in ‘safer’ currencies or away from the prying eyes of tax collectors and the Economic and Financial Crimes Commission (EFCC). More money in the system will spur greater consumer spending but the ‘political spending multiplier’ will be muted by foreign exchange leakages. Nevertheless, the household goods sector will feel part of the temporary boom and this should sit nicely with companies such as CAP Plc, a subsidiary of the once venerable corporate octopus UACN Plc.

GT Bank Plc, a bank of good conduct, but…

Investors in GT Bank have had Champagne-popping time over the last twenty four months. The banks share price has soared from about N16.00 in January 2016 to about N49 in January 2018, a capital gain of 206 per cent or what amounts to a growth of 75 per cent on an average compound annual basis. In other words investors have made an average return of 75 per cent on GT Bank shares over the last two years before consideration of dividend yields and tax. This makes the bank easily one of the best investments on the Nigerian bourse since the break out of a recession in the middle of 2017. But will the speedster slow down in 2018? Maybe not.  At a price to earnings ratio of 9.98 and a recent price of N48.00 the bank still has headroom for significant upward price adjustment. If one year forward earnings meet analysts’ expectation of N5.20 then a forward price increasing of between N52.00 and N55.00 per share can be expected on or before June.

Dangote Cement; a giant’s blessings

Big is beautiful and folks at Dangote Cement know it. The building materials maker looms over the local gypsum brick market like Gulliver over Lilliputians. The company may not be called a monopolist (it has rivals like Lafarge Africa and BUA) but is the next best thing. This explains its over 40 per cent operating margin (down from an earlier 60 per cent) and its octopus-like distribution network. Warren Buffet would consider Dangote to be an investment, ‘toll gate’. The company recently sold for a tall N266.70 or a price earnings multiple of 18.41 which a few analysts would consider ‘steep’, but the charm of the stock comes more from its prudent management, deep market penetration and brand loyalty, than from its price to earnings multiple. Besides, analysts note that the company would likely be among the first to ride a fiscal policy-induced economic expansion in the course of the year. Heavy construction spending on roads, bridges and houses would likely rub off nicely on Dangote’s profit and loss statement for 2018. The company’s one year forward earnings projection for 2017 is about N16.66 and based on its recent p/e, the company could see a appreciation of 15 per cent to N306.54. The company’s indicative dividend yield for last year would be about 3.16 per cent.  As far as growth stocks go Dangote may not be a top drawer selection, but as a stable and secure part of investors longer term portfolio positions Dangote is perhaps as solid as its fast drying cement products.

READ  Get Shekau dead or alive, Chief of Army Staff orders soldiers

Access Bank, from boys to men

Analysts once use the word ‘cowboys’ to describe the top management of Access Bank Plc before the retirement of its erstwhile Managing Director Aig. Aig-Imoukhuede; the hard and fast, wheeling and dealing, arrow-headed by Aig and his lieutenant, current CEO, Herbert Wigwe, was industry lore, it defined youthful exuberance in pursuit of corporate legend. The bank has shown fiery expertise in corporate banking and has been a major public sector maven. At its recent price of N11.95, the bank is attractively valued to draw interest from value-investors, especially with a p/e of 4.84. The bank’s management has simmered from its earlier hair-rising, saber-rattling days and seems to have settled into a genteel mode sharpened by corporate maturity.

CAP Plc, creating a religion from loyalty

CAP not so long ago traded at a modest price reflecting the strong Christian ethos of its chief executive officer, Oluwakemi Ogunnubi. But there is nothing coy about the company’s glacial price increase over the last two years rising from N27.30 in 2016 to N38.85 last week, a capital gain of 42.3 per cent or 19.2 per cent on an annual compound average basis or a real yield of about 3 per cent after adjusting for annual inflation. The stocks attraction is again a strong management, growth potentials of its core products, Commercial Paints and household cleaning items, and a fairly strong operating cash flow. Another major fat pitch for the company is the loyalty shown by its corporate clients, its branded products have been associated with quality and reliability making its offerings prime choices of a group of corporate (and some individual) patrons.

UBA Plc, a tradition in transition

United Bank for Africa (UBA) is easily one of Nigeria’s most well run financial institutions. It is a bank of unique circumstances. It is the product of a merger between a large not particularly creative institution in the 1990’s and a young, viciously competitive and fast moving bank then known as Standard Trust Bank (STB)run by Tony Elumelu. The bank has since defined a strong presence in retail and corporate banking with a slant towards a broader continental mandate. In 2016 about a fifth of its earnings came from its African operations. The bank still remains strong in its traditional core activities but that will have to gain some zip if the bank is to retain competitive relevance, its new chief executive officer Kennedy Uzoka has a steamy period ahead of him as investors expect him to best the performance of his predecessor, Phillips Oduoza.

With recent market price of N12.00 on forward earnings per share expectation of N2.62 for 2017 the bank may shortly rally to a near term price of N13.78. Going by Uzoka’s determination to get the bank pacing harder, investors may come out smiling warmly at the end of the year.

