Economy
Is Nigerian Equities Market Overvalued?
By Afrinvest Research
Given the challenges faced between H2:2014 and Q1:2017, investors constantly punished Nigerian equities, with sell-offs recorded across various sectors of the market.
Consequently, Nigerian equities were undervalued, in comparison to peers, presenting ample opportunities for investors to take advantage of some of the companies, which turned out impressive results despite the economic challenges.
Following the reforms in the FX market which resulted in increased FX liquidity and a restoration of investor confidence, massive gains were recorded in the market in 2017 and this has been sustained into 2018, up 12.2% (12/01/2018).
With the market now at an all-time high in terms of market capitalisation and the NSE All Share Index at a 9-year high, there are justifiable fears of overvaluation of the market which raises concerns with regards to a near term correction.
Our approach is to diagnose and probe into the fundamentals as well as technical merit of the overvaluation hypothesis.
From our analysis, average Trailing P/E and P/BV for the Nigerian equities market in the last one month as at 17/01/2018 stood at 13.1x and 1.7x, which are lower than 15.1x and 2.0x respectively for the MSCI Frontier markets index.
Looking back to the last 2-year bull market run Nigeria experienced between 2012 and 2013, the Nigerian equities market was priced at a premium to frontier markets peers in the late cycle of the run, as shown in the average P/E and P/BV multiples of the MSCI Frontier Markets index of 12.5x and 1.6x in 2013 relative to 13.5x and 2.2x of the Nigerian market in the same period.
This implies that despite the rally in the market in 2017 and early trading in 2018, current undervaluation of the Nigerian market by valuation multiples and the proven historical valuation premium Nigerian market enjoys in period of boom suggest there are more miles to clock in the market rally.
Hence, against the backdrop of improving macroeconomic conditions as well as positive outlook for corporate earnings, we believe there is a compelling case for investors to sustain interest in the Nigerian equities market as already noticed in the YTD return of 17.4% (17/01/2018).
Our Scenario Analysis in 2018
A review of our market forecast for 2017, shows that actual performance outperformed our bull case scenario, in which we projected that a contraction in the spread between the official and parallel market rates, an increase in oil production to about 2.2mb/d, oil prices between $55/b to $60/b and MPR at 14.0% will result in a 15.6% appreciation in the benchmark index.
Actual performance for 2017 (+42.3%) surpassed our forecast as investor confidence was reinvigorated following the reforms in the FX market and resilient earnings. In 2018, we envisage that market performance will be largely determined by the following factors:
- Earnings fundamental of Corporates;
- Stability in the FX market and other macro indicators; and
- Funds flow dynamics to emerging and frontier markets.
Our analysis of market trend over the past 10 years, makes a case for a possible repetition of history.
As noticed in 2012 and 2013, the periods following the global economic crisis, sentiment in the local bourse strengthened which drove the ASI 35.4% and 47.2% northwards in the respective years.
In a similar situation, as the economy rebounded from the slump – 2014 to 2016 – in 2017, we expect market sentiment to wax stronger in 2018.
In our scenario analysis for the market performance in 2018, we employed a blend of relative valuation in which we benchmarked our market valuation against multiples for peers in the MSCI Frontier market index and absolute valuation based on price forecasts for our coverage universe which is about 86.0% of the entire market.
From our analysis, the Nigerian market has outperformed the MSCI index on the basis of EPS, growing at a CAGR of 12.2% between 2010 and 2017 vs. a 2.1% decline for the MSCI index in the same period.
Similarly, on a P/E basis, the Nigerian market has commanded higher pricing over the MSCI index in 6 of the 8 years under review.
Against this backdrop, we carried out scenario analysis for the performance of the All Share Index in 2018.
Our forecast for the performance of the benchmark index in 2018 is largely positive as our scenarios (bear, base, bull) all signal appreciation in the benchmark index.
