Investors in the Nigerian equity market must be smiling to the bank, as shareholders of listed companies approve dividends at the annual general meetings.
It’s a rewarding season, especially for those who have investments in high dividend-paying companies like GTCO, Zenith Bank, United Capital, UBA, Dangote Cement, and MTN. Interestingly, it has been a period of double reward, as investors have also seen notable price appreciation in their stocks. The overall market mood has been positive since the beginning of the year, with the NGX All Share Index rallying 9.95% in the first quarter of the year to rank Nigeria as one of the best performing equity markets thus far in the year.
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Interestingly, the oil & gas and industrial goods stocks were the star performers, as investors took advantage of the oil price rally to load up the truck on oil and gas stocks like Seplat, which rallied 43.1 per cent in the first quarter of the year and has gained a total of 47.7 per cent as at Friday, 08 April 2022.
The shares of TOTAL Plc, which is mainly a downstream oil & gas company also benefited from the euphoria of high oil prices, gaining 19.4 per cent in the first quarter.
Remarkably, OANDO, whose shares have been the poster child of the oil & gas sector recovered 9.1 per cent, as investors seek to explore the positive side of the Russian-Ukraine war, which has kept the global price of crude oil at an elevated level. Except for MRS, on whose shares investors remained bearish with a 1.2 per cent loss in share price, the oil & gas sector index closed the first quarter of the year on a bullish note, as reflected in the 27.7 per cent positive return.
Dangote Cement and MTN, the two most-capitalised companies on the Nigerian Bourse, representing over 35% of the total market capitalisation, saw a 6.4 per cent and 6.6 per cent rally in their share price respectively. Indeed, retail investors who bought MTN shares through the public offer at N169 per share have seen a 24.3 per cent gain within barely four months, in addition to the incentive shares and dividends.
Banking stocks have not been the toast of investors this year, despite exciting results from lenders like Zenith Bank and Access Bank and more so relatively high dividend yield on bank stocks like Zenith Bank and GTCO shares. The banking sector index closed the first quarter of the year with barely 0.79 per cent gain, as the large-caps, Zenith, GTCO, STANBIC IBTC, and UBA shed 9.5 per cent, 11.5 per cent, 5.6 per cent, and 3.1 per cent respectively during the first quarter of the year.
While the excitement on the generally positive investor sentiment on equities suggests it’s a year of harvest for stocks, the gradually rising interest rate environment raises concern about the sustainability of the rally in the equity market, especially as institutional investors begin to take cover in the fixed-income instrument, on the concern of a probable plunge in equity prices going forward, as concerns over upcoming elections increasingly becloud investment climate.
Incidentally, the signals are obvious, with the weak performance of equities in the month of March, when the overall equity market index did shed about 100 basis points, cutting back the strong gains recorded in the first two months of the year; January and February. More so, April has been bearish, with the market shedding some 80 basis points thus far in the month, as investors take profit on a number of stocks, reinforcing the diminution in investor risk sentiment, which fuelled the stock market rally in January and February.
Mr Yadinma Onwu, the Executive Vice Chairman of Funds Matrix & Assets Management Limited, believes the market is still undervalued.
In justifying his perspective, he noted: “Nigerian equity market is currently valued at barely 8.1x earnings multiple with a decent dividend yield of 7.5%, well attractive and fundamentally undervalued when compared to Frontier Market peers, which are currently valued at an average price-to-earnings ratio of 13.1x and a lower dividend yield of 3.5%.
“Albeit, I am not oblivious of the negative impact of low liquidity on Nigerian stock market, especially as foreign investors remain bearish on Naira-denominated assets mainly due to concerns on probable Naira devaluation.”
He further believes that there is a need to increasingly build internal demand and broader liquidity in the Nigerian capital market and this is one of the major goals that all stakeholders need to partner with the regulator in ensuring the sustainability of the market.
“The performance of the secondary market and ability to ensure fair valuation for currently listed companies is critical in ensuring the recovery of the primary market because new companies would not be attracted to listing if they are not sure of getting the right valuation for their shares.”
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