Nigerian stock market takes bull by its horns in 2024

The NGX, Nigeria’s major stock market, extended gains led by cement giants and banks to push the main index past a psychological threshold of 100,000 index points for the first time. The exchange has this month maintained its position as the best-performing stock market globally, ending the trading day on 25 January at 120,149.93 index points. With a 36.37% return so far this year, it surpasses the country’s most recent headline inflation rate of 28.9%

There are now more than a dozen listed companies on the NGX valued at N1 trillion (about $13bn) or more: Airtel Africa, BUA Cement, Dangote Cement, FBN Holdings, MTN Nigeria, BUA Foods, Seplat, GT, Zenith, UBA and Geregu. These make more than two-thirds of the NGX market valuation.

Passing the 10 trillion mark

Dangote Cement, Nigeria’s most valuable company, surpassed N10 trillion (about $12.6bn) in market valuation this week, becoming the country’s first business to achieve this milestone. Aliko Dangote, the richest man in Africa, is the primary owner of the cement company, which is a part of Dangote Industries Limited.

The recent purchase of an unknown number of Dangote Cement shares by fellow businessman Femi Otedola partly contributed to the increase in the equity valuation of the cement giant.

The BUA conglomerate, controlled by Abdul Samad Rabiu, also now has a market valuation of at least N10 trillion. It is the second-biggest conglomerate after Dangote Industries.

Dangote and Rabiu, the country’s richest men, posted the biggest year-to-date wealth gains in percentage terms according to Bloomberg Billionaires Index.

Ayodeji Ebo, chief business officer at Optimus by Afrinvest, attributes the market rally partly to investors’ “fear of missing out”. He says that strategic news on bellwether shares also contributes to their performance, and that “sustained interest from new domestic investors will create more stability in the stock market.”

The NGX heavyweights such as Dangote Cement have posted a year-to-date return of 95.3%; BUA Cement of 81.3%; BUA Foods of 26.5%; and Seplat Energy posted a 33.1% year-to-date gain.

Data retrieved from the NGX shows the institutional composition of the domestic market increased by 49.74% from N136.52bn in November 2023 to N204.42bn in December 2023. “The market appreciation in value this year is already more than the total gain recorded last year, and it’s still January,” says Solomon Ogene, portfolio manager at Ecobank Wealth and Asset Management.

The local bourse beat all peers in the Africa region, Europe and the Middle East this January, as institutional investors maintain buying pressure on Nigerian lenders.

“Banking stocks seem to have gained a lot of traction in 2024, stemming from a pending banking sector recapitalisation. While the market awaits further communication from the CBN [Central Bank of Nigeria], we think that savvy investors are already mopping up shares in Tier 2 and Tier 3 banks, which could be potential targets if the recapitalisation is inorganic,” Olaolu Boboye, an investment research associate at CardinalStone Partners, tells African Business.

“Given that most top-tier banks are well-capitalised, this must have fueled investors’ confidence in them. Also, relative valuation indicates that some banks are trading below 10-year historical patterns and seem cheaper than their emerging peers.” Among the banking industry’s top achievers are Wema Bank, which has gone up by 86.5% in the year to date and Unity Bank, which gained 73.6%.

Olamide Akinbola, senior portfolio manager at AXA Mansard, gives credence to a blend of corporate actions, FY 23 earnings expectations, and improved valuation, particularly for banking, industrial, and energy companies, driving the market rally we have seen.

The power of reforms

Morgan Stanley predicted at the close of the fourth quarter that Nigeria would see a substantial economic rebound when President Bola Tinubu’s reform initiatives were put into effect. The American investment bank also stated that investment opportunities may arise in several industries, such as packaged food and drink, personal care and household goods, healthcare, education, and even durable goods like appliances and vehicles.

Boboye believes that with the recent efforts and commitments of the CBN to clear the foreign exchange (FX) backlog and the expectation of further monetary tightening, “we perceive that the market is actively watching the possible return of offshore investors. This expectation must have increased buy interest in blue chip stocks, which usually excite foreign investors.”

Additionally, he contends that while the elimination of fuel subsidies contributed to a certain degree to the rise in food and transportation costs, the unification of exchange rates, the examination of all anti-investment and multiple taxation policies, and the Federal government’s plan to prioritise infrastructure development to generate jobs had a positive impact on all economic sectors, including the capital market.

Ebo highlights the possibility of attributing the recent rally to renewed interest from domestic investors, both retail and institutional, on the back of the impressive performance in 2023.

Olamide states that NGX market participation has been tilted towards domestic players and that this speaks to the relatively lower downside to the equity market outlook this year. NGX data on foreign portfolio investors (FPIs) shows N410.62bn (about $456m) worth of transactions last year, while domestic investors accounted for 88.52% or N3.167 trillion in the same period.

Ogene expects renewed FPI interest as the NGX remains attractive both from a valuation perspective and from a dollar perspective (owing to the persistent devaluation of the Naira)

Market participants are quite optimistic about a strong and active primary market in 2024 because of this favourable momentum. Olaolu thinks that unconcluded corporate actions have played pivotal roles in shaping market sentiments in 2024: “We think that investors are already buying ahead of the release of the document, while some are playing tactical trades with the spread between DANGSUGAR and NASCON. SEPLAT, OANDO, GSK, and PZ have also not yet completed their capital policies,” he adds.

The first two are looking to conclude acquisitions and these have triggered some repricing. The latter duo seeks to exit the country in such a fashion that they have thrown up tactical opportunities given market volatility.

Dangote Sugar Refinery Plc, NASCON, and Dangote Rice Limited (DRL) announced a proposed merger in the third quarter of last year – to establish one bigger corporation, based on discussions held by their separate boards.

Impact of the refinery

The commencement of operations at the Dangote oil refinery has further improved sentiments for the mid and downstream oil and gas sector, especially because it could make regulators more willing to accommodate demand- and supply-driven petrol prices. Already, some players such as Eternal Plc are among the major distributors of Dangote petroleum products. This has fueled increased traction in Eternal and other stocks such as MRS and CONOIL.

Although recent government reforms have helped the Nigerian equity market, issues such as inflation and fuel price rigidity still exist. The way these problems are resolved, and the government’s commitment to implementing reforms, will determine the market’s future course, so it will be interesting to monitor in 2024.

Deji warns that the participation of foreign investors remains slim due to FX policy inconsistency. If the CBN sustains the new FX policy direction and increases supply steadily, foreign portfolio investors may return in the medium to long term, which will be positive for the stock market.