Industrial stocks lead NSE gains as other sectors collapse

Nigerian investors who have been hit this year by headwinds from falling oil prices and China’s drag on global growth have been buying industrial stocks, as other sectors on the Nigerian Stock Exchange (NSE) collapse.

The NSE Industrial goods index is up +7.08 percent this year to August.14, according to data from the NSE.

This compares with the -12.11 percent slide in the NSE Banking index, -16.3 percent slide in the NSE Consumer Goods index, -9.57 percent slide in the NSE Oil and gas Index and -10.83 percent slide in the overall NSE – all share index (ASI).

The gains recorded in the Industrial sector can be attributed to bullish run in Lafarge Africa (+24.2% Ytd return) which has a weight of about 43.9 percent in the Industrial goods basket. This has been supported by Beta and CAP, weighing 2.8 percent and 2.1 percent respectively.

“Despite the odds in the Industrial sector, especially the cement players, on the back of a drop in CAPEX by the government and dwindling revenue which has affected construction activities by the states and Federal Government, the sector is still expected to ride on some positives,” Kayode Omosebi, a research analyst at Lagos based investment firm, United Capital, said in response to questions.

“Housing deficit, Private sector investment, Stable energy supply by the cement players, capacity expansion, stable cement prices, and diversified energy mix, all these are expected to bode well for the industrial players going forward,” Omosebi said.

Investors have sold Nigerian equities this year, as a range of economic worries accentuates bearish sentiment.

The Central Bank of Nigeria’s maintenance of a dollar peg, despite oil prices hitting new lows, has left investors delaying portfolio inflows into the country and betting the naira may weaken against the dollar in the near future.

A lack of clarity in the overall economic policy of the new government of President Muhammadu Buhari has also led to negative sentiment from investors.

The resilience of industrial stocks to the wider bearish market sentiment may be a signal of strong underlying fundamentals in some stocks that make up the index which some investors have picked up on.

Lafarge Africa, the Nigerian arm of world biggest cement firm, Lafarge, reported in July that its first half pretax profit rose 13 percent to N29.72 billion from a year ago.

Lafarge Africa said in the statement that turnover to end-June also increased to N116.7 billion from N104.15 billion from last year.

“We remain positive on Lafarge Africa’s outlook as the defective units return to service, and the Nigerian market resumes its growth trajectory following the recent elections,” Renaissance Capital analysts, said in a recent note.

“We maintain our BUY rating TP NGN105.”

Nigerian stocks have struggled to break out to new highs after peaking at 43,031 points in July 2014.

They closed at 29,878.33 points on Friday, effectively trading at two and a half year lows.

Investors may see industrial stocks as defensive in nature, in view of the current market dynamics.

Stocks in the index such as Dangote Cement, Lafarge Wapco and Berger paints have managed to grow earnings in 2015 and have higher margins than most consumer goods and oil and gas names.

“The performance of the industrial sector can be attributed to the structural composition of the sector and encouraging business performance despite the harsh business climate so far this year. The year-to-date gains in the sector is primarily driven by Lafarge Africa , CUTIX (26.15%), CAP (9.33%), BERGER (2.56%), PORTPAINT (1.03%) and ASHAKACEM (0.46%),” said Abiodun Keripe, head of research at Elixir Investment Partners Limited.

PATRICK ATUANYA