Though the Nigerian stock market’s dismal performance has continued to be largely reflective of investor apathy towards equities, some counters have proven to be a BUY by outperforming the market.
In the trading week ended November 11, Wema Bank rose by 337.5percent year-to-date (YtD), Meyer (393.5percent), Fidelity Bank (58.8percent), Champions Breweries (48.9percent), and Cadbury (16.5percent).
“Existing macroeconomic headwinds in Nigeria, as well as the expectation of a higher inflation rate in the report to be released this week make for little or no attractive investment case for the Nigerian equities market,” said Meristem research analysts in their November 14 note to investors.
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The analysts noted that the tight system liquidity, coupled with the expectation of a higher stop rate in this week’s bond auction, could lower flow of funds and activity levels in the Nigerian equities market.
“However, we note that some bellwether stocks present bargain-hunting opportunities. Nonetheless, the market sentiment is generally bearish. Thus, we expect the market to close in the red zone this week,” they said.
After the hammering the market took in October, the Nigerian bourse’s year-to-date (ytd) positive return plunged to a low of +2.93 percent as at the close of trading on November 11, down from a peak return of almost +27 percent in May.
Although the major factor behind the apathy towards equities is largely the effect of Nigeria’s monetary tightening by the central bank that has resulted in elevated yields on fixed-income securities, stocks have done well such as Guinness (+91.4percent), PZ Cusson (+41percent), Conoil (+20.5percent), Eterna (+24.8percent), Seplat (+67.5percent), Okomu Oil (+19.4percent), and Presco (+37.2percent).
Others are SCOA (+68.3percent), Transcorp (+12.5percent), United Capital (+22.2percent), Fidson (+44.5percent), Airtel (+33percent), and Multiverse (+1825percent).
Other stocks that have outperformed the market are Academy Press (+140percent), Learn Africa (+28.2percent), NAHCO (+55.1percent), FCMB (+13.4percent), Ecobank Transnational (+9.2percent), Jaiz Bank (+60.7percent), BUA Cement (+7.4percent), Ardova (+6.9percent), and MRS (+4percent).
“This is not a good time for the equity market, with the NGX All-Share Index up just 2.93percent year-to-date. Yet the total equity return, which is calculated by adding dividends reinvested, is 7.53percent year-to-date. Over the long-term, reinvesting dividends has been proven to significantly enhance equity returns.” Coronation Research analysts said in their November 14 note.
“Since 1 January 2016, for example, the NGX All-Share Index has returned 53.51percent while the total return has been 125.10percent. Successful long-term equity investors reinvest their dividends.”
They added: “Three rises in the Money Policy Rate of the CBN have seen investors rotate into Money Market and Fixed Income investments, leaving the equity market in the shade. The NGX All-Share Index is down 15.15percent since mid-year, with much of the damage being done since the beginning of October.
“It is down 10.31percent over the past six weeks. Long-term investors, on the other hand, know that this is not the whole story. Investing in equities means gathering dividends and dedicated equity investors reinvest these into their stocks. This generates total returns. In contrast to the NGX All-Share Index, the NGX All-Share Total Return Index is up 7.53percent year-to-date, a significant difference.”
