Nigeria’s equity market hits 4% in 23-month high

Nigerian stocks hit a 23-month high on Monday, extending last week’s rally and helped by gains in cement, fuel retailing and banking shares.

A pickup in oil prices and a more stable currency have improved economic prospects in Nigeria, prompting investors to buy into the stock market.

Shares rose on Monday for the fifth consecutive session, with Dangote Cement, which accounts for a third of the market’s value, surging 8.85 percent.

It helped push the benchmark index up 4.01 percent to cross 32,000 points in early trade.

First Bank jumped by its 10 percent maximum limit to trade at 7.07 naira, the highest level since July 30, 2015, while gasoline retailer Mobil Oil was also up 10 percent, at 319.72 naira.

The banking index rallied 11.6 percent, outperforming the overall market as fund managers took positions in anticipation of upbeat first-half results from Nigerian companies, due out next month.

“Some major players see positive signs on the economic outlook and are taking positions to benefit from possible improved performances in all the sectors of the economy,” Rasheed Yusuf, senior stock dealer at Trust Yields Securities and Investment Ltd, said.

Low valuations also made stocks attractive, he said.

Africa’s largest economy, grappling with a currency crisis brought on by low oil prices which hammered its foreign reserves and created chronic dollar shortages, has resorted to regular injections of dollars by the central bank to narrow the spread between the official and black market rates.

The Nigerian naira has rallied on the black market to 375 from around 520 per dollar before the central bank started aggressive intervention in the foreign exchange market in February to improve liquidity and ease pressure on the local currency.

“The increase in the supply of foreign exchange, improved crude oil production and prices, improved investor confidence in the economy and an increase in the participation of both local and foreign investors in the market,” have been driving the market’s recent gains, said FSDH Merchant Bank in a research note.

Meanwhile, Afrinvest researchers see some profit taking in early trading sessions this week as the benchmark index’s 14-Day RSI at 89.0 points indicates that the market currently stands in the overbought region.

“Whilst we uphold our assertion that the upbeat market performance has been buoyed by improvements in FX management and macroeconomic fundamentals, we expect to see some profit taking in early trading sessions this week as the benchmark index’s 14-Day RSI at 89.0 points indicates that the market currently stands in the overbought region,” they noted.

The Afrinvest weekly sentiment indicator surged to 4.3 points from 2.5 points last week as market sentiment remained overwhelmingly bullish.

Performance across sectors was broadly positive as four of five indices trended northwards W-o-W. The Industrial Goods index appreciated the most, up 9.2% W-o-W while the Consumer Goods index trailed, advancing 7.7% W-o-W. Likewise, the Insurance and Banking indices rose 6.1% and 4.0% respectively. On the contrary, the Oil & Gas index declined 4.5%.

Top performing stocks for the week were FBNH (+31.3%), UAC-PROP (+25.2%) and MANSARD (+24.7%), while 7UP (-14.2%), LINKASSURE (-12.7%) and OANDO (-10.3%) were the worst.

However, Afrinvest considers Nigerian equities cheap and attractive when compared to peers.

“Nevertheless, trading multiples show that – despite the market rally – Nigerian equities remain cheaper and attractive when compared to SSA peers and we believe the improvements made in FX management will continue to buoy foreign participation in the market,” its researchers said.

Afrinvest stock pick for the week is Larfage Africa Plc, whose full year 2016 results comfortably outperformed analysts’ estimates on key earnings metrics.

The company’s “revenue fell 17.8% Y-o-Y to N219.7bn, slightly ahead of our estimate of N216.5bn, while the Pre-tax loss of N22.8bn also beat our forecast of N44.3bn,” adding that its fourth quarter standalone earnings before interest, tax, depreciation and amortization (EBITDA), a measure of a company’s operating performance, expanded 291.7% Y-o-Y to N18.8bn (75.2% of total adjusted FY:2016 EBITDA). Its EBITDA also margin rose 22.8 percentage points Y-o-Y to 32.0% in the Quarter.

By Niyi Jacobs, Business a.m. live