- Price recoveries in heavy weight stocks responsible for index growth
- Investors to target stocks with good dividend yield
Despite the turbulence that plagued the global economy in 2020 as a result of Covid -19 pandemic and other political disruptions particularly in Nigeria, the equity market recovered from its prolonged negative returns and eventually achieved double digit growth. Year to date, the market has returned 44.55% as the All Share Index increased to 38,800.01 points from 26,842.07 points recorded at the beginning of the year. The market capitalisation grew to N20.279 trillion, up by 56.50% from N12.958 trillion. This implies that within the space of one year, investors has gained N7.32 trilion.
Just like it was predicted by capital market experts that the market is likely to reach 2017 mark which was 42%, the market has returned 44.55% year to date.
Commenting on the market recovery, the Managing Director of APT Securities and Funds Limited, Mallam Kasimu Garba Kurfi pointed out that recent growth in the All Share Index is occasioned by recoveries in the share prices of the HIGH CAP stocks in the likes of Dangote Cement, Airtel, MTN and Nestle.
According to Mallam Kurfi: “It is clear that the heavy caps stocks are moving the market. Dangote Cement now has grown more than what it reached in November 18. It is now N245 against N205 of November 18. Airtel is now N851.8 against N405 of November 18. MTN is now N160.
“Dangote Cement, MTN and Airtel controls at least 50% of the market capitalization. So what that means is that whenever, they are down, the index is down, and whenever they are up, the index is up”.
“Some other stocks made some recoveries but not much. If you remember, Zenith was trading at N28, it is now N24.5. So it has not recovered fully. WAPCO was trading around N26, it is now N21”.
Nestle has recovered and it has N1 trillion market capitalization. MTN has recovered. Airtel has recovered. Dangote Cement has recovered. The recoveries by the big ‘guys’ is what is responsible for the index going up. Other stocks have not yet fully recovered.
In summary, the All Share Index recovered because the big guys recovered.
“I still have confidence in the market. If you look at it, the interest rate is still very low. So what other alternative do you have to invest? The bonds that are coming to the market are all single digit rates. So therefore, the best bet for you is to remain in the equity market. The rise in the prices of equity is likely to continue till even next year. Don’t forget that most of the banks will declare their dividend by April next year. So if you buy Zenith now at N24, you will get N2.50 dividend, and by the time they mark it down in April, you will see that you would have gained 10% compared to investment in any other instrument”.
Commenting on the recent capital flight from the money market into the capital market, Mr Aruna Kebira, Chief Dealer of Global View Capital Limited pointed out that investors would always look for where there bread would better buttered. According to him, the concept is better explained with the term “Circular flow of Income”.
“In the economy we have what is called circular flow of income in which money from money market to the capital market. When the rate in the money market crash, the only place that they can make their return especially when inflation is rising is the capital market. You cannot just invest without making any returns. If your return is not higher than inflation, you have not done anything. Your return should be inflation indexed return. Year to date, the market has returned 44.55%, and the inflation is 14.89%. It means you have made over 20% returns, and that’s inflation indexed return. You cannot be making 3.2% in 365 days in the money market and you say you are getting returns. As a matter of fact, the rate has been crashed to 1.13%. Because the rate in the money market has crashed again, the people that put their money in the Money Market are bringing it back to the capital market, and that’s why we saw the bulls last week. Discerning investors are looking for where there bread is better buttered, looking for greener pastures. So everybody faced the in the capital market, though it’s risky, but that’s where you can make reasonable returns. As far as the rates are down we are going to experience more uptrend in the market”.
“The Brent Crude Oil price is now $51.49. Forward looking global oil price has a way of impacting the market positively. This implies our foreign reserve will improve. Naira against dollar will improve. These are indicators in the economy that normally determine the performance of the All Share Index.
DANGOTE CEMENT
The recent rally in Dangote Cement was triggered by the announced share buyback programme which will commence on the 30th of December 2020. Year to date, the share price of Dangote Cement has grown by 72.54% to N245 from N142 at the beginning of the year. The share buyback will reduce the Company’s Share Outstanding. The earnings per share will go up and the price will also go up. Improved earnings per share will bring about improved dividend payout going forward.
Whether we like it or not, Dangote Cement is number 1 cement as far as Nigeria is concerned. If we compare its turnover with other cement company, Dangote Cement has the biggest turnover.
If we consider the dividend, Dangote paid as high as N16. If we look at the price performances, Dangote Cement has performed in price over a long range of time.
Cement as far as development in the country is concerned will continue to sell. Dangote is very close to the power that be. If there is any construction project of any government, it must be Dangote Cement.
AIRTEL AFRICA
The rally we are seeing in the share price of Airtel is because of the dual listing. It is listed both on the Nigerian Stock Exchange (NSE) and London Stock Exchange (LSE), and investors are taking advantage of the dual listing of the Telco giant. Airtel is one of the heavy weight stocks on NSE with market capitalisation of N3.2 trillion. Year to date, the share price of Airtel has grown by 184.98% to a year high of N851.8.
Investors are taking advantage of the dual listing of Airtel to move their funds. A position in Airtel is a good option for some investors to indirectly move their money out of the country because of the dual listing. For Instance if you take position in Airtel with Naira on NSE, when you trade it on London Stock Exchange, you will get Pound Sterling. At that, they have conveniently move their funds out without stress.
BUA CEMENT
The share price of BUA Cement last week touched a new 52 weeks high of N60. Year to date, the share price of the company has grown by 239.49% to N60 from N18.1 at the beginning of the year. On the technical chart, a strong BUY is recommended for BUA Cement by MACD and RSI.
MTN
MTN is among the heavy weight stocks on NSE with market capitalization of N3.26 trillion.
The share price of the telco giant grew by 52.38% to N160 from N105 at the beginning of this year.
MTN is the preferred network as far as communication network in Nigeria is concerned. It always pioneer most of the revolution as far as mobile network is concerned.
They are currently partnering with Netflix. You can stream Netflix on MTN. It is indeed the biggest network as far as communication is concerned in Nigeria and they are consistent in dividend payment.
NESTLE
For about six decades now, Nestle has being the choice companion for families within Nigeria and the diaspora. The company has positioned itself as one of the largest food and beverage companies on the continent.
Year to date, the share price of Nestle grew by 2.39% to N1,505 from N1,469.9 at the beginning of the year.
The company’s strong fundamentals is predominantly govern by its position as a market leader, its years of experience, and its existence in the FMCG sector.
The company’s shareholding structure is another brilliant advantage as it has minor float size and most holding the stock rarely want to sell. This is responsible for how high the stock price soars on the trading floor.
In earnings, the company has consistently proven its rewarding capacity with a timely and periodic dividend payout.
Considering the expansive growth of Nigeria’s population alone, which is projected to reach 300 million by the year 2030, as well as the growing middle class, the FMCG sector has a very positive outlook. Consequently, Nestle’s leadership in the industry and its huge market size expectedly gives it a huge advantage.