In every five equity market analysts who recently recommended stocks for investors, counters like GTBank plc, Access Bank plc, Zenith Bank plc, Dangote Sugar Refinery plc, United for Africa plc, Stanbic IBTC Holdings plc, and FBN Holdings plc were either rated a “Buy” or “Hold”.
A stock is rated “Buy” when it is considered highly undervalued, but with strong fundamentals. Also, its potential return is in excess of or equal to 15 percent realisable between current price and analysts’ target price (TP).
A “Hold” case is made for a stock believed to be correctly valued with little upside or downside, and where its potential return ranging from +5 percent and +14.99 percent is expected to be realised between current price and analysts’ target price.
Some of analysts’ stock recommendations tracked by BusinessDay include that of United Capital plc, Vetiva Research, Meristem Research, GTI Research, and Afrinvest Research.
Other stocks seen in the analysts “Buy” or “Hold” basket are Unilever Nigeria plc, Flour Mills Nigeria plc, Dangote Cement plc, PZ Cussons plc, Lafarge Africa plc, Presco plc, Seplat Petroleum Development Company plc, Ardova plc, Total Nigeria plc, Nestle Nigeria plc, Guinness Nigeria plc, Nigerian Breweries, Mobil Nigeria plc, Sterling Bank plc, LASACO plc, NASCON, Okomu Oil Palm, GSK Nigeria plc, Neimeth Nigeria plc, Eterna plc, MTNN plc, and Airtel plc.
Also included in analysts “Buy” or “Hold” rating are stocks like Ecobank Transnational Incorporated plc (ETI), Fidelity Bank plc, AIICO, AXA Mansard, NEM Insurance, Wapic Insurance plc, Custodian Investment plc, May & Baker plc, Fidson Healthcare plc, CAP plc, Conoil plc, MRS plc, Union Bank, and UACN plc.
“The extant factors of elevated liquidity and depressed fixed income (FI) yields continue to spur the positive performance in the equities market. In the macro economy, the reopening of the land borders and reversal of the electricity tariff hike are upside factors to spur confidence,” said market analysts at Lagos-based Meristem.
While noting that stocks have rallied to record highs in recent times, Meristem still expects the positive sentiments to be carried on as a dearth of investment alternatives still present the equities market as a viable choice.
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Nigeria’s equities market surged 50 percent in 2020 – its best performance in over a decade and well above its global peers – as local investors shifted from risk-free to riskier assets.
Amid this record feat, GTI Research analysts in their January 11 note to investors said they expect to see moderate investors’ reaction in the coming week amid the low investment return in the fixed income segment of the capital market.
“It is expected that investors will continue to take advantage of the excess liquidity in the system, low interest rates and the huge market demand for relatively higher dividend yields in the equities market and funds maturing in 2021, might be invested in the equities market,” according to Chukwuemeka Nwagwu-led team of capital market/research analysts at Capital Bancorp plc.
They noted, “Investors dump fixed income securities for equities because of the low yields in the market, but the market will experience increase in government activities as the budget deficit of N5.2 trillion in the 2021 budget will be financed mainly by borrowing. Investors will continue to experience a negative return for short-term bonds, which are below inflation rate.
“In 2021, sentiment for stocks depends on the direction of monetary policy, particularly in relation to the yield environment. A sharp reversal of rates is likely to trigger a sell-off in the equities market considering that the current average market price-to-earnings (P/E) valuation multiple (15.2x) is considerably higher than the 5-year historical average (11.9x),” according to United Capital research analysts in their recent outlook for 2021.
“Our prognosis for the Nigerian stock market in 2021 is that domestic interest, fuelled by dividend expectations, is likely to sustain the market rally in first-quarter (Q1) 2021. However, in the absence of foreign demand, we see a short-term bear market from second-quarter (Q2) to third-quarter (Q3) 2021,” United Capital analysts stated.
The performance of the equities market will improve as economic activities return to full operation.
“Our current concern is that market is getting carried away. The four largest index weights are up substantially over the past two months: MTN Nigeria by 17.99 percent; Airtel Africa by 107.65 percent; Dangote Cement by 53.06 percent (this was the subject of a buy-back); BUA Cement by 70 percent. We doubt this rate of increase can be sustained at the same time as market interest rates are rising.
“We are beginning to trim our notional positions in these stocks. This simply means, for the time being, raising the level of notional cash, which has risen from 1.1 percent to 5.2 percent over the past week. But it also means that we are putting relatively more emphasis on our notional positions in bank stocks, which have risen by far less over the past two months,” according to Guy Czartoryski-led team of analysts at Coronation Research in their January 4 note to investors.
“In practical terms we have not got much of our trimming done. There were only three trading sessions last week and turnover in some stocks, notably Airtel Africa, was thin. We will continue this week. At the same time, we remind ourselves of our maxim that we do not attempt to guess the direction of the market.
“We set out to take notional positions in the stocks that we like when their valuations are low relative to their own valuation history; when return-on-equity (RoE) looks reasonable (20.5% or more in naira); when there are growth prospects. We will look to these metrics as we re-shape the model portfolio,” Coronation Research stated further.
