- Why You Should Pitch Your Tent with Fundamentally Sound Stocks
Wole Olajide, ACS
The Nigerian stock market in the past few weeks has been trending down, triggered by profit taking. Last week, the down trend persisted as the All-Share Index returned -2.42% week on week. Year to date, the market has retuned 39.64% with the All- Share Index and Market Capitalisation at 143,722.62 points and N91.415 trillion respectively.
The recent bear on the floor of the Nigerian Exchange (NGX) has created another entry opportunities to discerning investors. Prices of several stocks have dropped, opening up more opportunities for bargain hunters.
The improving macro-economic conditions with inflation easing to 16.05%, stable exchange rate and rise in external reserves is a positive signal. At that, the current down trend on NGX is only temporary. We expect the Monetary Policy Committee to further cut down the bench mark interest rate, that is the Monetary Policy Rate (MPR).
Let discuss a few equities that are currently cheap for strategic entry against Q4 2025 earnings season.
AFRICA PRUDENTIAL
Africa Prudential Plc is currently trading at N13.50. In the past 52 weeks, the share price of AFRIPRUD has touched a high of N18.15 from a low of N4.50.
It is trading 25.62% away from its 52 weeks high of N18.15. This implies that position in AFRIPRUD has an uptrend potential of about 26%.
The Company already paid interim dividend of 10 kobo for Half Year 2025. We expect AFRIPRUD to pay a final dividend of at least 60 kobo.
UCAP
United Capital Plc (UCAP) is currently trading at N16.90. In the past one year, the share price has touched a high of N24.60 from a low of N13.15.
It is trading 31.3% away from its 52-week high of N24.60. A position in UCAP has an uptrend potential of about 31%.
UCAP already declared interim dividend of 30 kobo for Half Year 2025. We expect that UCAP will declare a final dividend of 50 kobo for 2025 year end.
ACCESS HOLDINGS
The share price of Access Holdings Plc is currently N20.50. It has touched a high of N28.95 from a low of N19.90 in the past 52 weeks.
It is trading 29.2% away from the 52 weeks high of N28.95. A position in Access Holdings has an uptrend potential of about 29%.
The Financial Institution paid final dividend of N2.05 in 2024-year end. We expect a dividend pay out of nothing less than N2.05; it could be more than that.
ZENITH BANK
Zenith Bank is currently trading at N59.75. In the past 52 weeks, the share price of Zenith Bank has touched a high of N78.50 from a low of N43.
It is trading 23.89% away from its 52-week high of N78.75. A position in Zenith Bank has an uptrend potential of about 24%.
Having paid an interim dividend of N1.25 for Half Year 2025, we expect Zenith Bank to declare final dividend of N4 for 2025-year end and it could be more.
GTCO
The share price of Guaranty Trust Holding Company (GTCO) is currently N84.50. It has touched a high of N103.20 from a low of N51.40 in the past 52 weeks.
It is trading 18.12% away from the its 52 weeks high of N103.20. A position in GTCO has an uptrend potential of about 18%.
GTCO already paid an interim dividend of N1 for Half Year 2025. We expect GTCO to declare final dividend ranging between N4 to N5 for 2025-year end.
FIRST HOLDCO
First Holdco is currently trading at N30.60. It has touched a year high of N37.50 from a low of N23.55.
It is trading 18.40% away from its 52 weeks high of N37.50. A position in First Holdco has an uptrend potential of about 18%.
The Financial Institution paid a final dividend of 60 kobo in 2024-year end. We expect First Holdco to pay final dividend within the range of 60 kobo to N1 for 2025-year end.
NIGERIAN BREWERIES
The share price of Nigerian Breweries is currently N68.50. In the past 52 weeks, the price has touched a high of N79.45 from a low of N27.
It is trading 13.78% away from its 52 weeks high of N79.45. A position in Nigerian Breweries has an uptrend potential of about 14%.
Nigerian Breweries will likely pay dividend for 2025 year end, having scaled through FOREX instability of year 2024.
UBA
United Bank for Africa is currently trading at N36.90. In the past one year, it has touched a high of N50.55 from a low of N30.50.
It is trading 27% away from its 52 weeks high of N50.55. A position in UBA has an uptrend potential of 27%.
We expect UBA to declare a final dividend ranging between N2 and N3. The Bank already paid interim dividend of 25 kobo for half year 2025.
NAHCO
Nigerian Aviation Handling Company (NAHCO) is currently trading at N99.15. In past one year, the share price of NAHCO has touched a high of N124.85 from a low of N36.50.
