Though Nigeria’s economy grew by 2.74 percent in the fiscal year ended December 31, 2023, with the equities market springing surprises with landmark growth recorded in Year-to-Date returns as well as the All Share Index breaking bounds in January, there are indications that the current realities of the economy is taking its toll on the performance of listed companies on the Nigerian Stock Exchange as Blue-Chip stocks posted less than expected financial results. Investors, therefore, are rebalancing their portfolios, which also has dampened investment activities on the local bourse. BAMIDELE FAMOOFO and FESTUS OKOROMADU report.
The Nigerian capital market, specifically, the Nigerian Exchange Limited, reported exceptional growth in January. At the peak of its performance, the market’s benchmark index, the NGX All-Shares Index crossed the 100,000 mark to hit an all-time high of 101,571.11 basis points on Wednesday, January 24, 2024.
Similarly, the total value of listed equities, simply referred to as market capitalization rose to N55.58 trillion, thus, giving the impression that the local bourse was on a track to creating wealth for investors.
In terms of investment during the period, latest data released by the NGX, transactions on the Exchange rose to a six-month high in January as the total value of transactions during the month grew by 89.5 percent month-on-month to N651.52 billion as against N343.90 billion recorded in December 2023.
A breakdown of investors’ portfolios showed that domestic investors contributed 91.8 percent of the gross transaction for January, translating to 102.2 percent month-on-month as they contributed N598.41 billion up from N296.03 billion in December 2023. The growth according to the report was supported by higher accretions from Retail investors, up by 102.2 percent month-on-month, and Institutional investors up by 53.0 percent month-on-month.
Meanwhile, foreign portfolio investors contributed 8.2 percent of gross transactions for the month which translates to an 11.0 percent increase month-on-month to N53.11 billion when compared with N47.87 billion reported in December 2023.
Interestingly, market analysts and financial experts attributed the boom in the market in January to anticipation of strong corporate earnings from reputable equities with track records of huge dividend payouts.
“The fact that Nestle Nigeria is reporting a huge loss of about $70 million, while MTN Nigeria said it lost N740 billion in the 2023 financial year is enough to scare investors out of the market”
Twist in events
But as the corporate entities began to post results by February the market began to experience turbulent waters as the implications of the nation’s current economic realities showed up in the capital market.
For instance, as against the tradition of positive trades weekly in January, last week the Nigerian capital market encountered a significant downturn, resulting in the ASI declining by 3.27 percent week on week to 98,751.98 points. Thus, in February, the celebrated 100,000 benchmark was lost due to market volatility caused by what market analysts have attributed to weaker-than-expected corporate earnings releases so far.
According to researchers at Cowry Asset Management Limited, “the initiation of the dividend earnings season in the face of the fixed income market’s higher yields outlook, fueled by recent auctions, which contributed to the mildly negative market breadth,” is responsible for the unimpressive performance of the market.
They further attribute the downsizing to the recent rate hike by the monetary policy committee which prompted ongoing portfolio rebalancing among market participants.
Analysis of the market report for last week also revealed that alongside the ASI’s decline, the total market capitalization of listed equities nosedived by 3.27 percent week on week to N54.04 trillion, thus, the N55 trillion market capitalization celebrated in January has been eroded as investors lost over N1 trillion at the close of February.
More detailed analysis shows that the last week of February saw investors losing N1.83 trillion as the year-to-date return of listed equities stood at 32.07 percent at the close of the week. This translates to investors experiencing a collective loss of wealth amounting to N1.83 trillion compared to the previous week.
Experts react
While some market analysts perceived the recent performance as a reflection of the dynamic interplay of market forces amidst evolving economic conditions, others pointed to the unimpressive corporate reports of equities with strong fundamentals posting losses in their 2023 financial year end as one of the most serious challenges.
How do you encourage people to invest in the capital market when stocks like Nestle Nigeria Plc and MTN Nigeria perceived to have strong fundamentals posted losses and as well reporting eroded shareholders’ funds? A market analyst, Benjamin Iwera queried. “The impact of the fiscal pronouncements of the present administration under President Bola Tinubu is beginning to reflect on the capital market,” he stated.
