Posted By: Taofik Salako
Equities’ investors at the stock market are smiling to the bank as they netted more than N2.2 trillion gains in the first half of the year.
Most quoted equities closed the first half at the weekend at their four-year best performance with double-digit returns ahead of inflation. Most investors saw their portfolios rising by almost a quarter, while others garnered more than double the average benchmark.
The six-month average year-to-date return at the weekend stood at 23.23 per cent, almost seven percentage points ahead of the current inflation rate of 16.25 per cent. In monetary terms, the year-to-date gain stood at N2.2 trillion, underlining the fact that the appreciation in market value was driven by share price increases rather than new listings.
Aggregate market value of all quoted equities on the Nigerian Stock Exchange (NSE) closed the first half at N11.452 trillion as against 2017’s opening value of N9.247 trillion, representing net capital gain of N2.205 trillion or 23.85 per cent.
The All Share Index (ASI)-the benchmark index that doubles as sovereign equities index for Nigeria, crossed seven levels to close at 33,117.48 points in the review period, compared with its year’s opening index of 26,874.62 points, representing an increase of 23.23 per cent.
The rebound in the first half, driven largely by gains recorded in the second quarter, represents a major recovery for hard-pressed investors, who had lost N3.98 trillion in the past three years.
The stock market had been on a losing streak since 2014. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015. Against the expectation that political transition and new government will quicken a rebound, equities closed 2016 with a net capital loss of N604 billion.
Aggregate market value of all quoted equities on the NSE closed 2016 at N9.247 trillion, as against N13.226 trillion recorded at the start of trading in 2014, representing a net capital loss of N3.98 trillion.
Managing Director, Cowry Asset Management Limited, Johnson Chukwu, said the recovery was a response to positive changes in the polity, noting that the stock market performance usually aligns with macroeconomic outlook.
He said the market had remained depressed in the first quarter under poor liquidity, amidst uncertain and unrealistic foreign exchange management.But the market turned round in the second quarter, he pointed out, with the changes in the foreign exchange management and improvement in macroeconomic coordination.
Chukwu said the market recovery was boosted by the introduction of the Investors’ and Exporters’ foreign exchange window, as well as the narrowing of the exchange rates between official and parallel rates due to policy stimulation by the Central Bank of Nigeria (CBN).
He said the improvement in foreign exchange market and overall macroeconomic performance encouraged foreign portfolio investors to redirect funds to Nigerian equities, thereby supporting the domestic investors’ base.
He added that the ongoing revision of the investment guidelines for pension funds administrators (PFAs), which includes mandatory investment off a certain percentage of pension funds in equities, also encouraged many PFAs to take early positions in equities ahead of the release of the final guidelines.
GTI Capital Chief Operating Officer, Kehinde Hassan, said the market was primed for recovery by the steep declines in previous years and substantial undervaluation of several equities, pointing out that the steady corporate earnings in the previous year and first quarter of this year boosted investors’enthusiasm as companies majorly have shown resilience in the face of the tough operating environment.
He said with global projections indicating positive outlook for the economy and the prospects that corporate earnings may remain steady, investors viewed the undervaluation of quoted equities as incentive.
Banking stocks have been major drivers of the rally after first quarter earnings showed a largely positive performance. The Deposit Money Banks (DMBs), reported pre-tax profit of about N234 billion on gross earnings of N1.07 trillion in the first quarter of this year.
Key extracts of the interim report and accounts of banks for the three-month period ended March 31, 2017, indicated that total assets rose to N35.3 trillion by the end of the review period, driven largely by profit accretion as all tracked banks posted profit during the period. Gross earnings totalled N1.072 trillion, driven mostly by growth in core banking operations. Profit before tax stood at N233.66 billion while profit after tax stood at N196.7 billion.
About 80 per cent of tracked banks recorded higher pre and post tax profits compared with the corresponding period of the previous year while nearly all banks reported growths in top-line earnings. Average gross earnings for the industry in the first quarter stood at N71.47 billion while average profit before tax stood at N15.57 billion. After taxes, average net profit stood at N13.11 billion on the back of average total assets of N2.35 trillion.
The Nation had tracked the results of all quoted banks on the Nigerian Stock Exchange (NSE), with the exception of the troubled Skye Bank, which has not submitted both the audited report for 2016 and first quarter result for 2017. The report of Skye Bank will not lead to any material change in the overall figures for the sector. There are altogether 16 banks quoted on the NSE including Guaranty Trust Bank, Zenith Bank, Access Bank, United Bank for Africa, FBN Holdings, FCMB Group, Ecobank Transnational Incorporated, Stanbic IBTC Holdings, Unity Bank, Sterling Bank, Fidelity Bank, Union Bank of Nigeria, Wema Bank, Diamond Bank, Jaiz Bank and Skye Bank.
Banks’ chiefs said they were optimistic of continuing growths in the remaining period of the year, citing expected improvement in the macroeconomic environment.
“We remain positive that economic activities will improve as the economy is beginning to show signs of positive outlook due to an increase in the supply of foreign exchange to both retail and corporate users and decreasing headline inflation,” Stanbic IBTC Holdings Chief Executive, Mr. Yinka Sanni, said.
Sterling Bank Managing Director, Mr. Yemi Adeola, said the first quarter of this year’s performance was in line with expectations, noting that the bank would continue to explore innovative ways to improve revenue, while simultaneously enhancing the overall efficiency of its business operations.
“We remain committed to maximising shareholders’ value and delivering superior and sustainable return, guided by our founding values of hard work, discipline and integrity,” Managing Director, Guaranty Trust Bank, Mr Segun Agbaje, said.
Group Managing Director, United Bank for Africa UBA), Mr. Kennedy Uzoka, said the performance in the first quarter strengthens the group’s optimism on economic and business recovery in Nigeria and many of its markets across Africa