Cautious optimism reinforces analysts’ stance of another positive year
Nigeria’s equities market ended the year 2021 with an impressive positive return of 6.7percent amid remarkable rally (+2.16percent) or N471billion on the last trading day (Friday, December 31). Last-minute bargain on the Nigerian Bourse helped the value of listed stocks to rise by N1.23trillion in 2021.
Taking a cue from this positive notwithstanding possible risks to rally, market watchers seem guardedly optimistic that the market will close the year 2022 in green. Isaac Olorungbon, Chief Executive of Deep Trust and Investments Limited who expressed optimism on the capital market, also reckons some risk factors that may undermine the rally in both equities and fixed income markets.
“2022 is a pre-election year, and investors, especially foreign portfolio managers may be cautious in allocating funds to Nigerian assets, given routine uncertainties that tend to dominate investors’ sentiment in such environment. Whilst consensus suggests oil price may remain relatively strong through 2022, thus giving some hope on the prospect of foreign currency receipt and ultimately Naira stability, the likely elevation of political risk may trigger macro and market risks,” he noted.
“That said, Nigerian equities market remains very attractive from all perspectives. Notably, the MSCI Investable Market Index is trading at barely 7.0x earnings multiple and an impressive 6.8percent dividend yield; these valuations are at significant discount to frontier market peer average of 15.0x price-to-earnings multiple and 2.6percent dividend yield. Interestingly, the MSCI Nigeria Investable Market Index, though consists of eighteen stocks, represents over 90percent of the free-float adjusted market capitalization of the Nigerian Exchange, hence a good reflection of the overall market.
“Interestingly, companies such as Dangote Cement, MTN Nigeria, GTBank, Nestle and Zenith Bank, which are our top picks, are resilient bellwethers with the history of sustaining earnings growth through political cycles. Thus, we remain upbeat on the prospect of the Nigerian market in 2022, as our cautious optimism reinforces our outlook of another positive return for Nigerian equity investors in the new year,” Olorungbon said.
The Nigerian Exchange Limited (NGX) All-Share Index (ASI) moved from Thursday, December 30, 2021 low of 41,813.27 points to 42, 716.44 points on Friday, December 31, while the value of listed stocks on the Bourse rose from N21.825trillion to N22.296trillion.
The Nigerian Exchange Limited (NGX) All Share Index (ASI) had opened the year 2021 at 40,270.72 points. Also, the equities market capitalisation opened the review year 2021 at N21.063trillion.
According to Luke Ofojebe-led team of research analysts at Lagos-based Vetiva in their recent outlook, “For 2022, we maintain a cautious outlook as we see the Nigerian economy running scared amidst several intimidating factors that lie ahead. Firstly, we see the possibility of higher borrowing costs amidst pre-election worries and the expectation of a hawkish stance from central banks in advanced economies.
“This, we believe, may result in slower capex rollouts by corporates. Also, with inflationary pressures likely to remain for most of the year, profitability margins may be further weakened, and the situation could be much worse should the government discontinue fuel subsidies or raise the pump price of PMS in the second half.
“For the oil and gas sector, we expect to see recoveries in crude output, riding on softer OPEC cuts and infrequent infrastructure downtime. Also, our view that oil prices would remain strong next year, amidst increasing global demand and supply disruptions, should translate to increased revenue for oil producing companies”.
Lizzie Kings-Wali, Chief Executive Officer of Blackstone Capital Limited; “2021 was a roller-coaster year for equities, with eight months of positive returns and four month of bearish season”.
With the market closing the year with 6.7percent gain, consolidating on the strong recovery in stock prices in 2020, “the sentiment for Nigerian equities is increasing upbeat.”
“Interestingly, market liquidity and the rally have been driven by domestic institutional and retail investors, thus reinforcing the potential of Nigerian investors in stabilizing and growing the market.
“Notwithstanding imminent introduction of capital gain tax, political risks and a few other risks to equity market rally in 2022, Nigerian stocks are attractive and should remain resilient in the new year. Though likely modest rise in the interest rate environment may undermine funds flow to equities in the new year, positive earnings outlook across most large-cap value stocks should reinforce the investment opportunities in Nigerians stocks,” she said.
FSDH Research analysts said in their macroeconomic review and outlook for Nigeria that, “The equity market in 2021 rode on the appreciation of the Oil & Gas Index on the back of the sustained increase in oil prices. The short-term outlook for the global oil market is challenged with the spread of the COVID-19 Omicron variant. This is expected to negatively impact the performance of Oil & Gas segment of the NGX.
“At the firm level, many large-cap companies listed on the exchange are reporting record performance in their 2021-9M reports, which will spill into their full-year performance and eventual dividend payment. Hence, it will drive positive sentiment towards the equity market in 2022”.
“Investors’ participation in the equity market picked up pace in September and November 2021; however, still lower compared with the previous year. Though foreign participation is picking up (their apathy towards Nigeria’s equity market remains), it is significantly lower than domestic participation.
“The equity market continues to ride on the boost in liquidity in the system and associated decline in yields. This sufficiently placed the equity market on a gaining side in 2021.
“Going into 2022, we anticipate a further liquidity boost in 2022Q1 due to more maturities coming in from segments of the fixed income market. Hence, the equity market will continue on its positive glide,” FSDH research analysts added.