Capital market: Stakeholders express optimism for growth

05 January 2014, Lagos – Stakeholders in the Nigerian capital market have expressed confidence that the 2015 will impact on investors’ return on investment provided there is a hitch free general election and sustainable favourable reform policies that will impact on companies’ activities.

Speaking on the outlook for 2015, Mr. David Adonri, Managing Director, Highcap Securities Limited said “In 2015, if price of crude oil stabilizes and the macroeconomic authorities continue tight monetary policy, intensifies austerity and curtail imports, confidence will return to the economy and the capital market. However, long term solution lies in diversification and restructuring of the economy to be less import dependent”.

Nigerian-Stock-Exchange.NSEHe said that the devaluation of the Naira was an evidence that the macro economy was in distress in 2014. He added that all along, the CBN had embarked on tight monetary policy to curtail inflation and defend value of the Naira. According to him, heavy decline in price of crude oil, insecurity in Northern Nigeria and increased political risk took huge toll on the capital market in 2014.

In his own view, Mr. Tola Odukoya, Managing Director, Asset Management & Research, Dunn Loren Merrifield, stated that the economy fared well in the first half of the year 2014 , but the consistent decline in oil prices over the last few months has put the domestic economy at risk given Nigeria’s reliance on oil revenues.

“Meanwhile, I believe the significant progress being made towards diversifying the economic base via manufacturing and agriculture will positively impact economic growth in the 2015 if the current policies and pace of progress are sustained,” he said.

On the capital market, Odukoya opined that the current state of the market, the adverse economic condition and outlook, coupled with the prevailing political and security climate, impacted negatively on the domestic capital market in 2014.

He, however, stated that the current state of the market presents a very good opportunity for investors given the attractive asset prices. According to him, his optimism is based on his medium-to-long term outlook for the Nigerian, which is strongly positive, despite the short term challenges that will occur in the months ahead.

Commenting as well on the outlook for 2015, BGL Plc in its Economic Review and Outlook for 2015, stated that the International Monetary Fund, IMF forecast that Nigeria would grow by seven per cent in 2014 and 7.3 percent in 2015 would be supported by the sustained strong growth of the non-oil sector which is expected to grow by 7.7 percent in 2014 and 7.9 percent in 2015.The company added that key downside to the forecast includes the possible loss of the economic value added of the North East regions if the scale of insurgence increased.

“In addition, the recent slump in oil price and the consequence of fiscal and monetary policy actions, which are largely contractionary, represent potential drags on output growth,” the company added in the report.

On the equities market, the research firm noted that fundamentals show that Nigeria’s equities market may be significantly underpriced, adding that Price Earning, PE ratios of most sectors on the Nigerian Stock Exchange, NSE, are lower than that of its peers.

On sector to sector review, BGL researchers stated that the banking sector, agriculture and oil and gas are very attractive, while the Fast Moving Consumer Goods, FMCG, sector which were hitherto overvalued have experienced significant price correction and the sector currently offers value for investments.

“Beneath the impressive valuations of the Nigerian equities market is the expanding middle income group attracting improved financial performance of firms in the FMCG and retail space.

“Due to identified infrastructure gaps in terms of housing, transportation and power, we expect more focus on building and construction going forward. In addition, since the provision of the infrastructure needs is largely to be private sector driven, we expect better efficiency and transparency in the handling of the projects with positive implication for the capital market.

“The merger between Lafarge WAPCO Cement Plc and Ashaka Cement Plc in order to achieve cost reductions through scale and removal of duplicated duties has positive potential effect on the sector. The newly launched Mortgage Refinance Company (MRC) is expected to boost housing development over time; leading to increased demand for building materials,” the report stated.

They said that consumer goods stocks, which are defensive stocks and have the capacity to generate cashflow all year round portends huge value for these companies.

In addition, the ban on the importation of some items and the increase in tariff on some will create a favourable competitive environment for the players in the sector.

“The ban on importation of refined cube sugar is expected to generate increased business and volume of sugar manufacturers; hence our optimism on their stock performance.”

The return to profitability of some consumer goods companies after years of negative performance signal that they have started benefiting from the restructuring embarked upon while the consistent positive performance of the industry bellwethers offers an attraction to the sector’s stocks, the company said in the report.

It further stated that the conclusion of the Petroleum Industry Bill is expected to unleash significant investment in the sector, particularly unlocking value for the downstream petroleum sector as well as the upstream sector, while the increased foray of indigenous oil & gas companies into the upstream and midstream oil & gas sectors and the expansion into power generation and distribution offer significant upside for the stocks of quoted oil & gas companies in Nigeria. Companies with operations in the upstream, mid-stream and downstream sectors like Oando Plc portends great inherent value especially with the purchase of the assets of Conoco Phillips Nigeria Limited.

In his own reaction, Mr. Taiwo Oderinde, National Coordinator, Proactive Shareholders Association of Nigeria (PROSAN),“The year 2014 was so significant in the history of our capital market because of some landmark events that took place. First, our market capitalisation grew to fourteen trillion naira .It shows a full recovery after 2009 global financial crisis.

“Also, Nigerian Stock Exchange was admitted to the World Federation of Exchanges. By implications, our NSE now has access to the global economy and it becomes easier for our market to attract more foreign Investors. Furthermore, three, Proactive Shareholders Association of Nigeria were formally admitted as the Nigerian representative in the World Federation of Investors in Vienna in September 2014.

We hope that the regulatory bodies will improve on their statutory roles despite the fact that there are lots of challenges confronting them. Apart from some of the positive and notable events in the year 2014 there are lots of challenges facing our Capital market that is hindering her smooth running .Among the challenges are: Need to strengthen our market legal framework, Investors education, under capitalisation, need for amendments of CAMA among others. For the year 2015, its a an election year which is normal to affect our market. But once the election is over and hitch free from crisis, the market will bounce back. The bearish run will continue until the 3rd quarter before it shows improvement.

Speaking on the outlook for capital market in 2015, the Chief Executive Officer, Stanbic IBTC Asset Management, Mr. Olumide Oyetan said “There is bright future for the market as long as there continue to be positive policies and proactivenesss of operators. We are going to promote the culture of investing in Exchange Traded Funds, ETFs in Nigeria.

“It’s just like taking out some insurance policies out of one’s life and begin to gamble on which other insurance policies would take your adequate cover. There is the need for the investors to learn how to invest and invest in the long-term securities like the ETFs.”

Speaking on the ETF contribution towards attaining N1 trillion minimum capitalisation targets in 2016 overall growth in the stock market for the year, he disclosed that the Stambic IBTC ETFs contribution would be minimal for the period, judging from the low investors education on the funds and some other factors needed to be addressed in promoting such aspect of investment.

On the NSE meeting the N1 trillion target market capitalisation, he said “As a component of $1 trillion target by the Exchange, though, its a laudable move but we are still far from that feat because lots have to put in place to achieve the target. When all those factors, as being put together by the management of the Exchange are in place like bringing more products, derivatives, options and many more, then, that becomes achievable and then ETFs Year-on-Year would start increasing.

– Vanguard
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