The Nigerian Stock Exchange outperformed others in Africa in 2013 posting 44.6 per cent return on investment, which experts say is a reflection of the growth of the economy. But are the returns sustainable?
Since the Nigerian stock market witnessed a near crash in 2009, several investors have been sitting on the fence. However, with the recent efforts of the Nigeria Stock Exchange, NSE, and Securities and Exchange Commission, SEC, the market has witnessed a turnaround with return on investment, ROI, at 47.2 per cent, while its Kenyan counterpart posted 43.7 per cent returns and the Johannesburg Stock Exchange, JSE, recording a loss of 9.3 per cent.
While the Nigerian stock market recorded an average trade volume of $106.8 million per week, JSE and Nairobi stock exchange recorded an average of $3.49 million and $37.1 million respectively last year.
Indeed, investors in the Nigerian stock market smiled to the bank in 2013, raking in over 1,000 per cent returns on their investments. For instance, in the oil and gas sub-sector, Forte Oil was a hot stock in 2013. From a share value of N7.73 as at January 02, 2013, the price progressively moved to N97.75 by the end of trading in 2013. That represents 1,164 per cent increase and it was a juicy return for the investors. Conoil was next with a 231.3 per cent return with its shares rising from N20.50 to N67.93 over the same period. In the consumer goods, Champion Brewery appreciated by 383 per cent. Similarly, the shares of Evans Medical in the health care sub-sector rose by 364 per cent and Transcorp by 313 per cent. A survey of 20 stocks indicated that an average growth of 47 per cent.
Aside from the efforts of these companies, some enlightenment programmes introduced by the regulators of the market contributed to the rising value of the stocks. As part of its financial literacy initiative in 2013, the NSE organised about 287 workshops for retail investors across the country to educate them and enhance their potential to save, invest and build wealth, while managing risk. The NSE also increased the level of compliance and integrity in the market when it launched X-Issuer, the first-ever electronic issuers portal in the history of the Nigerian capital market. The electronic platform increased the speed with which market operators submit their financials and other relevant materials to the stock exchange from the comfort of their offices or homes. To safeguard investors’ interest, the exchange also signed a memorandum of understanding, MoU, with the Economic and Financial Crimes Commission, EFCC, to police the stock market through enhanced information sharing and capacity building between both organisations.
Shehu Mikail, national president, Constant Shareholders Association of Nigeria, applauded the efforts of the NSE, describing it as a welcome development. According to him, the N105 million made from fines imposed on listed companies and stockbroking firms by the exchange for breaching its rules and regulations in 2013 would make other market operators to sit tight and avoid infractions. While quoted companies paid N61.2 million as penalties, stockbroking firms paid N43.5 million for offences ranging from late filing of results and returns, non-disclosure of information and unauthorised publication of information among others. He says: “This is an indication that the market is becoming more transparent.”
This development triggered the capital inflow and the portfolio investments of local investors. The magazine found that local investors accounted for 49.06 per cent of the N1.908 trillion recorded as the total transaction value in 2013 while their foreign counterparts accounted for 50.94 per cent of the transactions. This indicates that local investors are challenging their foreign counterparts, who have dominated the market for years. Oscar Onyema, chief executive officer, NSE, could not agree less, noting that the recent recovery witnessed in the market was driven principally by restored confidence of the investors. He acknowledged that the influx of the investors was due to various investors’ education held in 2013. “We went to them and explained the new policies we are putting in place and what we are doing and they came back because they understand the dynamics of the market. We cannot afford to focus on the foreign investors and leave out local retail investors and vice versa. There should be a balance between the two,” he disclosed.
These sterling performances rubbed off on the major indicators of the market with capitalisation rising from N8.97 trillion as at the end of 2012 to N13.2 trillion by end of 2013, representing 47.2 per cent increase. With the level of the growth of the capitalisation, it implies that the worth of portfolio of both local and foreign investors grew by N4.25 trillion and that indicates that the market had exceeded the expectations of stakeholders. Ryan Hoover, an investment analyst, had predicted that Ghana, Zambia and Ivory Coast would attract more investments and top African stock markets last year. But was proved him wrong. “I was a bit too enthusiastic about Zambia and Namibia and I didn’t anticipate the Nigerian stock market’s tremendous performance,” he told the magazine.
