Updated: Nigeria’s stocks at new lows to fuel buy interest

The most important way to trade in equities market is when there is an opportunity to buy value stocks at low prices and sell when the prices rise.

After February’s market rout, a number of bellwether stocks on the Nigerian Stock Exchange (NSE) began trading at cheap valuations, thereby offering investors re-entry opportunity.

This is coupled with attractive dividend yield of some dividend-paying stocks.

“We expect to see more impact of the rising fixed income yield on the equity market. But the relatively low price of some fundamentally viable stocks could spur equity investors’ sentiments,” according to GTI Research analysts.

Despite significant boost in prices of global crude oil, Nigeria’s major source of forex earnings, the stock market maintained weekly bearish run last week (losing N245bn). This comes on the heels of about N1.36 trillion losses in February.

The current low prices of major bellwether stocks on the Nigerian bourse could attract savvy investors to cherry pick attractive counter across sectors.

“We maintain our expectation of a negative close this week as investors continue to shift their attention towards the fixed income space,” note Meristem research analysts in their recent recommendation to investors.

Just recently, Nestlé S.A., the majority shareholder in Nestlé Nigeria plc, increased its stake in the Nigerian unit through equities purchases valued in excess of N3.633 billion.

The Swiss multinational may have seen re-entry opportunity after the share prices of its Nigerian unit reached new low.

At an average of N1,349 per share, Nestlé S.A. saw an opportunity to buy the stock that had reached a 52-week high of N1,505 and a corresponding week low of N764.90.

Nestle Nigeria proposed N35.5kobo dividend, MTN Nigeria (N5.90k), Seplat ($0.05), Zenith Bank (N2.70k), Dangote Sugar Refinery (N1.5k), United Capital (70k), and Nigerian Breweries (69k).

Other companies that proposed dividend are: Africa Prudential plc (50k), Custodian Investment (45k), NASCON Allied Industries (40k), UBA (35k), Ardova (19k) and Africa Prudential (50k).

In their stock market outlook for March, analysts at Lagos-based Financial Derivatives Company say they expect sustained bearish sentiment in the market following yields uptick in the fixed income space, adding that investors should gradually shift towards risk free securities amid profit-taking activities on capitalised stocks.

“Stock market will lose some more ground with stock prices dipping into the correction territory,” Financial Derivatives Company analysts add. But on the positive, they foresee possible reversal in bearish trend driven by: positive GDP growth, higher oil prices, improved investors’ confidence in the economy, and bargain hunting for stocks with strong fundamentals.

After last week’s sell pressure, the market opened this new week in green (+0.17% or N34bn) as investors showed interest in counters that declared dividend. Unfortunately, Tuesday’s dip (-1.80%) pushed the market further into the negative territory (-3.93% year-to-date) and -2.80 percent month-to-date (MtD).

The first primary market auction (PMA) of the month is expected this Wednesday, and Vetiva analysts expect that rates offered at the auction will remain relatively flat, “even as market participants will likely cherry-pick tenors, notably at the long-end of the market due to yields offered in the space.”

Also in their recent note, Coronation Research analysts note, “For most of the time we try not to predict the overall direction of the market, unless we have a very strong idea of its next move. However, the equity market does seem weak at the moment, partly as a result of market interest rates rising, and we think it is reasonable to take more of our notional equity positions off the table.

“Our notional sales of equities this year have saved us 60 basis points (bps) so far. This week we intend to add a further 5 percentage points to our notional cash position and will make notional sales among banks stocks as well as industrial stocks to achieve this.

“Bank stocks are not entirely the safe haven they have been for much of the year. As we forewarned our readers last week, we made notional sales of industrial stocks last week in order to take our notional cash position up to just over 20 percent. While doing this we noticed that, even for a small model portfolio such as ours, it was very difficult to find liquidity in Airtel Africa, despite this stock being 16.9 percent of the NSE-ASI. So, if we encounter liquidity this week we intend to make use of it.”