2024: Another year of positives for equities

Nigeria’s stock market has taken off this year on a positive note as investors continue to take advantage of the relative cheapness of some counters while positioning ahead of full year results and corporate actions.

Bargain-hunting activities at the Nigerian Exchange Limited (NGX) continued on Monday, pushing the benchmark performance indicator above 80,000 mark.

After a successful outing in 2023, most research analysts are positive in their outlook for equities this year 2024.

Vetiva Research analysts said, “In 2024, our outlook is characterised by cautious optimism as we anticipate sustained growth within the telecoms sector, with MTNN poised to maintain its impressive trajectory.

“Simultaneously, the banking space is expected to sustain its allure among investors, driven by the prevailing high-interest rate environment and the persistent FX pressures exerted on the Naira.

“This year, we foresee a continuation of the investment strategy employed in 2023. Our anticipation revolves around an ongoing emphasis on fundamentally sound stocks within pivotal sectors such as Telecoms,
Banking, Consumer Goods, Industrials, and Oil & Gas, with a special focus on dividend-paying stocks.

“Our outlook envisions another year of positivity for the equity market, primarily propelled by local investors”.

CardinalStone Research analysts said, “In delineating potential options for equity investors in 2024, we highlights the following: Dangote Refinery: Likely to drive improved sentiments in the mid and downstream oil and gas sector, especially because it could make regulators more willing to accommodate demand and supply-
driven PMS prices. This commencement may combine with the proposed listing of the refinery to drive positive sentiments in Nigerian assets in 2024, given the expected passthrough to FX liquidity”.

“Banking sector recapitalisation: Likely to drive mergers and acquisitions within the banking industry. If the broad strategy for recapitalisation is inorganic, savvy investors will likely mop up shares in potential targets (example Tier 2 and Tier 3 banks) in 2024.

“Conversely, if a more organic approach is favoured (that is private placements or public offerings), banks may work to reprice existing equities upwards so that they can raise the maximum from placements or public offerings. In this instance, it may be wise to pitch a tent with banks with the highest book values because they will have more legroom to reprice existing equities upward,” the analysts said.

“Other Corporate Actions: Away from the banking sector, there are unconcluded corporate actions that are likely to play pivotal roles in shaping market sentiments in 2024. For instance, there is the Dangote Sugar, NASCON, and Dangote Rice merger for which investors are still awaiting the scheme document.

“Investors could buy and hold ahead of the release of the document or play tactical trades with the spread between Dangote Sugar and NASCON in the interim, given the available information. Similarly, SEPLAT, OANDO, GSK, and PZ also have unconcluded corporate actions.

“The first two are looking to conclude acquisitions that are likely to trigger a repricing of their equities, while the latter duo seek to exit the country in such a fashion that may throw up tactical opportunities given market volatility,” CardinalStone Research analysts further said.

CardinalStone Research analysts also noted: “Potential Return of FPIs: While prior to the post-election rally of 2023 would have been better, early 2024 may still be a good time to enter into the markets in anticipation of the return of FPIs, especially if the CBN Governor goes ahead to tighten in the first two quarters (in line with his guidance) and, inadvertently, create some attractive entry opportunities into some securities. For context, foreign inflows into equity amounted to only N157.3 billion in 2023 versus N772.2 billion in 2017, the last time similar pro-market policies”.

Also in their 2024 outlook, Meristem research analysts said, “Since the initial wave of optimism that sparked through the domestic equities market after the ascent of the new administration, the Nigerian equities market maintained a predominantly positive trajectory throughout the second half of 2023 (save for the mild market correction witnessed in October). Corporate actions across sectors, favourable corporate results in the banking sector and investors’ increased appetite for bellwether stocks were significant factors that propelled this upbeat momentum.

“A temporary shadow was cast over investors’ confidence when companies released their H1:2023 financial scorecards. This resulted in sell-offs during August and September, briefly dampening the bullish sentiments that had characterized the market earlier in the year. In our half-year outlook, we underscored that the financial services and oil and gas sectors are poised to benefit from the new regime’s key reforms (particularly the devaluation of naira and removal of fuel subsidy). As anticipated, both sectors exhibited remarkable profitability, while others lagged. In Q4:2024, renowned providers of global benchmark indices and portfolio analysis tools – Morgan Stanley Capital Index (MSCI) and FTSE Russell reclassified the Nigerian stock market from Frontier markets to Standalone market status and unclassified market, respectively,” Meristem analysts noted.

“Domestic Equities – The move to reclassify comes in response to the issue of foreign exchange illiquidity and funds repatriation, which limits portfolio replicability for investors. Notwithstanding, the market’s reaction to these developments was relatively muted as investors remained largely active across diverse sectors, demonstrating a continued pursuit of value. As such, volume and value traded more than doubled in 2023 to reach their highest annual levels of 117.06billion units and N1.74trillion, respectively.

“At year-end, the All-Share Index (NGX-ASI) closed in the green zone for nine out of twelve months to deliver an impressive +45.90percent return (versus +19.98percent recorded in 2022), reaching its highest ever point on record at 74,773.85point and a market capitalisation of N40.92trillion.

For the first time in six years, all sectoral indices performed in unison to record positive returns in 2023. Furthermore, in relation to the performance of other
markets, the Nigerian equities market surpassed the 2023FY returns of major MSCI global indices (the Frontier market index +8.27percent , the Emerging market
index +6.95percent, and the Developed market index +15.29percent) and some African peers (Ghana +28.08percent, Kenya -28.08percent and South Africa +5.26percent),” Meristem research analysts further said.

In their recent note, Coronation Research analysts said “The NGX All-Share Index started the year positive reaching a record-high of 79,664.66 points with a 6.54percent gain week-on-week. The performance was buoyed by gains in Sterling Bank (+34.50percent), FCMB Group (+31.76percent), and Zenith Bank (+8.67percent) offsetting losses in Guinness Nigeria (-7.58percent), Stanbic IBTC Holdings (-5.96percent) and Honeywell Flour Mills (-3.92percent).
“We attribute the optimism in the market to the traditional January rally as well as investors taking position ahead of earnings release and dividend declarations for the just-concluded year. We expect this rally to continue this month, though we may see some corrections further down the line”.

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