The elite club of companies with at least N1 trillion market capitalisation has swelled in recent months from five members before President Bola Tinubu’s reforms to 12.
As of Thursday, there were four banks in the club, two cement makers, two telecommunications companies, one oil and gas producer, one power generation company, one food business and one hospitality firm.
Data from the Nigerian Exchange Limited (NGX) shows that the market cap of Zenith Bank Plc, Guaranty Trust Holding Company Plc, the United Bank of Africa Plc and Access Holdings Plc stood at N1.39 trillion, N1.34 trillion, N1.06 trillion and N1.05 trillion respectively as of Thursday.
The other members of the club are Dangote Cement Plc (N8.35 trillion), Airtel Africa Plc (N7.52 trillion), MTN Nigeria Communications Plc (N6.05 trillion), BUA Cement Plc (N4.57 trillion), BUA Foods Plc (N4.32 trillion), Seplat Energy Plc (N1.36 trillion), Transcorp Hotels Plc (N1.02 trillion) and Geregu Power Plc (N1.17 trillion).
“I think the rally to the one trillion-naira mark shows they are more valuable in naira terms than last year. It may not necessarily imply that those companies are now becoming more attractive to investors, especially foreigners, amidst our foreign exchange debacle,” Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said.
He, however, said one cannot deny the bragging rights that come with the N1 trillion-naira valuation and its impact on corporate branding.
“It could also place them on a better pedestal if they intend to use shares to acquire local companies to drive their inorganic growth strategy,” he added.
Adeola Adenikinju, a professor of economics and president of the Nigerian Economic Society, described the entry of more companies into the club as a good development, especially for the banks.
“Banks will become more diversified, robust and strong to be able to withstand vulnerabilities and risks that can come internally or externally. They will also have the opportunity to play in the international financial arena to negotiate with international financial partners or banks for some support for credit facilities,” he said.
He added that the entry into the trillion-naira club gives them the ability to attract foreign inflows of capital. “They will also be able to support lending or credit facilities to the real sector.”
Ayorinde Akinloye, a Lagos-based investor relations analyst, said some stocks are trading at an all-time high and the fear of missing out is what is driving the rally in the market.
“If companies raise capital and invest in key sectors, it would benefit the economy in the short term. Going into the trillion-naira club creates an avenue to raise capital which could help them expand,” he added.
The NGX All-Share Index, which tracks the general market movement of all listed equities, rose to 91,896.9 basis points (bps) on Thursday from 52,615.5bps on January 18, 2023.
“Basically, the market is generally excited at the moment. You can literally hand-pick any stock and, in a few days, you are up and smiling because you’re in the green. So that excitement is not just cited with the banks alone. It’s basically across the market,” Olaolu Boboye, economist and fixed income strategist at CardinalStone, said.
There has been significant interest in the stock market especially by domestic investors, according to Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest Limited.
“It is that interest that is driving the stocks. Currently, the market is not driven by fundamentals. In my own opinion, it is currently overpriced,” he said.
He added that the companies that are in the trillion-naira club could increase their ability to raise money and come up with public offerings that could increase the country’s wealth.
The market finished last year with a return of 45.90 percent, more than double that of 2022 and the highest in three years, data compiled by BusinessDay show.
The last time Nigerian stocks rallied in an election year was 2007 when the main index surged 74.77 percent to 57,990.22bps.
Several analysts and industry watchers attributed last year’s robust performance to the reforms implemented by the Tinubu-led government, corporate earnings and new listings on the NGX.
The reforms however failed to lure back foreign investors as inflows dropped while outflows rose as of November amid lingering foreign exchange scarcity in the country.
“Having a robust market cap reflects the confidence of investors in the performance of those companies, growth prospects and overall stability. It is a reflection that investors are optimistic about the company’s future and are willing to pay a premium for their shares,” Israel Odubola, a Lagos-based research economist, said.
He said it makes it easy for those companies to raise funds in the financial market as they are perceived to have solid financial footing.
With a return of 22.90 percent as of Thursday, the country’s stock market performance so far this year has surpassed analysts’ expectations.
Analysts at Lagos-based Cordros Securities Limited had said in their markets review and outlook report that Nigerian equities would exhibit resilience in 2024, though at a modest pace.
“We project that we do not expect any of our identified determining factors – an improvement in the FX space, prospects of improved macroeconomic conditions, and monetary policy direction and impact on fixed income yields – to have an outsized impact on eventual market performance.”
Analysts at Afrinvest Research also pointed out that the country’s equities market raced to a 15-year high in 2023 “fuelled by market-friendly reforms by the current administration and resilient corporate performance”.
“We expect the equities market to sustain the positive momentum through 2024, though at a modest pace. Our model forecasts a 14.8 percent return for the year (base case), premised on improved macroeconomic conditions, anticipated growth in foreign portfolio investments, and a more stable FX environment,” they said.
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