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Nigerian stocks maintained their YTD bullish momentum after a short profit-taking correction in June.
Latest market activity showed the NGX’s All-Share Index (ASI) resumed its consolidation near its recent all-time highs, cementing Nigeria as one of the world’s best-performing equities in the US dollar-adjusted index.
Latest price action showed the Nigerian major stock market traded around ~242,145 points (slight pullback from local highs of ~243,900).
Nigerian Exchange valuation settled at N156.2 trillion and is yielding investors a handsome return of +56% year to date, thanks to an aggressive push by institutional investors into selected high-conviction counters. Market participation has been broad, with short-term upward movement meeting some resistance around the 242k-244k region.
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Tier-1 banks dominate institutional inflows
Tier-1 banks (FIRSTHOLDCO, UBA, GTCO, ZENITH) are hogging for most of the institutional liquidity as they meet the statutory expansion of their capital base. Low-priced Small-Cap Momentum Plays: (MCNICHO, VERITASKAP, CWG) showing the most spectacular price rallies as analysts advise caution against differentiating turnaround stocks from “momentum” ones
FIRSTHOLDCO stock price is going through one of the most forceful rallies witnessed among Nigerian top banks due to the execution of their recapitalization exercise, heavy institutional demand, and improved earnings.
The commercial banking group has not just satisfied, but exceeded the Central Bank of Nigeria (CBN)’s compulsory N500 billion minimum capital required to obtain an International commercial banking license for the banking group through multi-stages, including private placements of funds into FBN Holdings plc.
This process saw it successfully undertake Rights Issues and privately issued capital, excluding a N45 billion transaction from a private investor, including divesting/disposing of some non-essential business, such as FBNQuest Merchant Bank. Femi Otedola, FIRSTHOLDCO chairman, has also outlined a capital base target of N1 Trillion for its lending power across Africa
Trading activity in United Bank for Africa Plc (UBA) remains strong on the Nigeria Stock Exchange, currently recovering off support as Institutional Investors position in around Tier 1 Banks recapitalization and pan-African Earnings Stability. 1. Price action and Market Technicals: The latest share price of UBA is currently 44.25 (up 7.93% in recent momentum).
The range of share Price within a year is 34.25 – 55.20. The bank is financially stable, as evidenced by very strong retained earnings and shareholders’ fund of >N2 trillion, and may not face a challenge raising further capital.
In addition, tier- 1 dividend yield plays – as earnings of banks like UBA, GTCO, FirstHoldCo, and Zenith Bank remain on solid footing; investors may go long to secure interim payout yield.
The earnings momentum at the Tier 1 bank should sustain, even in the face of elevated operational costs, given the sharp rise in lending yields that support strong top-line revenues.
The FX effect
Furthermore, the recent stabilization of the Naira (at ~N1,380/$ – 1,385/$) together with growth in FX reserves moving towards $52 billion restored foreign portfolio investors’ (FPIs) confidence.
However, high yields on money markets (18%-20%), may compete directly with equities as investment instruments, given that the Monetary Policy Rate is at 26.50% despite equities serving as an excellent proxy against structural inflation.
Investors are taking cash down the value chain to find undervalued mid-caps following strong momentum in blue-chip heavies.
Value Arbitrage On the back of the multi-month rallies, many large-cap industrial and banking counters have reached fair value, driving interest of institutional and individual investors towards bargain opportunities at the mid- capitalized level with low P/Es.
Market participants are seeing many transportation, agribusiness, and niche mortgage servicers (ex: ABC Transport, FTN Cocoa, Abbey Mortgage, etc.) experience significant YTD rallies (50- 90%+) amid a combination of enhanced operational outlooks, turning around earnings perceptions, and the low PE basis we currently use to select these firms.
