Stock market analysts have favoured equities at the Nigerian bourse, linking their position to price-earnings ratio (P/E). Price-earnings ratio is a valuation ratio of a company’s current share price compared with its per-share earnings.
A high P/E suggests that investors are expecting higher earnings growth in the future compared with companies with a lower P/E. Some of these analysts premised the outlook on what is obtainable in other markets across Africa.
For instance, Meristem Securities analysts said the current market price-earnings ratio (P/E) at 18.16x might appear high when compared with Ghana’s 13.48x, “but the depth of Nigerian market and increasing opportunity have largely been responsible for investors’ bullishness, hence, higher P/E. The Nigerian market has assumed a downtrend recently having hit a high of 23.04 percent; some investors seem fairly cautious while others have been taking profits on prior gains.”
The analysts said: “The stock market return has been largely driven by impressive fundamental performance of companies (particularly, in the banking sector), attractive dividend expectations and stock market reforms.”
The Nigerian Stock Exchange (NSE) All Share Index (ASI) has grown by 18.09 percent since the beginning of this year.
Analysts at FBN Capital in their report titled “NSE shines in a tale of three cities” said offshore investment in frontier markets had been driven by loose monetary policy in developed economies, led by the US and most recently Japan.
“The NSE surged by 13.4 percent in January, and has now risen by 18.5 percent year-to-date (ytd). The comparable index in Kenya, the second largest exchange in sub-Saharan Africa outside South Africa, has risen by 15.3 percent,” the analysts noted, noting that the International Monetary Fund (IMF) latest World Economic Outlook (WEO) projects growth in 2013 at 7.2 percent in Nigeria, 5.8 percent in Kenya, and 2.8 percent in South Africa.
“The Kenyan market enjoyed a strong but short-lived run in the days after the elections in March once it became apparent the country would not succumb to the ethnic violence and economic dislocation that followed the previous polls. It proved, as we suspected, a relief rally. The more robust performance in Nigeria can be attributed to the better prospects for growth and household consumption. In the absence of reliable industry indicators, we base our call on manufacturing investment,” the FBN Capital analysts, stated.
These analysts position comes on the heels of positive outlook still trailing Nigerian equities amid dismal take-off at the beginning of this week. Investors had lost N42 billion as stock market dipped by 0.39 percent.
“This week, we expect to see more bargain hunting activities as investors take advantage of recent price retreat,” said Cowry Asset Management analysts.
Analysts at Partnership Investment Company plc said: “We envisage improvement in breadth as we expect more patronage. Moderate gains on the back of some favourable results may follow. Market outlook is positive as investors may begin to expand their position as we go into the new month.”
“As speculative activities continue, this may create bargain opportunities. We however maintain the need to pick stock based on good fundamentals. Equities in the Financial Services
sector may provide a leeway. Investors may need to realign portfolio in line with risk appetite,” the analysts said.
“The improvement in market performance was largely driven by dividend payment announcement by a few financial blue-chips, which buoyed investors’ optimism. Enhanced systemic liquidity may have also supported the observed trend. This week, expectations are that market trend may maintain the upward trajectory, as some bellwether financial stocks release 2012 financial scorecards and more dividend pay-out announcements are made amidst scalpers’ high propensity to take profit,” market analysts at Access Bank plc, said in their market analysis and outlook.
Stories by IHEANYI NWACHUKWU