One of the key contributors to the upward movement of both share prices and major indicators is the good results declared by companies in the oil and gas sector, bank and manufacturers of fast moving consumer goods, FMCG, among other sectors. For instance, Forte Oil did not disappoint its stakeholders when it submitted its financials to the NSE in 2013. The indigenous integrated energy solutions provider’s profit after tax, PAT, rose from N1.01 billion in 2012 to N5 billion in 2013, a 397 per cent increase. Conoil rewarded its investors with another impressive result for the third quarter of 2013. According to its 2013 unaudited report, its PAT rose from N487.2 million in 2012 to N2.09 billion, a 329 per cent increase. The PAT of Transcorp grew by an unprecedented 130 per cent.
However, there are concerns whether the high return on investment is sustainable in the long run. Since the turn of the New Year, shareholders of some stocks like First Bank of Nigeria Holding, FBNH, Access Bank, Fidelity Bank and Unilever among others have been witnessing a steady decline. The shares of FBNH fell from N16.50 at the end of December 2013 to N14.50 by February 05, 2014, which is about 12 per cent decrease. Shareholders of Access Bank, Fidelity and Unilever have also been agonising over their investments, which recorded decreases of 10, 13 and 11 per cent respectively. Kehinde Ajayeoba, a laboratory scientist is one of the investors in this category. “I don’t think the rebound is sustainable because the market capitalisation has dropped by about three per cent in two months,” she said.
The unfriendly business environment in the country, considered unfavourable to most entrepreneurs has also heightened the anxiety of investors. But the management of some of the blue-chip companies have assured that despite the unfriendly environment, they would continue to put in good performances that would result in fantastic returns for investors. For instance, Forte Oil’s management has subscribed to the business solutions of SAP, a world-class business solution provider. “The solution aids our operations, financial systems and human capital management. Integrating business operations and financial management processes is best practice for any forward-looking business and the new solution allows us achieve this process of modernisation,” Femi Otedola, its chairman, explained. Like Transcorp, the company also acquired a 414 megawatts power plant from the federal government, a move the management believes will generate more revenue for the company and help triple its profits in 2014.
A combination of fresh investments and re-engineering of business process by the new management of Jos International Breweries, JIB, pushed the value of its shares upward. John Mankilik, chairman of the board, is now seeking a N2 billion credit from the Bank of Industry, BoI, to complete the transformation of the company.
Experts are optimistic that the fundamentals of the market will continue to be strong. Atiku Kafaru, managing director, Camry Securities, argues that the rebound has come to stay and there should be no cause for worry. He explained that it is a normal trend for share prices to go up and down and that will not have a major impact on the market because he beliefs what controls demand and supply in the market is liquidity and investors’ confidence adding that “the investors we have in the market now are different from the ones that came in as a result of the boom recorded in 2008.” Rather than expecting further slide, Kafaru urged Ajayeoba and others to invest more in the market and expect the value of their shares to rise further by the end of the first quarter.
Benjamin Akande, dean, Webster University, St. Louis, United States, US, said the growth witnessed in the capital market last year was driven by visible potential. He assures: “The stock market would be a measure of the perception of the Nigerian economy and I am set to mobilise Nigerians in diaspora to come home to take their own piece of the cake (ROI).”
Besides the activities in the capital market, there are also some economic developments that are encouraging investment. According to recent figures, the gross domestic product, GDP, expanded by 7.67 per cent in the fourth quarter of 2013 over the same period in 2012. Sola Owoeye, an economist is optimistic that the outlook for the Nigerian economy remains promising with the likelihood of higher growth, lower inflation and wealth accumulation in 2014. “The projected expansion of Nigeria’s economy continues to be driven by agriculture and should increasingly be impacted by the newly reformed power sector,” he told the magazine.
Assuring investors of greener pastures in 2014 and beyond, Onyema is hopeful that in line with the federal government’s reform, the stock exchange would achieve greater strides in its objective to support the development of the real sector. The strategic objectives of the NSE are to increase the number of new listings across sectors, operate a fair and orderly market based on just and equitable principles and champions the development of enabling laws and policies to drive capital market development. “We believe these steps are critical to the exchange becoming the foremost securities exchange on the continent,” he assured.
If this trend is sustained and the NSE’s objectives are achieved, local investors should prepare for even better times as the bourse. “If everything goes on like this, ROI in this market will be higher than that of the New York Stock Exchange. Anybody that is not investing in this market now is loosing money,” Akande told the magazine.