• Wednesday, February 28, 2024
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Investors see buy opportunity in banks with strong fundamentals

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Recent value loss at the Nigerian Stock Exchange (NSE), which kept the market on a negative path of 1.34 percent in year-to-date (ytd) return, offers opportunity for bargain hunters, many market analysts said.

No doubt, with another earnings season steps into the market, investment analysts expected that companies with good dividend payout history and have shown growth in revenue and profitability in 2013, will experience good price rallies, as investors take position to benefit from dividend payout and price appreciation.

The banking stocks will not be exception in this norm, despite a loss of 8.72 percent so far recorded this year by the NSE banking index (which indicates that banking stocks are worst hit in recent sell-off). Month-to-date (MtD) banking stocks have lost most at the bourse by 1.64 percent.

With the positives in the air, not a few analysts see it as an opportunity for bargain hunters to buy into banks that have strong fundamentals.

Following recent losses, investment analysts believe the stock market offers opportunities for bargain hunters, especially in banking counters as investors regain confidence in banks after fears over the impact of increased Cash Reserve Ratio (CRR) on public sector funds from 50 percent to 75 percent.

Though, analysts at some quarters expect trading activity will be modest this week due to waning participation of foreign investors and increased local investors’ appetite for high yield fixed income securities.

As the market keenly awaits the flow of 2013 earnings reports, they are very optimistic that impressive earnings releases will re-usher investors into equities, particularly the banks.

For instance, Bismarck Rewane, CEO, Financial Derivatives Company Limited, who foresees stock market to witness a correction of 10 percent, simply noted that “bargain hunters may consider banks with solid fundamentals in this temporary downturn. Banking stocks on the NSE are trading on average at 8.5x earnings compared with the market P.E. at 14.5x.”

Rewane in his presentation recently during the monthly economic news and views at Lagos Business School executive breakfast meeting noted the drivers of performance in the capital market in 2014 to include: monetary and fiscal policy; CBN tightening stance; increased government spending as 2015 elections approach; stronger investor risk appetite; volatility of the naira; continued depletion of foreign reserves, and possibility of further tapering of US Fed stimulus.

Also in their view on the stock market this week, market analysts at Access Bank plc said “we expect a bullish run on the market on growing investor confidence riding on the back of anticipated ease in market liquidity.”

Only last week, the NSE All-Share Index and market capitalisation appreciated by 0.50 percent and closed last Friday at 40,773.50 points and N13.070 trillion, respectively.

Four of the NSE sectoral indices appreciated last week. The NSE 30 inched up by 0.03 percent to close at 1,846.15; NSE Insurance rose by 2.32 percent to close at 151.44; NSE Oil/Gas also rose by 7 percent to close at 323.45; NSE Lotus II rallied by 0.93 percent to close at 2,889.44.

On the negative side, the NSE Consumer Goods index depreciated by 0.35 percent to close at 1,047.46; NSE Banking index dropped by 1.64 percent to close at 408.78; the NSE Industrial Goods index declined by 0.38 percent to close at 2,603.66, while the NSE-ASeM closed flat at 0.07 percent.

“Following the bearish run in January (1.8% loss), equity market has bottomed out. Notably, foreign portfolio inflow will remain weak, given moderating global liquidity and concern over naira stability,” noted Rasaq Abiola-led team of analysts at UBA Capital.

Accordingly, they note that attractive valuation should stimulate investor appetite for stocks, “as ‘early birds’ take position ahead of earnings season.”

These analysts at UBA Capital expect “African focused funds” to increase exposure to Nigerian assets, given relative stability of the naira to peer currencies. “We expect low valuation and earnings season expectation to stimulate positive investor sentiment for stocks this week. Thus, we look forward to a modest recovery in prices, as ‘early birds’ buy into the bottom of the market ahead of earnings season,” they added.

In their Top-5 Nigerian Equities league report, market analysts at Morgan Capital said going into the new trading week, “we expect bullish sentiments to prevail for most parts of the trading week as we expect some earnings releases during this week. We anticipate some price corrections, particularly on some speculative picks, as investors reposition their portfolios for the year end activities.”

By:  Iheanyi Nwachukwu