Economy
Is Equity Market Rally Sustainable?
The performance of the Nigerian equity market as measured by The Nigerian Stock Exchange All Share Index (NSE ASI) has been impressive since the beginning of the year 2017.
As at the close of trading on July 27, 2017, the NSE ASI had appreciated by 38.59 percent Year-to-Date (YTD).
A review of the performance of 15 major equity market indices in other countries shows that the NSE ASI recorded the best performance of 37 percent as at July 26, 2017, closely followed by GSE All Share Index (Ghana) at 34 percent.
The International Monetary Fund (IMF) in its World Economic Outlook (WEO) Update July 2017 edition, states that equity prices in advanced economies remain strong, and are showing continued market confidence about company earnings.
It notes that markets are also optimistic about emerging market prospects as reflected in strengthening equity markets and some further compression of interest rate spreads.
It however cautions that oil exporters provide an exception to this pattern, because of the dwindling oil prices since March 2017.
The big question in the minds of investors and equity market analysts is if the strong growth in the equity market since April 2017 is sustainable or if there is a bubble waiting to burst.
Our review of the Price to Earnings (P/E) multiples of the top 10 most capitalised stocks on The Nigerian Stock Exchange (NSE) as at July 27, 2017 shows that the companies traded at higher P/E multiples in July 2017 than in July 2016 and in July 2015.
The average P/E multiple for the companies increased from 11.46x in July 2015 to 12.25x in July 2016 and to 27.06x July 27, 2017.
Nestle recorded the highest P/E multiple of 78.87x in July 2017 and 34.91x in July 2015 while Nigerian Breweries recorded the highest P/E multiple in 2016 at 30.7x.
Although a high P/E multiple may indicate that investors believe in the future earnings growth of the company, the current trend in the market shows that stocks are trading far higher than the historical level and a possible correction may be imminent.
The monthly analysis of the NSE ASI shows that the equity market rally started in April 2017. The equity market appreciated between April and July 27, 2017 by 45 percent while it depreciated by 4.15 percent between December 2016 and April 2017.
The equity market followed similar trend between April and June in 2016 and 2017. The equity market recorded negative performance both in January and February 2017 at 3.12 percent and 2.72 percent respectively, with investors’ outlook that 2017 might be another bad year for equity market investment.
However, the fortune of the market changed in March 2017 with a month on month appreciation of 0.74 percent, April 0.95 percent, May 15 percent, June 12 percent, and 12 percent as at July 27, 2017.
YTD, the top gainers in the equity market as at July 27, 2017 are: May & Baker 245.74 percent; Fidson Healthcare 172.66 percent; Stanbic IBTC Holdings 150.00 percent; UBA 124.44 percent; Beta Glass 99.01 percent; Cement Company of Northern Nigeria 94 percent; Airline Services 91.20 percent; Okomu Oil 85.24 percent; FBN Holdings 78.21 percent; and Presco 77.06 percent.
Some notable factors that are responsible for the market rally are: improved business and consumers’ confidence in the economy, consistent improvement in the Purchasing Managers’ Index (PMI), stability in the foreign exchange market leading to the inflow of foreign investors, particularly with the establishment of the Investors and Exporters’ Foreign Exchange Window and the prospect of improvement in corporate earnings.
While we note that the improvement in the macroeconomic environment in the last few months has sustained the rally in the equity market, we think profit taking is imminent on a few stocks that have recorded strong appreciation in their share prices.
By Modupe Gbadeyanka
The federal government, the 36 states of the federation and the 774 local government areas have received N1.727 trillion from the Federal Accounts Allocation Committee (FAAC) for December 2024.
The funds were disbursed to the three tiers of government from the revenue generated by the nation in November 2024.
At the December meeting of FAAC held in Abuja, it was stated that the amount distributed comprised distributable statutory revenue of N455.354 billion, distributable Value Added Tax (VAT) revenue of N585.700 billion, Electronic Money Transfer Levy (EMTL) revenue of N15.046 billion and Exchange Difference revenue of N671.392 billion.
According to a statement signed on Friday by the Director of Press and Public Relations for FAAC, Mr Bawa Mokwa, the money generated last month was about N3.143 trillion, with N103.307 billion used for cost of collection and N1.312 trillion for transfers, interventions and refunds.
It was disclosed that gross statutory revenue of N1.827 trillion was received compared with the N1.336 trillion recorded a month earlier.
The statement said gross revenue of N628.972 billion was available from VAT versus N668.291 billion in the preceding month.
The organisation stated that last month, oil and gas royalty and CET levies recorded significant increases, while excise duty, VAT, import duty, Petroleum Profit Tax (PPT), Companies Income Tax (CIT) and EMTL decreased considerably.
