Although Nigerian Stock Exchange (NSE) halted its four-day bearish streak to gain a mere 21 basis points after Friday’s trading, down 3 percent week-on-week, nonetheless the market is more attractive compared to peers in the emerging market space.
The trend seen so far in the Nigerian bourse defy analysts’ post-election rally expectation, however, bears may likely continue to prevail in the market until the Buhari-led administration comes up with vibrant pro-market policies that will spur growth in the private sector.
Analysis of the price-earnings ratio of four notable bourses – Johannesburg Stock Exchange (JSE), Nairobi Securities & Exchange (KSE), Egyptian Exchange (EGX) and NSE revealed that Nigerian stocks are trading at a multiple of 7.5 times their earnings, the least among peers.
South African stocks are trading 17.5 times their earnings, Kenya – 12.6x times their earnings and investors are willing to invest 16.3 times in EGX for a unit of the stocks’ earnings.
The cheapness of Nigerian stocks is further confirmed by the fact that they are trading below peers on the average in Emerging (13.2x) and Frontier (12.6x) markets.
There has been a consensus among analysts that P/E might not paint a full picture of market valuation, and needs to be backed-up with other metrics such as price-to-book ratio (P/B), which provides a valuable reality check for investors seeking growth at reasonable price.
Further analysis revealed that Nigerian stocks, with 1.3 P/B are lower compared with Egypt (1.5), Kenya (1.8) and South Africa (3.1). This therefore implies that investors are paying less to buy stocks on NSE than in other markets, for what would be left if the bourses liquidate the next minute.
The fact that Nigerian stocks are cheap is nothing to cheer about as it may signal investors’ low confidence about the growth prospect of the market, according to Olayinka Olohunlana, a Lagos-based economic & financial analyst.
“Investors are on wait-and-see note to know what Nigeria’s economic managers have for them before showing full commitment”, she said. The quite impressive financial outings posted by some blue-chip companies in 2018 financial year fails to give the Nigerian market a boost, as investors wants to the policy direction of Buhari’s second tenure.
Olohunlana urged the Federal Government to enforce Executive Order 003 which advocates greater patronage for locally made products, maintaining that the capital market will jerk up especially if tweaked to the direction of |Nigerian-listed firms.
ISRAEL ODUBOLA
