Equity trading on the Nigerian Exchange Limited (NGX) concluded the first half of 2024 (January to June) on a positive note, propelled by a marked increase in investor confidence in listed companies.
This outstanding performance signifies a historic achievement for NGX, successfully weathering economic adversities such as soaring inflation, a weakening exchange rate, and persistent security issues.
The prevailing sentiment of optimism prompted noticeable changes in investor purchasing patterns, culminating in the All-Share Index ending the semester at 100,057.49 points.
Furthermore, the year-to-date (YTD) return of the NGX All-Share Index demonstrates its robustness, registering a remarkable 33.81% despite the bearish tendencies seen in the second quarter.
Showing tenacity in the face of adversity, the market adeptly dealt with obstacles like the Central Bank’s interest rate hikes and escalating inflation, underscoring its inherent fortitude.
What you should know
Investment inherently involves risks, and it is crucial to meticulously evaluate these risks prior to making any investment decisions.
Seeking advice from a financial advisor is an important move in making educated investment choices, reaching financial objectives, and securing a stable financial future.
By pinpointing sectors with potential, undertaking comprehensive research, and implementing wise risk management tactics, investors can steer through the prospects that await.
Bear in mind, market knowledge is a potent tool. Harness it to make informed choices and realize your investment possibilities in the forthcoming year.
Investment Outlook
While the outlook for the second half of 2024 appears promising, caution remains crucial. Investors should prioritize the following strategies:
- Fundamentals-Driven Selection: Focus on companies with robust financial performance, strong leadership, and clear growth prospects.
- Portfolio Diversification: Spread investments across various sectors and asset classes to mitigate risk and maximize potential returns.
- Active Portfolio Management: Continuously monitor holdings and adjust positions as market conditions evolve.
Investment analysts’ recommendations: Investment analysts, in discussions with journalists, have identified the banking, oil and gas, agriculture, and telecommunications sectors as prime areas for investment in the latter half of the year.
- They anticipate these sectors will perform well, generating increased revenue and profits, which should lead to a strong return on investment and enhanced dividends for investors.
- They also observed that the current low trading prices of many stocks listed on the Exchange present an attractive opportunity for investors to buy shares and potentially enjoy larger dividends and capital gains.
Following are the stock recommendations for H2 2024, as advised by the investment analysts.
What financial experts are saying
In an interview with Nairmetrics, the Director of Halo Nigeria Capital Management Limited, Mr. Paul Uzum, clarified the essential factors to consider when investing in the Nigerian capital market.
He outlined four key pillars that guide investment decisions: return on investment (capital gains), dividend payout, bonus issues, and capital stability.
Mr. Uzum pointed out that the banking sector’s recapitalization, which includes issuing new shares, is expected to increase the total number of outstanding shares by 50%-100%.
These additional shares will be eligible for the 2024 dividend, which will lead to a decrease in Earnings Per Share (EPS) and a substantial reduction in the dividend per share.
He stressed that due to the high inflation rate, the dividend payout is a critical factor in stock valuation in Nigeria.
He noted that Zenith Bank remains the only banking stock assured to provide investors with at least a 10% dividend yield at the current price, even after issuing new shares.
He also recommended UBA and Access Bank but advised against purchasing GTCO at the current price of N45, citing a low dividend yield of 7.3%. Instead, he suggested waiting to buy GTCO at N37 post-capital raise.
“Due to the high inflation rate in Nigeria, dividend payout is the most crucial factor in pricing stocks. Zenith Bank is the only banking stock that is guaranteed to provide investors with at least a 10% dividend yield at the current price, even after issuing new shares.
After Zenith, I recommend UBA and Access. I do not advise investors to buy GTCO at the current price of N45 because the current dividend yield is 7.3%, which is quite low for the industry. However, if you are patient, you may be able to buy GTCO at N37 after the capital raise,” he said.
Investors are encouraged to closely monitor the forthcoming FBNH rights issue, as Femi Otedola and Oba Otudeko vie for control of the bank.
This rights issue will determine the bank’s future leadership, and there are opportunities for profit from trading the rights.
Uzim believes the stock will see significant movement post-rights issue due to Otedola’s involvement.
“Investors should keep a close watch for the upcoming FBNH rights issue. As Femi Otedola and Oba Otudeko scramble for control of the bank, this rights issue will determine who gains total control.
There is potential to profit from trading the rights, and I believe the stock will move significantly after the rights issue due to the presence of Femi Otedola,” he said.
Beyond the banking sector, Uzim recommended Total, Okomu Oil, and Presco for their strong performance and benefits from the economic policy reforms of Tinubu’s government.
He also advised investors to anticipate MTN reporting significant losses when the H1 2024 numbers are published at the end of July.
Investors can take advantage of this by buying MTN stock at around N180 as the market reacts negatively to the results. A similar strategy is recommended for Nestle, expected to make substantial losses, with a buying opportunity below N800.
Managing Director / CEO. Arthur Stevens Asset Mgt Limited and former CIS President Mr.Tunde Amolegbe speculated that the focus for the second half of the year will be on banking recapitalization, with more banks expected to launch public offerings of shares to existing and prospective shareholders.
He mentioned that Zenith Bank, GTBank, Access Bank, and FCMB are likely preparing for this move.
Beyond banking, Amolegbe highlighted sectors or companies with significant foreign exchange revenues, such as agriculture and oil and gas, as likely outperformers.
He also noted the potential for growth in the telecom sector, driven by possible price realignments.
“Aside from banking obviously sectors or companies with significant fx revenues such as agriculture and oil and gas are likely to outperform
I also feel like the telecom sector still has significant room for growth given the potential for price realignments,” he said.
In particular, Amolegbe expressed personal interest in TotalEnergies, Presco, MTN, and Seplat due to their strong growth prospects.
David Adonri of Highcap advised investors to focus on the banking industry, petroleum, and agriculture sectors.
He stated that all listed banks are good stocks to buy following the recapitalization exercise.
In the petroleum sector, he picked Total Energies Plc, and in the agricultural sector, he recommended Okomu Oil Plc and Presco Plc.
Group Managing Director of Crane Securities Limited, Mr. Mike Eze stressing the importance of understanding individual investment goals, cautioned against solely chasing high-priced equities.
- He emphasized: “If your objective is capital gain, focus on stocks with growth potential and undervalued fundamentals, not simply high prices.”
- “If an equity is high in price, there is no need to invest in it because it will not yield expected capital gain.
- If your major reason for investing in the capital market is the return on investment, you don’t need to invest in stocks that have high prices, you have to look for equities that have a propensity for capital gains.
- You need to look for those equities that their prices are low and have good fundamentals and move in”.
Eze further differentiated strategies for capital gains and income-oriented investors.
- He noted: “Dividend payouts and bonus issues often require a patient investment horizon, whereas capital gains can potentially be realized sooner.”
- If you are investing for dividend and bonus issues, you have to wait for a long period because those benefits don’t come in immediately,” he said.
Eze listed stocks like Zenith Bank, Fidelity Bank, Access Bank, MTNN Plc, Total Energies Plc, Seplat Energies Plc, Okumo, and Presco as good stocks to buy at the beginning of the second half of the year 2024.
According to him, the reason is that the stocks are still very attractive and still have the propensity to go higher in price which will enable investors to have a good capital gain.