As for the sharing, FAAC disclosed that from the N1.727 trillion, the central government got N581.856 billion, the states received N549.792 billion, the councils took N402.553 billion, while the benefiting states got N193.291 billion as 13 per cent derivation revenue.
From the N585.700 billion VAT earnings, the national government got N87.855 billion, the states received N292.850 billion and the local councils were given N204.995 billion.
Also, from the N455.354 billion distributable statutory revenue, the federal government was given N175.690 billion, the states got N89.113 billion, the local governments had N68.702 billion, and the benefiting states received N121.849 billion as 13 per cent derivation revenue.
In addition, from the N15.046 billion EMTL revenue, FAAC shared N2.257 billion to the federal government, disbursed N7.523 billion to the states and transferred N5.266 billion to the local councils.
Further, from the N671.392 billion Exchange Difference earnings, it gave central government N316.054 billion, the states N160.306 billion, the local government areas N123.590 billion, and the oil-producing states N71.442 billion as 13 per cent derivation revenue.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.65 per cent gain on Friday, December 13, boosted by three equities admitted on the trading platform.
On the last trading session of the week, Okitipupa Plc appreciated by N2.70 to settle at N29.74 per share versus Thursday’s closing price of N27.04 per share, FrieslandCampina Wamco Nigeria Plc added N2.49 to end the session at N42.85 per unit compared with the previous day’s N40.36 per unit, and Afriland Properties Plc gained 50 Kobo to close at N16.30 per share, in contrast to the preceding session’s N15.80 per share.
Consequently, the market capitalisation added N6.89 billion to settle at N1.062 trillion compared with the preceding day’s N1.055 trillion and the NASD Unlisted Security Index (NSI) gained 19.66 points to wrap the session at 3,032.16 points compared with 3,012.50 points recorded in the previous session.
Yesterday, the volume of securities traded by investors increased by 171.6 per cent to 1.2 million units from the 447,905 units recorded a day earlier, but the value of shares traded by the market participants declined by 19.3 per cent to N2.4 million from the N3.02 million achieved a day earlier, and the number of deals went down by 14.3 per cent to 18 deals from 21 deals.
At the close of business, Geo-Fluids Plc was the most active stock by volume on a year-to-date basis with a turnover of 1.7 billion units worth N3.9 billion, followed by Okitipupa Plc with the sale of 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.3 million units sold for N5.3 million.
In the same vein, Aradel Holdings Plc remained the most active stock by value on a year-to-date basis with the sale of 108.7 million units for N89.2 billion, trailed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with a turnover of 297.3 million units worth N5.3 billion.
By Adedapo Adesanya
The Naira appreciated further against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by N1.50 or 0.09 per cent to close at N1,533.00/$1 on Friday, December 13 versus the N1,534.50/$1 it was transacted on Thursday.
The local currency has continued to benefit from the Electronic Foreign Exchange Matching System (EFEMS) introduced by the Central Bank of Nigeria (CBN) this month.
The implementation of the forex system comes with diverse implications for all segments of the financial markets that deal with FX, including the rebound in the value of the Naira across markets.
The system instantly reflects data on all FX transactions conducted in the interbank market and approved by the CBN.
Market analysts say the publication of real-time prices and buy-sell orders data from this system has lent support to the Naira in the official market and tackled speculation.
In the official market yesterday, the domestic currency improved its value against the Pound Sterling by N12.58 to wrap the session at N1,942.19/£1 compared with the previous day’s N1,954.77/£1 and against the Euro, it gained N2.44 to close at N1,612.85/€1 versus Thursday’s closing price of N1,610.41/€1.
At the black market, the Nigerian Naira appreciated against the greenback on Friday by N30 to sell for N1,650/$1 compared with the preceding session’s value of N1,680/$1.
Meanwhile, the cryptocurrency market was largely positive as investors banked on recent signals, including fresh support from US President-elect, Mr Donald Trump, as well as interest rate cuts by the European Central Bank (ECB).
Ripple (XRP) added 7.3 per cent to sell at $2.49, Binance Coin (BNB) rose by 3.5 per cent to $728.28, Cardano (ADA) expanded by 2.4 per cent to trade at $1.11, Litecoin (LTC) increased by 2.3 per cent to $122.56, Bitcoin (BTC) gained 1.9 per cent to settle at $101,766.17, Dogecoin (DOGE) jumped by 1.2 per cent to $0.4064, Solana (SOL) soared by 0.7 per cent to $226.15 and Ethereum (ETH) advanced by 0.6 per cent to $3,925.35, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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