The market last week significantly established its recovery moves triggered by the decision of the Monetary Policy Committee of the Central Bank to retain the key lending rates. Coupled with impressive audited reports and dividend declarations by quoted firms alongside favorable outcome of the MPC meeting, the market has charted a new course towards the positive direction. Week to date, the market returned 2.17% as against the negative return of 0.69% the previous week.
As investors anticipate the audited reports of other quoted firms alongside their corporate actions, share prices of fundamentally sound stocks are beginning to move upward. It appears the bulls are gathering momentum to stay longer on the floor of the Nigerian Stock Exchange.
Commenting on the current state of the market, the Managing Director of APT Securities and Funds Limited, Mallam Garba Kurfi stated thus:
“We have seen the market gradually bouncing back because of the policy of the CBN to retain all the parameters as regards lending rates. This means that if you choose to invest in the money market, you will end up with a negative return because the inflation is already above 17%. So why should you go and buy Treasury bill that is less than 2%. Most of the Commercial Paper and Bond are trading below double digit. If you invest in any of them, by the end of the year, you are in a loss because the inflation is already above 17%. What it means is that, if you cannot invest to earn better than inflation, you are likely going to be worse by the margin between what is your return and the inflation. If you look at it, for the last 35 months, inflation keep on rising. Meaning that it has not yet stop and it’s not likely going to stop, especially in view of the fact that the major component of the inflation is the cost of food and fuel.
If you look at the cost of food, we are far away from harvesting period; we are in the planting period, so the prices of the food will continue to rise in the next four to five months until there is plenty matured harvest; at that we are talking of July/August.
“Apart from the fact that inflation keep rising, the price of (PMS) petrol is another issue. The government said they are subsidizing. The reason why they have not deregulated PMS is best known to them. Because they have deregulated kerosene, diesel, aviation fuel and gas. When you look at all the components of petroleum, they have been deregulated. Why PMS is not regulated is best known to them and now they are crying foul that they cannot continue to subsidize. So that will increase their cost of transportation and invariably will affect all other sectors. Therefore the inflation is likely to be worse off”.
“So in view of these, the serious investor is looking for where he can keep his investment, and today the equity market tends to be better. You have seen what Stanbic IBTC declared, about N4 dividend. Zenith and Guaranty Trust Bank declared N3 dividend each. For Zenith trading at N22 and you get N3, that is about 14% dividend yield apart from the capital appreciation. So we could say that most investors will prefer to invest in the equity market rather than the money market”.
“Audited results of quoted companies have been impressive. For instance, Lafarge (Wapco), almost increased their profit before tax and profit after tax by 100%. Also UACN, Flour Mills and Dangote Sugar show tremendous improvement. If you are aware that the price of Cement is already trading around N3,500 from N2,400. This means more revenue to the cement industry. So people still like investing in the capital market rather than in the money market. This is the direction of the market as we speak.
I am very confident that by the end of the first quarter, all things being equal, the market will break even. The negative All Share Index is likely going to be written off. In the second quarter, we are expecting growth. Generally most Q2 do not give negative return. Year in year out, most second quarter turn a better chance. So in view of this, we are seeing that the capital market looks brighter and better”.
What should investors do?
“Investors should take position in stocks that have good fundamentals. Most of the stocks that have fundamentals, even if they pay lower dividend, they don’t go down. Dangote Cement maintained last year’s dividend of N16, but did not go down. Lafarge maintained the dividend they declared last year, they did not go down. UBA has gone down in its dividend pay-out, yet there price is stable. The beauty of it is that many other stocks have not declared there audited results. So we can say it’s only very few that have released their result, majority are yet to release their result. We are yet to receive the audited results of BUA Cement, First Bank, Access Bank and many other stocks including Glaxo, Fidson among others. This therefore gives confidence to investors that there is hope in the equity market”.