Nigeria’s domestic investors still keep eyes on corporate actions
Despite a negative start to this week’s trading, domestic investors –who are now the newest kings of the Nigerian stock market – will continue to react to earnings releases and corporate announcements in form of dividends.
As most companies’ dividend qualification dates draw closer, investors expectedly are taking positions in those stocks, thereby driving higher both value and volumes on the Nigerian Bourse.
Zenith Bank Plc also proposed final dividend of N2.80 per share, bringing the total dividend for the financial year ended December 2021 to N3.10kobo. The dividend will be paid to shareholders whose names appear in the register members on March 25.
GTCO Plc had in its corporate action announcement noted that a final dividend of N2.70kobo per share will be paid to shareholders whose names appear on the register of members as at the close of business on Wednesday March 23, 2022, bringing the total dividend paid by the company in the financial year 2021 to N3. The register of shareholders will be closed on Thursday, March 24, 2022.
Also, United Bank for Africa in its usual tradition of rewarding shareholders had proposed a final dividend of 80 kobo for every ordinary share of 50 kobo for the financial year ended December 31, 2021. The final dividend which is subject to the affirmation of the shareholders at its Annual General Meeting will bring the total dividend for the year to N1 as the Bank had paid an interim dividend of 20kobo earlier in the year.
In the trading week ended Friday March 11, increased buy-side activities in some of these banking counters as investors positioned to qualify for their final dividend payments had helped push stock market value higher by over N90billion.
Also, Presco Plc informed the market that its board will meet on March 23 to approve its full year 2021 results as well as possible script issue and dividend payments. This news triggered renewed interest in Presco as it closed the week as the highest gainer with 19.6percent return.
Presco is a fully-integrated agro-industrial establishment with oil palm plantations, palm oil mill, palm kernel crushing plant and vegetable oil refining and fractionation plant.
What are analysts saying?
While answering questions on whether one should invest in equities or not, analysts at Lagos-based Financial Derivatives Company during the month Lagos Business School Executive Breakfast Session noted on the upside that equities will remain popular amongst investors “as yields in the fixed income space declines and inflation continues its upward trend”, adding that investors will buy into fundamentally strong stocks with attractive valuations in a post-election year.
The analysts noted further that Oil & Gas sector will continue its gaining streak, which will be bolstered by soaring oil prices, adding that FX availability will improve cost margins of sensitive sectors.
On the downside, Financial Derivatives Company noted that stock market is sensitive to economic and political vulnerabilities, adding that increased cost of borrowing will further reduce profitability.
This is even as they believe that banking stocks will gather weak sentiment “driven by the elimination of tax shelter”, coupled with their downside position that reduced profitability will likely hurt dividend pay-outs.
In the end, they want investors to diversify their portfolio – depending on their risk appetite; while noting that real estate, equities and fixed income securities are more stable options compared to cryptocurrencies, due to high volatility in the global markets.
Meristem analysts said in their March 14 note, “The mood in the market last week was predominantly positive. This week, given the upside on some tickers (a number of low cap stocks inclusive), we expect the prevalence of bargain hunting.”
“This is further supported by the unattractive rates at the primary market auction given the continuous decline in rates. Also, we see possibility of investors positioning ahead of earnings release and dividend announcement. Thus, barring any major negative reaction to earnings release and announcement, we expect the market to close in the positive region this week,” they noted.
According to United Capital research analysts in their investment views: “This week, we expect to see investors continue to book profits on positions that have appreciated significantly in the past weeks. Also, the outcome of corporate releases, similar to dividend announcements from banks and PRESCO’s corporate action will be a significant determinant of investors’ sentiment in the coming week.”
GTI Research in their March 14 note said: “Trading activities on the stock market closed the week bullish, reversing the previous week’s loss as investors respond to the global effect of crumbling economic sanctions on Russia, continuous upheaval in oil prices, and potential opportunities for Nigerian companies created by the ongoing crisis. We expect these changes to affect stocks this week.”
Afrinvest analysts who in their stock recommendation for the week noted that their weekly sentiment indicator strengthened last week to 3.0x from 1.8x in the preceding week, said “This week, we expect to see profit-taking activities at the start. Nonetheless, we maintain a bullish outlook for the market.”
Vetiva research analysts said: “As dividend qualification dates draw closer, investors take positions in dividend paying stocks, hence the increased volumes recorded in some of the banking names last week. We expect similar trade patterns to filter into this week’s trading sessions”
Local investors are now the kings
Nigeria’s equities transactions in January 2022 show local investors accounted for 87.23 percent, while transactions by their foreign counterparts represented just 12.77percent. In helping local investors take shine off foreigners, domestic institutional investors were responding for equities transactions worth N186.51billion while their retail counterparts traded N95.56billion worth of equities on the Nigerian Exchange Limited (NGX).
In value terms, out of the N323.38billion worth of equities traded on the Nigerian Exchange Limited in January, only domestic investors’ transactions worth N282.07billion while that of foreign investors worth N41.31billion in the review month. Foreign inflow into Nigeria’s stock market was N18.10billion while foreign outflow from the market was N23.21billion.
The Nigerian Exchange Limited on monthly basis polls trading figures from market operators on their Domestic and Foreign Portfolio Investment (FPI) flows.
The summary of transactions showed that as at January 31, 2022, total transactions at the nation’s bourse increased by 104.33percent, from N158.26billion (about $363.81million) in December 2021 to N323.38billion (about $777.32million) in January 2022.
The performance of the month in review when compared to the performance in January 2021 (N232.46billion) revealed that total transactions increased by 39.11percent.
“In January 2022, the total value of transactions executed by domestic investors outperformed transactions executed by foreign investors by circa 74percent,” the NGX noted in its recently released report on domestic & foreign portfolio participation in equity trading.
A further analysis of the total transactions executed between the review month of January and prior month (December 2021) revealed that total domestic transactions increased by 129.44percent from N122.94billion in December to N282.07billion in January 2022.
Similarly, total foreign transactions increased by 16.96percent from N35.32billion (about $81.20million) to N41.31billion (about $99.30million) between December 2021 and January 2022.
The report showed that Institutional Investors outperformed Retail Investors by 32percent. A comparison of domestic transactions in January and prior month (December 2021) revealed that retail transactions increased by 153.21percent from N37.74billion in December 2021 to N95.56billion in January 2022. However, the institutional composition of the domestic market increased by 118.91percent, from N85.20billion recorded in December 2021 to N186.51billion in January 2022.
Over a 15 year period, domestic transactions on the Nigerian Bourse decreased by 58.80percent, from N3.556trillion in 2007 to N1.465trillion in 2021 while foreign transactions also decreased by 29.38percent, from N616billion to N435billion over the same period.
Total domestic transactions accounted for about 77percent of the total transactions carried out in 2021, while foreign transactions accounted for about 23percent of the total transactions in the same period. The transaction data for 2022 showed that total domestic transactions are circa N282.07billion, while total foreign transactions are circa N41.31billion.