Resilient Amid Challenges -NGX
While Nigerians may be facing challenges due to certain economic policies implemented by the Federal Government, the year 2023 has brought considerable positive developments for capital market investors. On Thursday, December 21, 2023, the Nigerian Exchange Limited (NGX) All Share Index (ASI) achieved a historic milestone by surpassing the 74,000 mark for the first time in the market’s history.
This noteworthy accomplishment comes amid a challenging economic landscape that has resulted in the closure of many Small and Medium Enterprises (SMEs) and the departure of multinational corporations from the country.
Throughout the year, the equities market has experienced an unprecedented rally and increased buying interest across various sectors, with particular emphasis on the financial services, consumer goods, and industrial goods sub-sectors.
This surge has prompted significant bargain hunting in shares of large companies, leading to the elevation of key performance indices and fostering increased activities in the market.
The market capitalization demonstrated remarkable growth, surging by N11.734 trillion from N27.915 trillion at the beginning of the year to reach N39.649 trillion as of December 14, 2023.
In his inaugural speech, President Bola Tinubu announced the termination of the petrol subsidy regime, coupled with a directive to the Central Bank of Nigeria (CBN) to liberalize the foreign exchange market. This policy shift notably impacted listed oil companies positively, leading to an increase in their revenue during the first half of 2023. The surge in global demand for fuel also played a significant role in this positive trend.
According to data from the National Bureau of Statistics, the average retail price paid by consumers for petrol in June 2023 stood at N545.83. This marked a substantial increase of 210.32% compared to the N175.89 recorded in June 2022.
Addressing one of the factors that prompted foreign investors to exit the Nigerian market, the Central Bank announced the harmonization of the segments of the currency market. This move led to the floating of the naira, indicating a shift in the foreign exchange landscape.
Research indicates that nine firms incurred losses amounting to N960.18 billion due to the new forex policy during the second quarter. Furthermore, projections suggest that additional losses may be anticipated in the future.
According to the half-year financial reports of several firms, the significant devaluation of the naira, driven by the Central Bank of Nigeria’s attempt to narrow the gap between the official and parallel exchange rates, had adverse effects on their businesses.
Notably, MTN Nigeria Communications Plc, Airtel Africa Plc, Dangote Cement Plc, Dangote Sugar Refinery Plc, Nestle Nigeria Plc, MRS Oil Nigeria Plc, Guinness Nigeria Plc, Nigerian Breweries Plc, and Seplat Energy Plc collectively reported N960.18 billion in foreign exchange losses during the first six months of 2023.
Conversely, banks experienced gains from the foreign exchange situation. In response, the Central Bank issued a directive preventing banks from using the forex revaluation gains in their operations to avoid exacerbating the foreign exchange situation in the country. Despite these measures, the local currency continues to grapple with stability issues.
Amid challenging macroeconomic conditions, some multinationals have announced plans to delist from the capital market and exit Nigeria.
Companies expressing interest in delisting or already delisting from the local bourse include Oando Plc, Glaxo SmithKline Consumer Nigeria Plc, PZ Cussons Nigeria Limited, Union Bank of Nigeria, Capital Hotel, Coronation Insurance, and the latest addition, consumer goods giant Procter & Gamble, which announced the dissolution of its on-ground operations in the country.
During his presentation at the Morgan Stanley Global Consumer and Retail Conference, Andre Schulten, the Chief Financial Officer of the group, cited the challenges of conducting business in Nigeria as a dollar-denominated organization. He attributed Procter & Gamble’s decision to exit Nigeria to the prevailing macroeconomic conditions in the country.
During this period, the Nigerian Exchange Limited (NGX) registered N112.02 billion in new issues listings on its equities market. This included the new listing of VFD Group, which introduced 190.027 million ordinary shares valued at N46.534 billion.
Mike Ezeh, the Chief Executive Officer of Crane Securities Limited, noted that the market experienced increased activity following the emergence of President Bola Tinubu. Market participants were hopeful that his leadership would bring about positive changes in the economy and the implementation of policies conducive to economic growth.
“The elections came and were hitch-free against all unification of the multiple exchange rate, review of monetary and fiscal policies, shake up major changes carried out at the apex bank and its overflow down to the deposit money banks across the country brought stability to the market.
“The commissioning of the first indigenous private refinery which has a cyclical effect on the both upstream and downstream operation of petroleum companies quoted in the market propelled the interplay in the market by some high-net-worth investors on many quoted companies resulting in high turnover in trading volumes of those companies leading to the significant increase in market capitalization within the period,” he said.
By the end of the third quarter of the year, the insurance industry had achieved a gross premium income of N729.1 billion. Projections suggested that it might reach N1 trillion in premium income when the results for the last quarter are finalized.
If this milestone is accomplished, it will be the first time the industry has achieved this feat, coming eight years after it was initially expected to reach the one trillion mark.
In a similar vein, while some companies were delisted from the Nigerian Exchange Limited (NGX), there were also additions to the listings. Notable additions included the VFD Group, the National Infrastructure Debt Fund managed by Chapel Hill Denham, and Mecure Industries, contributing billions of naira to the market capitalization.
Addressing the exits and delisting trends during the last Capital Market Committee meeting for 2023, Lamido Yuguda, the Director General of the Securities and Exchange Commission, remarked that the companies playing a significant role in driving the market were not leaving but rather entering.
This observation suggested a dynamic and evolving landscape with ongoing participation and new entrants influencing market dynamics.
He said, “In the Nigerian market, the companies that are driving the market in terms of market capitalization, they are not exiting, they’re coming in and they’re coming in droves. What we need to do is given the size of the market capitalization, we need to raise it higher. And that was that 50 percent target. That is really what we need, to have more and more of these companies.”
Looking ahead, capital market operators express optimism that the market-friendly reforms implemented by the current administration will start yielding positive results in the new year. There is a particular expectation that these reforms may attract foreign investors back to the country.
Bismarck Rewane, the Managing Director of Financial Derivatives Company Limited, shared his outlook at the Parthian Partners 2024 Economic Outlook event. He projected a decline in inflation, suggesting a potential positive trajectory for economic indicators in the coming year.
He said, “Inflation is likely to drop in 2024 and could go as low as 17 percent in 2025. Once inflation begins to decline, the exchange rate naturally appreciates because the exchange rate pass-through starts slowing down.”
On the investor appetite, Rewane said, “Investors are expected to deepen positions in securities that offer higher yields and companies with quality cash flows and realistic earnings goals.”
Seun Dosunmu, the Head of Research at Parthian Securities, provided insights for investors to anticipate various trends in the market for the upcoming year.
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Some of the expectations included a high-interest rate environment, recapitalization of the banking industry, capital raising by certain listed companies, potential mergers and acquisitions in the banking industry, and a prospective increase in energy capacity, among other factors.
Dosunmu also highlighted potential listings for 2024, which may include Dangote Foods, Dangote Refinery, and the Nigerian National Petroleum Corporation (NNPC). These potential listings indicate significant developments and opportunities within the market for the coming year.