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Most Shared

Recent posts

  • Stop paying dividends, CBN orders banks with huge bad loans

    Banks and discount houses with non-performing loans above 10 per cent will no longer be allowed to pay dividends to their shareholders. The Central Bank of Nigeria gave the directive as part of measures to curb the increase in non-performing loans and to stop further erosion of the capital base of the banks. The directive […]

  • All recovered assets will be sold, says Buhari

    President Muhammadu Buhari has assured Nigerians that all mismanaged and misappropriated national assets recovered will be sold off. In a statement issued on Monday by his Senior Special Assistant on Media and Publicity Mr Garba Shehu, he also vowed to ensure that the proceeds of the sales are paid to the treasury for the benefit […]

  • Ortom explodes! Says attacks by herdsmen, a continuation of Uthman Danfodio’s 1804 jihad

    Governor Samuel Ortom of Benue State has described the ongoing killings by Fulani herdsmen in the state as a continuation of 1804 jihad by Uthman Danfodio, alleging that the Fulani are angry because the initial jihad led by Danfodio was halted in Benue and prevented from proceeding to the sea. The governor who bared his […]

  • Drug abuse is on increase among youths

     Frustrated and humbled by increasing difficult economic conditions, pervasive social anomie, breakdown of age-old value system and discipline, most youths now find solace in drug abuse, writes Adebayo Obajemu  Fadairo [not real name] is 24, at that age, his physical appearance is that of a man in his thirties, slurred and incoherent speech, hanging jaw, […]

  • 2019: Can the Jagaban save Buhari?

    Challenges for Tinubu over the re-election bid By Obinna Ezugwu On Tuesday last week, pictures of President Muhammadu Buhari posing with Asiwaju Bola Ahmed Tinubu, National leader of the All Progressives Congress (APC) and Chief Bisi Akande, interim national chairman of the party filled the country’s media space. Both Tinubu and Akande had gone to […]

  • Kings of Broad Street: GT, ZENITH, UBA, ACCESS

    BY OKEY ONYENWEAKU As the banking industry gets tighter with narrowing operating margins and tougher competition for retail customers, the big four financial institutions are revising their strategies and setting up camp to fight an unconventional warfare. The new terms of engagement are moving from terrestrial combat to digital battlegrounds. ‘Banks will increasingly need to […]

  • Massive sell-off hits insurance sector

        FELIX OLOYEDE As the Nigerian Stock Exchange (NSE) changes its rules about the maximum price that stocks could dip below their nominal book values of 50 kobo per share, Insurance sector stocks since last week have taken a free fall. David Adonrin, managing director, Highcap Securities Ltd has been holding Royal Exchange Insurance […]

  • War has been provoked between Yoruba and Fulani- OODUA Redemption Alliance declares

    War has been provoked between Yoruba and Fulani- OODUA Redemption Alliance declares OBINNA EZUGWU At the end of its security summit held in Ibadan on Thursday, the OODUA Redemption Alliance resolved to end what it called gradual incursion into Yoruba land by herdsmen who they accused of continuing the Jihad of Usman Danfodio. The group […]

  • It would be utterly irrational for Nigerians to vote for Buhari again- Junaid Mohammed

    Second Republic lawmaker, Dr Junaid Mohammed has noted that President Muhammadu Buhari has performed poorly in office and it would be irrational for Nigerians to vote for him in 2019. Dr Mohammed who made the assertion in an interview with Vanguard on Saturday, also criticized Buhari for being a poor reader who according to him, […]

  • Bayelsa tour: Obasanjo lays foundation for refinery

    Former President Olusegun Obasanjo continued his visit to Bayelsa State after inaugurating some projects of the state government on Friday. The former president continued his tour of the state on Saturday with the laying of the foundation for the establishment of Azikel Refinery. The refinery is owned by Dr Eruani Godbless, a prominent businessman and […]

  • Quite notice, hate speeches and President Buhari’s Northenisation/Islamisation agenda by Professor Ben Nwabueze

    Quite notice, hate speeches and President Buhari’s Northenisation/Islamisation agenda by Professor Ben Nwabueze NATURE OF HATE SPEECHES In the aftermath of the divisions in the country caused by President Buhari’s Northernisation/Islamisation Agenda, as manifested in his lopsided strategic appointments that unfairly favour the North as against the South, and the complete exclusion of the South-East […]

  • Chief Adeniyi to Tinubu: Withdraw your support for Buhari or risk losing influence in Yoruba land

    OBINNA EZUGWU Veteran columnist and elder statesman, Chief Adetola Adeniyi has warned former Lagos governor, Senator Bola Ahmed Tinubu against supporting President Muhammadu Buhari’s second term bid, as according to him, such could mark the beginning of the end of his influence in Yoruba land. Chief Adeniyi who led the Global Intelligentsia for Buhari, a […]

  • Killings: Buhari condemns action, sends Defence Minister to Zamfara

    President Muhammadu Buhari has strongly condemned Thursday’s massacre of innocent persons in Birane village, Zurmi Local Government Area of Zamfara State. The President stated this in a statement issued on Friday by his Senior Special Assistant on Media and Publicity, Mr Garba Shehu, following the death of at least 18 persons as a result of […]

  • Obasanjo visits Jonathan at Bayelsa residence

    Former President Olusegun Obasanjo on Friday visited former President Goodluck Jonathan at his home in Bayelsa State. Dr Jonathan welcomed the elder statesman who was in his home for a private dinner, in company with his wife, Patience. Earlier before the visit, former President Obasanjo inaugurated a government specialist hospital in the state and unveiled […]

  • NNPC dispatches 29.058m litres of PMS to 13 states

    The Nigerian National Petroleum Corporation (NNPC) said it supplied a total of 29.058 million litres of Premium Motor Spirit (PMS) popularly known as petrol to thirteen Northern states in three days. In its report on daily dispatch to filling stations made available to the News Agency of Nigeria (NAN) in Abuja on Friday, it named […]

  • Lagos will bring about world class childhood disability intervention-Joyce Onofowokan

    An area in which different levels of governments in Nigeria have remained loudly silent and painfully indifferent is childhood disability. Children with disabilities and their parents have over the years ridden on waves of disillusion, despair, and decay. They constitute a tribe of the silent minority that the society has conveniently allowed to disappear into […]