Nigeria has entered a second recession in less than five years and the third-quarter real GDP growth rate contracted by 3.62%, with inflation rate at the end of October being 14.23%, setting up the Nigeria economy for a double dose of recession and stagflation with hopes of surviving.

With the economy seeming uncontrollable, focus is once again on the investment outlook for the rest of the year 2021.

Nigeria equities gained 2.19% at the end of the week, stock defied a gloomy economic outlook to close strongly. 27 stocks gained during the week compared to the 21 the week before, while 42 lost grounds compared to 55 the week before.

For SSN, most of the stocks lost ground due to profit-taking and lack of significant value. The stock market is also quite shallow with very few stocks to pick from. This is a challenge for investors looking for a market that could produce a constant stream of winners.

The economy in focus, Nigeria’s major drivers for the contraction was oil GDP which contracted by 13.89% in Q3 2020 compared to 6.63% contraction in the prior quarter.

The Buhari administration is taking Nigerians through the arduous task of refocusing the economy on local production rather than imports. Whilst this is good in the long term, it is a painful route that will string along with it, higher inflation, increased poverty levels, and frustrate foreign investments.

According to data from Nairalytics, the NSE 30 companies have posted a combined pre-tax profit of N1.3 trillion which when annualized comes to about N1.7 trillion. When compared to 2019 and 2018, N1.8 trillion and N1.79 trillion respectively, it is obvious that stocks will fare slightly worse than last year.

Stagflation is the combination of inflation and tepid GDP growth rate and its implications on stocks has to take note of other factors. Dividend yields for some stocks still rank far above inflation rate and even higher than Core-inflation (less the more volatile food inflation). So long as the stocks we own are profitable, there is some buffer to withstand the effect of the stagflation

The Economic Outlook of the year 2021 will be shaped largely by insecurity and social media. The spate of kidnappings, terrorist-related killings and fear of increased militant activities is a big concern for the Nigerian economy. While policies like capital control, border closure remain a drag on economic recovery, they are within the control of the government and at least can be adjusted as data continues to guide.

Disclaimer

There is a wealth of information that should help decide whether you should buy a stock or not and how long you can hold on to it. Our recommendation is based on the information we currently have and is wholly the opinion of Ugodre Obi-Chukwu.

Nairametrics does not own some of the stocks recommended and may not purchase them despite including them in our Stock Select Portfolio. Ugodre does not also own all the stocks he recommends.

This newsletter is an investment guide and as such you should conduct extra analysis before deciding whether to buy, sell or hold a stock. The decision to buy, sell or hold a stock is solely yours.

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Nigerian bourse closed negative on Thursday. The All Share index declined further by -0.25% to close at 34,968.94 from 35,056.82 points.

• Year-to-date and market capitalization similarly dropped by -0.25% to settle at 30.40% and N18.27 trillion respectively.
• A total volume of 289.3 million units of shares, valued at N7.34billion exchanged hands in 4,878 deals. UBA was the most traded shares by volume at 34.4 million units, while MTNN topped by value at N4.37billion.
• The market breadth index was negative with 25 losers against 13 gainers. CADBURY (-5.43%) led the laggards today, while ARDOVA (+7.69%) was the top gainer.
• The sectorial performance was mixed as the Banking, Insurance, and Consumer Goods indexes dipped -2.07%, -0.82%, and -0.20%, while the Oil & Gas gained +0.35%. The Industrial sector closed flat.

Top Gainers

1. MTNN up 0.77% to close at N156.2
2. ARDOVA up 7.69% to close at N14
3. REDSTAREX up 4.00% to close at N3.38
4. CUTIX up 5.56% to close at N1.9
5. UPL up 4.26% to close at N1.47

Top Losers

1. CADBURY down 5.43% to close at N8.7
2. UBA down 5.20% to close at N8.2
3. ZENITHBANK down 1.88% to close at N23.55
4. FLOURMILL down 1.85% to close at N26.5
5. GUARANTY down 1.47% to close at N33.6

Outlook

Nigerian stocks drifted lower at the fourth trading session of the week, as significant sell-offs seen in Nigerian tier -1 banks added pressure on the Nigerian All-Share Index.

• Stock experts anticipate more consolidation now as investors become more choosy on stocks to buy taking into consideration that experts don’t see any new highs now till next year.
• That said, Nairametrics envisages cautious buying on the bias that stock traders are expected to be a bit cautious amid recent macros prevailing at the Nigerian currency market.

Camey & Rock Business Consulting Limited has finally executed its share purchase agreement with the board of Resort Savings and Loans Plc, worth N4.3 billion.

This is according to a notification sent by the latter to the Nigerian Stock Exchange market yesterday and seen by Nairametrics.

The cash involved in the deal is scheduled to be injected in tranches. Also, activities related to the transactions are still ongoing.

In order to resolve some administrative and basic regulatory issues, Camey & Rock called for an extension from CBN to enable it conclude the recapitalization exercise of the bank outside the deadline of 31 December 2020 to 30 June 2021.

The call comes at a time when the investors plan to inject the next tranche of cash into the bank.

The notification also revealed that the investors (Camey & Rock) have so far, assisted in motivating staff resolution and arrangement of some critical financial obligations, towards the filing of outstanding financial statements and relocation of the bank’s head office to 12, Boyle Street, Lagos.

What they are saying: A part of the recent disclosure reads: “The Board of Resort Savings and Loans Plc (the bank) wishes to notify the Nigerian Stock Exchange and investing public on the updates on the Bank’s recapitalization exercise.

“The Bank has executed a Share Purchase Agreement with Camey & Rock Business Consulting Limited (Camey & Rock or the investor) to the tune of N4.3billion, following Camey & Rock’s strategic equity investment in the Bank. The cash will be injected into the Bank in tranches.”

Why it matters: The recent announcement will help recapitalize the bank. In addition, the board and management firmly believe that the strategic investment will change the face of the bank, repositioning it in the committee of financial services providers in Nigeria, and grow its capacity with consequent effect in increasing the wealth of stakeholders.