According to him, the fact that Nestle Nigeria is reporting a huge loss of about $70 million, while MTN Nigeria said it lost N740 billion in the 2023 financial year is enough to scare investors out of the market.
“The truth in these results is reflections of the country’s economic realities. To see these companies among others that are yet to release their results record those colossal losses and also wipe off entire shareholder capital, by the losses they incurred, is sad.
“The implication of this sad result is the message it sends to other such global companies about the challenges of doing business in Nigeria. It shows how our business environment is deteriorating continually, thereby discouraging other foreign, and even local investors, from establishing in the country,” he stated.
According to Iwera, investors in the Nigerian capital market will tread cautiously in the short and medium term in response to the recent interest rate decision by the Central Bank of Nigeria monetary policy committee and the uninspiring corporate earnings released thus far.
Announcing the company’s financial performance in 2023, in a notification to the NGX last weekend, MTN Nigeria Chief Executive Officer, Karl Toriola, said, “2023 witnessed a very challenging operating environment characterized by rising inflation, currency devaluation and foreign exchange shortages, complicated by geopolitical disruptions and cash shortages in Q1 arising from a redesign of the naira. These factors created severe headwinds for our customers and our business during the year.”
On the telecommunication giant’s financials, he said, “The significant devaluation of the Naira in 2023 resulted in a materially higher net forex loss of N740.4 billion (2022 restated: N81.8 billion), reflected within net finance costs, which resulted in a reported loss after tax of N137.0 billion compared to a restated PAT of N348.7 billion in 2022.
“This has resulted in negative retained earnings and shareholders’ equity at the end of December 2023 of N208.0 billion and N40.8 billion, respectively. Adjusting for the net forex loss, PAT would have been N344.5 billion (down by 14.3 percent).”
Commenting on MTN Nigeria’s results, capital market analysts at Cordros Securities Limited said the performance came in weaker than we envisaged.
They stated that while there is scope for an improvement in operating performance, “We note that the currency devaluation early in the year douses our expectations of a complete rebound in 2024FY. Thus, we still expect to see weak profitability performance in the year ahead.”
If the perceptions of weak profitability by corporations as well as the prevailing economic situations as reflected in the results are anything to go by, the Nigerian capital market may be in for a challenging time.
“The managers of the economy must understand the place of the capital market in any economy in terms of attracting investment and as a tool for wealth creation. Thus, whatever can be done to encourage productivity, must be done urgently to salvage the market. Dwindling investors’ interest at a time when the CBN is proposing further recapitalization of the nation’s financial institutions portends danger,” Iwera added.
With the recent bearish sentiments in the Nigerian capital market, largely owing to investors booking profits accrued to their equities investments notable in the bullish rally in recent times, investors are poised to reshuffle their portfolio to recoup gains in fixed income market.
With the rising yield in the fixed income market, expectations of unimpressive earnings, and the outcome of the monetary policy meeting, there are expectations that in the coming week, the equities market will further dampen, as analysts advise equities investors to trade cautiously.
At Cordros Capital, analysts anticipated cautious trading in stocks last week due to uncertainty surrounding the Monetary Policy Committee meeting held on February 26 and 27.
“We expect limited bargain-hunting activity in the near term due to prevailing negative sentiments driven by movements in fixed income market yields and uninspiring earnings releases,” Cordros said in its weekly report.
Also, Cowry Asset Research showed anticipation for a continuous bearish sentiment last week as the market sought catalyst and policy direction from economic managers to trigger the positive sentiment.
It said, “However, as we anticipate more corporate releases for the final quarter of 2023, investors will begin to rebalance their portfolio in their search for alpha amidst the rising fixed income yields and outcome of the monetary policy meeting. Meanwhile, we continue to advise investors on taking positions in stocks with sound fundamentals.”
Last week, the Nigerian equities market suffered a loss of approximately N1.988 trillion by the end of the trading week as the domestic bourse encountered significant selling pressure.
