The Nigerian Stock Exchange (NSE) has witnessed all shades of investor sentiments in 2020 ranging from the drastic sell-offs in April to the October rally.
The Nigerian stock market dipped 23 percent between January and April but has recovered by 14.53 percent year-till-date, ranking 3rd best performing globally, according to data from Bloomberg terminal.
While some sectors on the NSE have recovered significantly in the year and even outperformed the Nigerian Stock Exchange (NSE) All share Index (ASI) other sectors are yet to exit the negative territory.
The record low yield environment in the fixed income space has added to the allure of stocks in the last two months, as investors seek higher returns on investment.
Agricultural Sector
The Agricultural sector has the best performing sector index YTD on the bourse. The Agricultural sector has outperformed the NSE ASI as the index is up 38 percent YTD.
This increase is mainly driven by Okomu Oil Palm and Presco Plc as their stocks are up 44 percent and 39 percent respectively.
The Agricultural sector stocks seem to be benefiting from the reduction in smuggling activities and the CBN ban on some agricultural products.
“The Agricultural sector is not heavily dependent on imported raw materials so that is giving them an edge” said Muda Yusuf, the Director General Lagos Chamber of Commerce and Industry (LCCI). “The border closure has also improved their sales as smuggling activities have reduced to some extent”.
“Many of the Agricultural products like palm oil and palm fruits are on the Central Bank’s Forex exclusion list, this has also given them some advantage. So, even when the border opens, they might not be affected” Musa said.
Industrial Sector
The industrial sector has also outperformed NSE ASI as the index has surged 27 percent YTD to 1056 points from 1346 as at december 2019.
The industrial index was down 4 percent between January 2020 and April 2020 but has recovered significantly.
The main drivers of this increase are Lafarge Africa (WAPCO), BUA Cement and Dangote Cement as their shares are up 22 percent, 18 percent and 19 percent YTD.
“The increase is largely driven by Lafarge Africa, the company was coming from a low base and has now outperformed peers like Dangote Cement and Bua Cement, this has spurred investors interest” said Gbolahan Ologunro, a Research Analyst at CSL Stock Brokers.
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Lafarge Africa’s share price hit its lowest in April at N8.95 but its price has rallied since then with a current share price of N18.60, Wednesday.
In response to the performance of this sector, Yinka Ademuwagun, an Analyst at United Capital says buying interest have resumed as the lockdown eased and construction activities have also resumed, a pointer that their performance could even be better in the full year.
Insurance Sector
The insurance sector index is also up 21 percent YTD. The insurance index stood at 120.67 as at December 2019 but has risen to 146.36 in November.
“The market is responding to the potential gains that can be realized from the ongoing recapitalization exercise” said Yetunde Ilori, Director General, Nigerian Insurers Association (NIA).
The recapitalization exercise, which commenced on 20th May 2019 and to end on 31 December 2020, requires that life companies increase their paid-up share capital from N2 billion to N8 billion; General Business from N3 billion to N10 billion; Composite Business from N5 billion to N18 billion; and Reinsurance companies from N10 billion to N20 billion.
Banking Sector
The banking sector index is up 4 percent YTD as most banks have begun to see their share price rally in recent times.
The index is 368.8 in November, up from 354.9 as at December 2019.
“We have seen a recovery in share price over the past weeks, not just for the banks but for the entire market especially when you check their performance early April,” said Tunde Abidoye, an Equity Research Analyst at FBN Quest.
The banking sector Index plunged 27 percent in April 2020.
The recovery was mainly driven by First City Monument Bank (FCMB), Zenith Bank, Stanbic IBTC and Guaranty Trust Bank as their share prices are up 57 percent, 17 percent, 12 percent and 8 percent respectively YTD.
“Although we have a lot of maturing Omo bills and fixed income securities, the returns are not as attractive. But dividend yields for banks are enough to attract investors. It is higher than what most fixed income instruments offer, so the banking index could rise higher before year end,” Abidoye said.
This performance will likely be sustained before the year runs out.
Consumer Goods Sector
The consumer goods sector has seen its index plunge just 1 percent YTD.
The consumer goods index plunged 36 percent in April 2020 but it has been helped by companies whose share prices have rallied YTD.
Nigeria’s biggest miller, Flour mills of Nigeria’s share price is up 44 percent YTD, outperforming the market. The share price of Dangote Sugar and Nascon Allied Industries are up 13 percent and 8 percent respectively.
The slight drag in the sector was majorly driven by the beer makers as Nigerian Breweries, Guinness Nigeria and International Breweries have seen their share prices dip by 12 percent, 45 percent and 27 percent respectively.
The beer makers were affected by reduced sales during the lockdown as bars, restaurants and other social spots were closed but since the easing of the lockdown the brewers have been making significant recovery.
“The lockdown squeezed consumers’ income and this affected the sales of most companies. The sector has also been affected by FX liquidity challenges,” said Ademuwagun.
“However, the sector has since recovered compared to the dip in April and will continue in this path till year ends” Ademuwagun said.
Oil and Gas Sector
The oil and gas sector index is down 10 percent YTD. This sector has also underperformed the NSE ASI.
11 plc (Mobil) and Total Nigeria have their shares up 28 percent and 17 percent respectively YTD, but the index has been dragged down by the upstream firm, Seplat.
Seplat share price is down by 36 percent YTD.
“The upstream firm (Seplat) majorly drove this decline because the Covid-19 pandemic has impacted on oil and gas prices and thus has affected Seplat significantly,” said Ayodeji Ebo, Head, Research and Strategy at Greenwich Merchant Bank.
“As the economy continues to reopen, the sector should stabilize before the year ends, already these firms are already seeing a recovery.” Ebo said.
