EQUITY ANALYSTS URGE INVESTORS TO FOCUS ON VALUE STOCKS, PROTECT CAPITAL

AHEAD OF ELECTION YEAR: EQUITY ANALYSTS URGE INVESTORS TO FOCUS ON VALUE STOCKS, PROTECT CAPITAL

Experts and analysts in Nigeria’s equity market say despite the huge gains recorded so far as shown by the upward movement of the Nigerian Stock Exchange’s Composite All-Share index, there are still subtle opportunities between the performance of companies and the ongoing economic recovery that can be exploited in the coming weeks and months by discerning investors to guaranty juicy returns on their investments.

The experts, who spoke at the INVEST 2018 traders & investors summit in Lagos, challenged investors to stay with value enhancing stocks and ensure they generate good returns, while at the same time protecting their capital.

This they agreed, has become necessary, considering the opportunities presented by the 2018 Appropriation Bill submitted to the National Assembly by President Muhammadu Buhari, wherein the Federal Government is proposing to spend N8.6tr; just as the uncertainties surrounding the period, being a pre-election year.

Specifically, the analysts noted that the uncertainties around 2018 has to do with the politics of the general elections in February 2019, when Nigerians would go to the polls to elect their leaders at the state and federal levels, considering how messy such period have been in the past both in Nigeria and elsewhere, including the advanced economies. Nigeria’s is made worse, they continued, by the fact that going by data from the NSE, the market is dominated by foreign and institutional players, whose stock in trade has always been to dump shares without notification, should the political environment become charged and inspire fear of the unknown. For such investors, the norm is “safety first.”

According to Temitope Babalola, Head, Economy Desk, at Proshare Nigeria Ltd, an investment, market and economy portal, although the emerging positive economic data in Nigeria are good, they do not measure returns but activities that produce the returns in all the assets classes. It is the economic data such as inflation, Purchasing Managers’ Index, Consumer confidence index and GDP, among others that signal where the economy is heading, to guide investment decisions.

“Growth remains largely fragile, (following which there is) the possibility of the lingering fragile growth leading to economic stagnation,” he warned.

He also drew attention that with 2018 budget which is the pre-election bill, warning that politics would take the front row, “while economics takes the back seat,” a factor investors and traders must watch.

Babalola, who spoke on why investors should factor in budget 2018 to their decisions next year, drew attention to the fact that although GDP grew by 1.4% in Q3, most of the sectors that were resilient in the past are still negative, including the non-oil sectors like ICT, real estate and manufacturing. He added that with Nigeria’s oil production at 2.03 million barrels of oil per day, up from 1.64mbpd and 1.87mbpd in the corresponding quarter of 2016 and 2017Q2 respectively, which has now come under threat, he continued, with the decision of the Organisation of Petroleum Exporting Countries (OPEC) to peg Nigeria’s output at 1.8mbpd. That decision alone, he continued, cuts Nigeria’s revenue projection by about N530bn, leaving the authorities with the option of either increasing the oil price benchmark in the budget, or raising the country’s deficit level.

For Alhaji Kassimu Kurfi, a Chartered Accountant and chief executive of APT Funds & Securities Ltd, another facilitator, Nigeria’s stock market has so far benefited immensely from the Central Bank of Nigeria (CBN) introduction of the Investors & Exporters’ foreign exchange market window thereby stabilizing the exchange rate of the Naira by making forex available. This, he continued, has improved forex particularly via portfolio investments inflow into the market and the economy at large.

At a time like this in our politico-economic history, he urged participants (Investors) to go for fundamentally sound stocks and avoid penny stocks, especially with the new pricing rule of the NSE that would allow stock prices to go lower than the former flow of 50 kobo, to as low as one kobo beginning from January 28, 2018.

He listed stocks that have stagnated at current 50k per value to include: most insurance stocks like African Alliance and Guinea Insurance; FTN Coca, Tantalizer, Daar Communications; DN Tyre & Rubber; Academy Press, ABC Transports, RT Briscoe, Afromedia, Japaul Oil; e-Tranzact; Omatek; Chams; First Alluminium; Thomas Wyatt; and Courtville. Another category of stocks that have had their price oscillating between 50k and N1.00 only, include: Wema Bank, Unity Bank, WAPIC Insurance, Livestock Feeds and AIICO Insurance, among others.

He identified other stocks that sell for between N1, but below N5 and risk falling into the 1 kobo quagmire, unless their boards and managements take measures to boost their performance as: Fidson Healthcare, African Prudential, United Capital, FCMB, Fidelity Bank among others.

The majority of stocks on the NSE are those selling above N5, but below N99.00, such as Unilever, Guinness, 7-Up Bottling Company, Okomu Oil Palm and Presco; just as he identified champion stocks that sell above N100 per share, like Nestle, Dangote Cement, Sepat Petroleum Development Company, Nigerian Breweries, Total and Mobil Oil (Double One).

Convener of the summit and Chief Research Officer of Investdata Consulting Ltd, Ambrose Omordion, took participants through how to invest with earnings released date, noting that while markets reaction to full year earnings reports is long, knowing when funds are leaving the market or individual stocks is key.

On his part, Engr. Mike Ekwueme, also a facilitator took participants through the economic model that combines both Fundamental and Technical Analysis when picking stocks, while Rasheed Momoh of TRW Stockbrokers Ltd demonstrated how participants can identity emerging trends before majority of market participants, using different chart patterns and thereby enhance their returns.