On a relative valuation basis, we noted earlier that our expectations for corporate earnings in 2018 is largely optimistic on the back of improving conditions in the operating environment; hence, we assumed an EPS of N3,377.4 as our base case scenario which implies a 13.0% increase from a trailing EPS of N2,988.8 in the prior year.
Our EPS projection was based on the 7-year EPS CAGR for the All Share Index to arrive at the forecast.
For our P/E projection, we compared current pricing in the Nigerian markets against peers for which the MSCI Frontier Markets index was employed.
In order to arrive at our p/e forecast of 14.1x in the base case scenario, we analysed historical P/E multiple of the ASI relative to the MSCI Frontier Index P/E and assumed a 1.0x premium in line with historical valuation spread.
This methodology yielded an All Share Index projection of 47,620.71 points in our base case scenario, which suggests a 24.5% appreciation in the year.
On an absolute valuation basis, we have a more conservative forecast for market performance, albeit still positive.
Based on our 12-month target prices from our coverage universe of stocks – about 86.0% of market cap – relative to 2017 yearend prices, we forecast a 5.6% jump in market capitalisation, implying ASI projection of 40,384.81 points.
Finally, to make a call on market performance for 2018, we adopted a blend of both valuation methodologies. Based on the foregoing, we arrived at an ASI projection of 45,811.73 points for 2018 which is a 19.8% appreciation from 38,243.19 points in 2017.
Our bear case (+7.7% to 41,189.9 points) and bull case (+32.7% to 50,749.10 points) also follow the same trend and further buttress the consensus view of positive market performance in 2018.
Whilst we note that developments in the macro space will also determine overall market performance, we opine that barring any major shocks in the FX market, corporate fundamentals will be a key determinant of overall performance.
By Adedapo Adesanya
The United Kingdom via the British High Commission in Abuja has launched two flagship economic reform programmes – the Nigeria Economic Stability & Transformation (NEST) programme and the Nigeria Public Finance Facility (NPFF) -as part of efforts to support Nigeria’s economic reform and growth agenda.
Backed by a £12.4 million UK investment, NEST and NPFF sit at the centre of the UK-Nigeria mutual growth partnership and support Nigeria’s efforts to strengthen macroeconomic stability, improve fiscal resilience, and create a more competitive environment for investment and private-sector growth.
Speaking at the launch, Cynthia Rowe, Head of Development Cooperation at the British High Commission in Abuja, said, “These two programmes sit at the heart of our economic development cooperation with Nigeria. They reflect a shared commitment to strengthening the fundamentals that matter most for our stability, confidence, and long-term growth.”
The launch followed the inaugural meeting of the Joint UK-Nigeria Steering Committee, which endorsed the approach of both programmes and confirmed strong alignment between the UK and Nigeria on priority areas for delivery.
Representing the Government of Nigeria, Special Adviser to the President of Nigeria on Finance and the Economy, Mrs Sanyade Okoli, welcomed the collaboration, touting it as crucial to current, critical reforms.
“We welcome the United Kingdom’s support through these new programmes as a strong demonstration of our shared commitment to Nigeria’s economic stability and long-term prosperity. At a time when we are implementing critical reforms to strengthen fiscal resilience, improve macroeconomic stability, and unlock inclusive growth, this partnership will provide valuable technical support. Together, we are laying the foundation for a more resilient economy that delivers sustainable development and improved livelihoods for all Nigerians.”
On his part, Mr Jonny Baxter, British Deputy High Commissioner in Lagos, highlighted the significance of the programmes within the wider UK-Nigeria mutual growth partnership.
“NEST and NPFF are central to our shared approach to strengthening the foundations that underpin long-term economic prosperity. They sit firmly within the UK-Nigeria mutual growth partnership.”
By Aduragbemi Omiyale
A strategic partnership aimed at accelerating the growth, digital capacity, and sustainability of Nigeria’s 40 million Micro, Small and Medium Enterprises (MSMEs) has been signed by MTN Nigeria and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).