The local bourse witnessed a decline of 3.44 percent, with the benchmark index settling at 102,088.30 basis points. This is a decrease from its opening position of 105,722.78 basis points at the beginning of the trading week on Monday.
The All-Share Index, the benchmark index measuring the performance of Nigerian stocks, opened the trading week at 105,722.78 index points on Monday, February 19 and closed at 102,088.30 points at the end of the week on February 23. This represents a loss of 3,634.48 basis points or 3.44 percent.
Further analysis, according to data from the Nigerian Exchange Limited revealed that the market capitalization, which opened the trading week at N57.849 trillion, closed the week at N55.861 trillion, resulting in a week-to-date loss of about N1.988 trillion.
Similarly, all other indices finished lower with the exception of NGX ASem, NGX consumer goods and NGX oil and gas, which appreciated by 11.66 percent, 2.01 percent and 0.01 percent, respectively.
A total turnover of 1.377 billion shares worth N31.584 billion in 42,040 deals was traded during the week by investors on the floor of the exchange, in contrast to a total of 1.559 billion shares valued at N36.497 billion that exchanged hands the previous week in 42,546 deals.
The financial services industry, measured by volume, led the activity chart with 960.519 million shares valued at N16.844 billion traded in 19,669 deals, thus contributing 69.77 percent and 53.33 percent to the total equity turnover volume and value, respectively.
The conglomerates industry followed with 115.241 million shares worth N1.511 billion in 2,859 deals. The third place was the oil and gas industry, with a turnover of 80.866 million shares worth N1.721 billion in 2,726 deals.
Trading in the top three equities namely; Guaranty Trust Holding Company Plc, FBN Holdings Plc and Transnational Corporation Plc, measured by volume, accounted for 343.584 million shares worth N9.431 billion in 5,659 deals, contributing 24.96 percent and 29.86 percent to the total equity turnover volume and value, respectively.
“The Nigeria Exchange Group Plc on Friday released its audited financial result for the year ended December 31, 2023, posting a profit after tax of N5.250 billion amidst economic headwinds”
NGX Group shines
The Nigeria Exchange Group Plc on Friday released its audited financial result for the year ended December 31, 2023, posting a profit after tax of N5.250 billion amidst economic headwinds.
The disclosure was made in the group’s financial report, which was officially released to the Nigerian Exchange Limited and made available to the investing public.
The group’s profit after tax experienced a substantial surge, marking an impressive 788 percent increase from N591.509 million recorded in the previous year of 2022.
Additionally, NGX reported a pre-tax profit of N5.271 billion, indicating a remarkable 636 percent rise compared to the N1716.116 million reported in the fiscal year 2022.
The group’s total income rose to N11.803 billion, representing a 57.39% increase from the N7.499 billion posted in FY 2022.
According to the audited account, the group’s revenue grew by 34.5 percent to N8.299 billion as against N6.170 billion, in 2022. Revenues were driven by an increase in earnings from transaction fees which accounted for N4.818 billion as against N3.157 reported in 2022 representing a growth of 52.6 percent. The segment contributed to 58% of the total revenue of N8.299 billion.
Other sources of revenue include income from investment including Bonds, Treasury bills and fixed deposits which generated a total sum of N2.141 billion an increase of 5.47 percent compared to the N2.030 billion posted in the previous year, 2022. The income from the investment also contributed 25.79 percent of the total revenue achieved by the group.
Similarly, total income for the period rose by 57.99 percent to N11.803 billion from N7.499 billion in the corresponding period.
Interestingly, the group managed to reduce its total expenses as it grew by merely 27.27 percent to N11.370 billion as against N8.934 billion in a similar period in 2022.
The effect of the reduction in expenses was reflected in profit before tax as the figure grew by 636 percent to N5.271 billion from a mere N716.116 million posted the previous year.
Consequently, profit for the year rose by 788 percent to N5.250 billion compared to N591.509 million in 2022. This resulted in enhanced earnings per share which grew by 594.28 percent to N2.43 raising the prospect of improved dividend payment to shareholders.
