Nigeria’s largest stocks are maintaining their dominance in the local bourse as they recorded improvement in profit while valuations are attractive but uncertainties caused by the coronavirus pandemic could damp future earnings growth.
Investors focus is unlikely to shift soon from few high-quality names which continue to steadily growth faster than the economy.
The large cap’s combined market capitalization of N6.37 trillion make up 67.40 percent of the entire market cap of the bourse.
Despite the tough regulations by the central bank, United Bank for Africa recorded a 13.32 percent jump in net income to N89.09 billion as at December 2019, from N79.60 billion recorded last year.
The pan African lender with branches across the continent is generously rewarding its owners from distributing profit as it will be paying a final dividend of N0.80 for every N0.50 ordinary shares while its dividend yield stood at 16 percent.
Zenith Bank, the largest lender by profit in Africa’s largest economy saw net income increase by 8.73 percent to N208.84 billion in the period under review from N193.44 billion.
The lender’s dividend yield of 22.22 percent, the highest among 30 most capitalised and liquid firm in the country; this means it an investor will get N221,000 in dividend income for every N1 million invested.
Dangote Cement, the largest builder of the building material and the most capitalized firm in Nigeria will be paying shareholders N16 for every N0.50 ordinary shares held.
MTN Nigeria has continued to leverage the country’s huge population that crave for consumption as it saw profit spike by 38.97 percent to
N145.69 billion as at December.
The outbreak of the coronavirus that is increasingly crippling the global economy and the sharp drop in oil price due to disagreement between Saudi Arabia and Russia has further damped investors’ appetite for the country’s equity market.
Analysts say aside lack of clarity on policies for sustainable economic growth, a major risk facing Nigerian capital markets in 2020 stem from recent policies of the Central Bank of Nigeria (CBN) and their possible negative impact on banking sector profits.
Following CBN’S announcement barring non-banking corporates as well as individuals from accessing the OMO market, increased liquidity in the secondary debt market as well as auctions has since sent yield crashing.
The hike in Loans to Deposit ratio to 65 percent and the slash in charges by apex bank have crimped lenders earnings as gleaned from their 2019 audited financial statement.
The equities market was in the negative region of -17.80 percent in 2018 and 14.60 percent in 2019 as the global financial crisis, devaluation of the currency and sustained pressure of oil of the mid 2014 convulsed investors and kept them out of the market.
While the Nigerian stock market begun the year on a positive note, it has continued its bearish run as the NSE ASI recorded a negative year to date of -17.48 percent.
Expectedly, foreign portfolio investment (FPI) interests in Nigeria’s risky assets have been stagnated.
Reflecting the subdued participation of foreign investors in the local bourse, data from the Nigerian Stock Exchange (NSE) showed that foreign inflows from January to November declined 28 percent to N397.44 billion from N553.47 billion in the same period in 2018.
The data further revealed that net outflows from January to November increased 62 percent to N84.53 billion from N52.07 billion in the same period in 2018.
Despite the macroeconomic uncertainties as evidenced in rising inflation that has continued to pressure consumer wallets and undermine company profit, the stock market valuation remains compelling.
Across Emerging Markets (EMS) and Frontier Markets (FMS), Nigerian equities had a PE ratio of 6.48 x compared to MSCI EM and MSCI FM of 15.4x and 10.6x respectively. African peers like South Africa, Egypt and Morocco traded at trailing PE ratios of 15.7x ,11.8x, and 21.1x respectively.
