• Wednesday, June 19, 2024
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Investors reap big on 2016 large-cap stocks bet

Stock market to enter cautious mode as Q1 frenzy fizzles out

Investors who bought shares of some large-cap firms in 2016 when their prices were low have seen the value of their holdings jump largely on the back of the recent rally in the stock market.

They bought the dip seven years ago and now are reaping huge capital gains.

Buying the dip is when an investor buys an asset (in this case shares) after its share price drops in the belief that they are getting a deal on a good investment.

Looking at prices of 30 most capitalised stocks on the Nigerian Exchange Limited as at 2016 and 2023 shows that any investor who bought United Capital Plc in 2016 at N1.35 per share had over 1,085 percent capital appreciation as of Friday, when it closed at N16 per share.

“There are several factors that can lead to a share price increase… GDP growth expectations trickling down to impact company earnings, yield performance in the fixed income impacting capital allocation decisions, market sentiments, and perception of government policies,” a Lagos-based portfolio manager said.

For not buying Okomu Oil Palm Plc at N31.78 in 2016, an investor missed the 670.9 percent capital appreciation its N245 per share last Friday represents. In the trading week to July 7, the market’s positive return year-to-date stood higher at 23 percent. The market’s All-Share Index and equities capitalisation rose to 63,040.41 points and N34.326 trillion respectively.

“In the past six weeks, we have seen two major policy changes that are of enormous value to Nigerian investors,” said Lagos-based analysts at Coronation Research in their July 10 note. “One is the removal of fuel subsidies, the other is the liberalisation of the foreign exchange regime with the aim of unifying Naira/US$ exchange rates. These present excellent investment opportunities.”

They believe that foreign exchange liberalisation brings benefits to Nigerian equity investors and “will encourage foreign investors to bring money into the country again”.

“The long-term declines in both foreign direct investment and foreign portfolio investments are set to be reversed, in our view,” the analysts added. “Within the equity market we favour the bank sector. Banks not only tend to hold net long positions in US dollars but are also beneficiaries of liberalised FX trading and the increased liquidity that implies.”

Seplat Energy Plc, which investors bought at N203 per share in 2016, closed at N1,430.2 per share as of Friday, representing an increase of 604.53 percent compared to its 2016 price.

For not buying Presco Plc at N34.65 in 2016, an investor missed reaping 534.92 percent capital appreciation as it closed at N220 last Friday.

Fidelity Bank saw its share price grow 515.86 percent to N8.93 last Friday from N1.45 in 2016, while Transcorp Hotel rose by 492.55 percent to N32.65 from N5.51 per share in 2016.

In the six months to June 30, Nigeria’s listed equities value increased by N5.3 trillion, thanks to oil and gas, banking, consumer goods, and insurance stocks.

“Considering that there are many stocks trading at attractive discounts, we expect positive sentiment in the market this week. However, we note the attractive yields in the fixed-income space could serve as a distraction to investors. Profit-taking could also take a toll on market direction,” said Futureview research analysts in their July 10 stock recommendation.

Dangote Sugar Refinery Plc, which traded at N6.06 in 2016, closed at N 27.95 per share on Friday, representing a 361.22 percent increase in seven years.

United Bank for Africa Plc closed last weekend at N14.2, up from N3.36 in 2016, representing an increase by 322.61percent in seven years.

FBN Holdings Plc saw its share price rise by 315.98 percent to N20.3 last Friday from N4.88 in 2016.

For investors who did not buy FCMB Group in 2016 at N1.63, they have missed 307.97 percent capital appreciation, considering the N6.65 it closed at last week.

“We expect the prevalent positive momentum in the Nigerian equities market to continue this week, supported by investors’ optimism towards equity investment in the country. In addition, we anticipate that the proposed Dangote Cement share buyback programme scheduled for next week will spur a significant rally on the ticker,” Meristem research analysts also said in their July 10 note.

Dangote Cement Plc, which traded at N161.5 in 2016, rose to N300 last Friday, up 85.75 percent in seven years. TotalEnergies at N150 in 2016 implies 146.66 percent increase compared to N370 it closed last week.

“With Dangote Cement being a bellwether stock, this should buoy the upbeat mood in the market. Furthermore, we do not expect the T-bills auction to cause a significant flow of funds from the local bourse. In summary, we expect bargain hunting across tickers to outweigh profit-taking activities. Therefore, we expect the market to closeup this week,” Meristem research analysts added.

Stanbic IBTC, which was trading at N15.71 in 2016, rose to N63.65 last week, up by 305.15 percent in seven years. Airtel Africa Plc, which was exchanged at N359.4 per share in 2016, closed last week at N1,319.9, up by 267.25 percent in the same period. Transcorp at N1.48 per share in 2016 stood higher at N4.13 last Friday, representing an increase by 179.05 percent in seven years.

If an investor had bought MTNN at N108.9 in 2016, the N275.5 per share it closed last Friday implies an increase of 152.98 percent. GTCO traded at N18.05 in 2016 but it rose to N36.7 last Friday, up by 103.32 percent, while Sterling Bank at N1.75 in 2016, closed at N4.17 last weekend, up 138.28 percent.

Another Lagos-based analyst who also didn’t want his name in print said the growth prospects of these companies fundamentally drove their price.

“Recently the market has been enjoying a bullish run from the various policy reform announcements. It has generally shifted the sentiment towards the equity market and the low-interest rate in fixed-income space. That further made the equity market more attractive to investors. Foreign Portfolio Investment participation has increased in the last two months,” he said.