• Saturday, May 25, 2024
businessday logo

BusinessDay

Equities provide haven for investors fleeing low bond yields

Equities market gains additional N383bn

Market volatility became a staple of 2020, but the year, now in its last quarter, has successfully tested Nigeria’s stock investors resolve like rarely before.
For investors who had looked to new avenues of increased returns on investments (RoI) following disappointing yields in the Fixed Income (FI) space, most equities we tracked have successfully provided the answers.

In October, the stock market of Africa’s largest economy grew by 13.76 percent, which helped push the year-to-date (YtD) positive return to +14.54 percent as at Tuesday (Nov 03).

The positive returns from Nigeria equities came despite earlier fear and uncertainty associated with the Covid-19 pandemic and later social protest that hitherto sent shock waves to investors.

BusinessDay check on equities prices as at November 3 as well as their growth rate year-to-date (ytd) revealed stocks that recorded over 20 percent capital appreciation. Most of them have successfully beaten the market return in terms of capital appreciation.

Read Also: Foreign currency liquidity challenges to reignite banks’ appetite for Eurobonds

They are Africa Prudential (+41.8percent), Airtel Africa (+37.3percent), BUA Cement (+30percent), Eterna (+38.9percent), FCMB (+52.4percent), Fidson Healthcare (+41.9percent), Flour Mills (+46.4percent), May & Baker (+65.3percent), Mobil (+28.5percent), MTNN (+37.1percent), and Neimeth (+222.6percent).

Other stocks that have ytd returns in excess of 20 percent are Okomu Oil Palm (+43.9percent), NPF Microfinance Bank (+47.8percent), Portland Paints (+26.5percent), Presco (+38.7percent), United Capital (+66.7percent), Vita Foam (+45.5percent), and Lafarge Africa Plc (+21.2percent).

In their outlook for the week, GTI Research analysts who anticipated seeing some profit-taking in the early trading sessions of this week, said they believe “the near-zero yield environment in the fixed income space (amid robust system liquidity) and the attraction of the interim dividend announced by some bellwether companies last week will help sustain the bullish trend.”

They want investors to “Hold” stocks like Access Bank, UBA, Union Bank, Dangote Sugar and Guinness while Custodian Investment Plc and UACN are on GTI Research analysts “Buy” list.

Despite the negative impact of the Covid-19 pandemic on some businesses, the announcement of interim dividend by companies like Nestle Nigeria Plc, Nigerian Breweries Plc, Seplat Petroleum Development Company Plc, and Airtel Africa Plc helped buoy investors’ interest in the stocks amid low attraction in the fixed income (FI) space.

“We acknowledge the opportunity that exists for profit-taking across sectors this week. However, we expect the momentum on equities to be sustained due to the paltry yield on fixed income instruments and robust liquidity in the financial system,” said equity research analysts at Lagos-based Meristem Securities.

A look at their stock recommendations show they want investors to “Hold” Dangote Sugar, Flour Mills, UACN, Okomu Oil, PZ, Fidson, BUA Cement, Dangote Cement, Lafarge Africa, Access Bank, FBN Holdings, Union Bank, and NEM Insurance; while they made a “Buy” case for Airtel Africa, May & Baker, GlaxoSmithKline, Chemical and Allied Products.

“Following the latest results of the primary market auction (PMA) in the FI market, where yields for short term dated instruments printed below 1percent, fund/portfolio managers continued to channel funds into the equities market,” Lagos-based Vetiva analysts had noted.

Looking at their target prices of some stocks as well as their forward dividend yields (an estimation of a year’s dividend expressed as a percentage of the current stock price), Vetiva analysts made “Buy” recommendation for stocks like GTBank, Zenith Bank, UBA, Access, and FBN Holdings. Other stocks in their Buy list are Dangote Sugar, Dangote Cement, Total and Ardova.

“Given where yields are in the FI market, we expect funds to continue to be channeled to some attractive counters in the equities market, thus reducing the impact of the general weak sentiment,” Vetiva analysts said in a recent note to investors.

As investors continue to seek for active returns, United Capital analysts said they expect to the third-quarter (Q3) earnings season which has entered full gears to continue to sway the direction of the market coupled “with the low yield environment as we await the Tier 1 Banks results.”

Their “Buy” recommendations favour stocks like Access Bank, Dangote Sugar, Nestle, Dangote Cement, and Mobil; while they want investors to “Hold” FBN Holdings, Unilever, Flour Mills, Nigerian Breweries, PZ, Lafarge Africa, and Okomu Oil Palm.