• Thursday, February 22, 2024
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Equities loss offers buy opportunities for value investors


The recent sell pressure that caused the Nigerian stock market to lose in excess of N600 billion from listed equities now offers entry opportunity for investors in value counters at discounted valuation.

The Nigerian stock market last week recorded the biggest weekly loss since June last year as investors resorted to limit their appetite for equities, a development that bolstered the supply side at the equities market – thereby impacting negatively on prices.

Amid this recent sell-off, analysts observe that trailing price-earnings (P/E) and return-on-equity (ROE) have pegged at 13.63x and 19.76 percent, respectively, more attractive in comparison with other major market across African like: South Africa (P/E 20.31x, ROE 10.47%), Ghana (P/E 24.78x, ROE -8.93%) and Kenya (P/E 14.13x, ROE 18.76%).

Though, many market/investment analysts believe that concerns about US Fed further tapering its Quantitative Easing (QE) programme on continued improvement in economic indices may have negatively impacted investors’ perception, they expect equities prices to slowly improve on positive sentiments at the market as companies begin to release full year 2013 scorecards.

While market expectation remains high that impressive full year earnings releases of listed companies will have a positive rub-off effect on stocks pricing, indicating an entry opportunity for bargain hunters who seek to buy low in anticipation of stock price increase in medium to long term.

“The outlook suggest waning sell pressure,” say market analysts at Access Bank plc, who had joined others in linking the huge decline in the stock market value to losses recently recorded in the share prices of some highly capitalised stocks, especially the banking counters.

Though, stocks in the financial sub-sector are the most vulnerable in recent value shed, analysts still see the most value in the basket for fundamental investors.

As equity investors decided to dump stocks for short-term gains, week-on-week (wow) performance shows the Nigerian stock market recorded a loss of 6.20 percent year-to-date (YtD), while month-to-date (MtD) it lost 4.45 percent.

“We anticipate bargain hunting activities particularly on value stocks given year-to-date loss in excess of 600 basis points,” say analysts at Cowry Asset Management.

According to a team of analysts at UBA Capital, “the negative sentiment was heightened by weakness of the naira, as persistent sell-off by foreign fund managers doused the risk appetite of local investors. Notably, local investors have justifiably turned bearish in search for lower bargain opportunities; a contagious effect of the sell-off by foreign investors.”

These analysts say they expect equities to trade further sideways, with extended pressure on financials, “albeit prices should bottom-out this week, with expectation of recovery towards weekend. Thus, we reinforce our view of taking advantage of the bearish trend to buy into value counters at discounted valuation. Earnings season may not trigger a rally but should stabilise the market.”

Market analysts at Partnership Investment Company plc anticipate sell pressure to continue while speculators and value investors seek new entry positions.

According to them, “Release of attractive corporate results may spur investors to make forays into equities with attractive corporate action. Low priced equities remain attractive. Investors preference for Consumer Goods, Conglomerates and Agriculture stocks with good fundamentals will determine market direction.”

Investment analysts at Meristem Securities note that while the banking stocks may still be bearish in the coming weeks due to investors’ negative reactions to the current realities (hike in CRR on public sector deposit), they believe position taking for 2013FY results and dividend declarations will be the major catalyst for the next market rally.

“We are of the opinion that the stocks in the High Return Portfolio have good fundamentals and are properly positioned to sustain their competitive edge in the industries they belong. This portfolio is recommended for risk-loving investors and is expected to return 25.34 percent for the year.

The defensive portfolio on the other hand was designed given the “bumpy” outlook on equities in 2014, and is focused on capital preservation. We expect this portfolio to return a minimum of 6.63 percent in 2014, and is therefore recommended for risk averse investors,” say Meristem Securities analysts.

By: Iheanyi Nwachukwu