It is trading 20.58% away from its 52 weeks high of N124.85. A position in NAHCO has an uptrend potential of about 21%.
We expect NAHCO to declare a final dividend of N5.94 for 2025-year end, same as 2024.
FIDSON HEALTHCARE
The share price of Fidson Healthcare Plc is currently trading at N40. In the past 52 weeks, it has touched a high of N47 from a low of N13.9.
It is trading 14.89% away from its 52 weeks high of N47. A position in Fidson Healthcare have an uptrend potential.
We expect Fidson to pay N1 dividend for 2025-year end, same as the previous year.
Why You Should Pitch Your Tent with Fundamentally Sound Stocks
A fundamentally sound stock is one that is considered financially healthy and likely to perform well over the long term, even amid market fluctuations.
To find fundamentally sound stocks, investors must conduct fundamental analysis, a process that examines a company’s financial health, management, and competitive position to determine its intrinsic value.
Fundamental analysis is used to measure the intrinsic value of an equity by examining related economic and financial factors including the balance sheet, strategic initiatives, micro economic indicators, and consumer behavior associated with that firm.
Fundamental analysts study anything that can affect the stocks’ value, from macroeconomic factors such as the state of the economy and industry conditions to micro economic factors like the effectiveness of the company’s management.
So, how does one identify fundamentally sound stocks?
These are few things one must have in mind when you think of stock Fundamentals:
- Quality of the management
When evaluating an equity investment, understanding the quality and skill of a company’s management is key to estimating future success and profitability.
The management of a publicly traded company is in charge of creating value for shareholders and it is normal for management to possess those supreme qualities to run the company in the interest of the owners. Of course, it is unrealistic to believe that management only thinks about the shareholders. Managers are human too and are like anybody else, looking for personal gain. Problems arise when the interests of the managers conflict sharply from the interests of the shareholders.
Looking at the stock price alone, can give false signals. In fact, several great companies all over the world have soaring stock prices despite corrupt and inept management operating behind the scenes. There is no magic formula for evaluating management, but there are factors to which one should pay attention.
While it’s hard for retail investors to meet and truly evaluate managers, you can look at the company’s website and check the resumes of the top guys and the board members.
Insider buying and Stock Buybacks are also good factors to consider. If insiders are buying shares in their own companies, it’s usually because they know something that normal investors do not. Insiders buying stock regularly show investors that managers are willing to put their money where their mouths are. The key here is to pay attention to how long the management holds shares. Flipping shares to make a quick buck is one thing; investing for the long term is another.
Checking the track record of the top management, especially the CEO is very vital too. There are businesses one can enter into just knowing who is behind such business through his or her track records.
- Corporate Governance
Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors and stakeholders.
It is the system of rules, practices and processes by which a company is directed and controlled. Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions.
Good corporate governance ensures that the company has the proper rules, policies and practices to create long-term value for shareholders.
Quality of earnings
Another thing to look at is the company’s earnings. Is the company’s earnings growing or stagnated over a long time and without any improvement? What is the quality of earnings being released?
Current or recent earnings is the fixation of many investors. These are nothing more than snapshots of where a company is, or was, at a given point in time. To see where companies are likely headed, look for earnings momentum; that is, the slowing or acceleration of earnings growth from one period to the next. Look for these patterns by examining earnings reports over the previous eight quarters, and reading analysts’ projections for future earnings. If a company posted its best earnings of the last five years, two years ago, and has been lackluster since, it may be under increasing competitive pressure.
It is said that when a small boy fails an examination, he will come home and say he has lost is report card. But he if came first, before he gets home, he would have already announced that this is my report card. It also depends on how early these companies release their results.
- Price movement
Check the behaviour pattern of the prices of companies you intend to invest in. When the market is bad, all stocks will be affected, but the moment the market becomes good, some stocks are leaders that will herald the rally in the market.
- Product
You need to pay attention to the products of the firm you intend to invest in. For instance, in the cement industry, the company with the largest market share is Dangote Cement, and it will continue to sell as long as there is infrastructural development in Nigeria.
And lastly, fundamentals changes – It doesn’t mean that when you are fundamentally strong today, you are going to be fundamentally strong forever. There are no bad stocks forever and there are no good stocks forever.
When we say fundamentally sound stocks, it does not mean that the one you are taking position in, you are expecting for it to be fundamentally sound forever. You keep reviewing fundamentals from period to period, say 3 months, 6 months, 9 months, 1 year to be sure that they are still fundamentally strong.