The collaboration will feature joint initiatives focused on digital inclusion, financial access, capacity building, and providing verified information for MSMEs.
With millions of small businesses depending on accurate guidance and easy-to-access support, MTN and SMEDAN say their shared platform will address gaps in communication, misinformation, and access to opportunities.
At the formal signing of the Memorandum of Understanding (MoU) on Thursday, November 27, 2025, in Lagos, the stage was set for the immediate roll-out of tools, content, and resources that will support MSMEs nationwide.
The chief operating officer of MTN Nigeria, Mr Ayham Moussa, reiterated the company’s commitment to supporting Nigeria’s economic development, stating that MSMEs are the lifeline of Nigeria’s economy.
“SMEs are the backbone of the economy and the backbone of employment in Nigeria. We are delighted to power SMEDAN’s platform and provide tools that help MSMEs reach customers, obtain funding, and access wider markets. This collaboration serves both our business and social development objectives,” he stated.
Also, the Chief Enterprise Business Officer of MTN Nigeria, Ms Lynda Saint-Nwafor, described the MoU as a tool to “meet SMEs at the point of their needs,” noting that nano, micro, small, and medium businesses each require different resources to scale.
“Some SMEs need guidance, some need resources; others need opportunities or workforce support. This platform allows them to access whatever they need. We are committed to identifying opportunities across financial inclusion, digital inclusion, and capacity building that help SMEs to scale,” she noted.
Also commenting, the Director General of SMEDAN, Mr Charles Odii, emphasised the significance of the collaboration, noting that the agency cannot meet its mandate without leveraging technology and private-sector expertise.
“We have approximately 40 million MSMEs in Nigeria, and only about 400 SMEDAN staff. We cannot fulfil our mandate without technology, data, and strong partners.
“MTN already has the infrastructure and tools to support MSMEs from payments to identity, hosting, learning, and more. With this partnership, we are confident we can achieve in a short time what would have taken years,” he disclosed.
Mr Odii highlighted that the SMEDAN-MTN collaboration would support businesses across their growth needs, guided by their four-point GROW model – Guidance, Resources, Opportunities, and Workforce Development.
He added that SMEDAN has already created over 100,000 jobs within its two-year administration and expects the partnership to significantly boost job creation, business expansion, and nationwide enterprise modernisation.
By Adedapo Adesanya
The Nigerian Exchange (NGX) Limited is seeking review of the controversial Capital Gains Tax increase, fearing it will chase away foreign investors from the country’s capital market.
Nigeria’s new tax regime, which takes effect from January 1, 2026, represents one of the most significant changes to Nigeria’s tax system in recent years.
Under the new rules, the flat 10 per cent Capital Gains Tax rate has been replaced by progressive income tax rates ranging from zero to 30 per cent, depending on an investor’s overall income or profit level while large corporate investors will see the top rate reduced to 25 per cent as part of a wider corporate tax reform.
The chief executive of NGX, Mr Jude Chiemeka, said in a Bloomberg interview in Kigali, Rwanda that there should be a “removal of the capital gains tax completely, or perhaps deferring it for five years.”
According to him, Nigeria, having a higher Capital Gains Tax, will make investors redirect asset allocation to frontier markets and “countries that have less tax.”
“From a capital flow perspective, we should be concerned because all these international portfolio managers that invest across frontier markets will certainly go to where the cost of investing is not so burdensome,” the CEO said, as per Bloomberg. “That is really the angle one will look at it from.”
Meanwhile, the policy has been defended by the chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr Taiwo Oyedele, who noted that the new tax will make investing in the capital market more attractive by reducing risks, promoting fairness, and simplifying compliance.
He noted that the framework allows investors to deduct legitimate costs such as brokerage fees, regulatory charges, realised capital losses, margin interest, and foreign exchange losses directly tied to investments, thereby ensuring that they are not taxed when operating at a loss.
Mr Oyedele also said the reforms introduced a more inclusive approach to taxation by exempting several categories of investors and transactions.
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