As Nigeria’s equity market falls to the lowest levels since May 2017, big-cap stocks open up opportunities for growth investors to position in sound fundamentals.
Trading resumed in the equities market after the long break, and stocks closed 0.82 percent lower, dragging this year’s return to -13.83 percent. Big stocks caught in the wave of pessimism have now established new 52-week low with opportunities for a good buy, analysts say.
“You never can tell how low some of these stocks can go but anyone buying a GTB or Zenith at this level is getting a good bargain,” Paul Uzum, a broker on the floor of the Nigerian Stock Exchange (NSE), told BusinessDay.
Fola Abimbola, equity analyst at Lagos-based FBNQuest, said the opportunity to buy has been available for weeks but investors are unwilling to take significant positions to drive the market.
“What would drive the opportunities is the big question because all these stocks are offering a lot of upsides,” Abimbola said.
Analysts say there is panic-selling in the market and foreign investors have moved more to the sell side, which is affecting the most liquid stocks in the market.
“But I advise that investors be careful. I wouldn’t advise long-term investors to sell off at this point,” Uzum added.
A 52-week low refers to the lowest a stock has traded during the previous year.
Zenith Bank plc, Nigeria’s second-largest lender by total asset, established a new 52-week low at N16.20 per share after dipping 0.92 percent on Wednesday. The stock which has shed some 30 percent is trading at levels last seen about two years ago.
Another big bank, GTB, is at a new 52-week low of N25.95 per share. In spite of the lender having a profitable first quarter, investors’ bearish sentiment has not spared the tier-one bank, now trading at its lowest since May 2017.
First Bank Holdings of Nigeria, another large cap financial, has established a new 52-week low of N4.65 per share, its cheapest valuation in a similar period as peers.
The wave of pessimism has pushed other banking stocks like Fidelity, Jaiz, and Ecobank to new lows.
Outside the banking sector, a big cap like United Capital has been weighed on by poor markets sentiment, trading at N1.8 per share as at close of trading Wednesday.
Stocks like Oando at N3.06, Transcorp at 84 kobo, Dangote Sugar at N9.55, Law Union at 36 kobo, Total at N105.80 and United Africa Company of Nigeria are also trading at new 52-week low.
Policy reforms are necessary to spur interest in Nigeria’s equity market valued significantly cheaper to emerging peers. The domestic bourse has a price to earnings (P/E) ratio of 6.9x compared to an average of 11x among peers.
While Nigeria’s fiscal authority has been quiet, the monetary counterpart has embarked on a series of real sector interventions in attempts to support growth.
Regulatory concerns, however, especially in light of recent policies by the Central Bank of Nigeria in increasing credit flows, may have resulted in the sell-off of lenders.
Zenith Bank trades at 0.6526x price to book and offers 17.07 percent dividend yield, and UBA trades at a 2.36x PE, 0.3639x PB and offers 15.18 percent dividend yield, data from Bloomberg show.
The policies of the CBN governor have seen the country’s foreign exchange market somewhat stabilise and the reserve situation can cover much of the outflow risks but the price is a restrictive monetary policy and juicy fixed-income returns continue to limit demand for equities, analysts say.
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