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Nigeria’s cheaper-than-Ghana equities lure investors

By on April 29, 2014

The nation’s equities are rebounding from the worst selloff in more than two years as valuations cheaper than South Africa, Kenya and Ghana lure investors from Investec Plc to Renaissance Asset Management.

According to a Bloomberg report, the Nigerian Stock Exchange All-Share Index has gained 5.1 per cent since sinking 10 per cent in the first 11 weeks of the year, part of the worst quarterly drop since 2011.

The Nigerian gauge is trading at 11 times future earnings, compared with 15 for South Africa’s FTSE/JSE Africa All-Share Index and Ghana’s equities benchmark and 12 times for the Nairobi Securities Exchange All-Share Index.

The nation’s stocks are trading at their biggest discount to their Kenyan peers in a month after falling to the cheapest levels in almost 14 months against South African securities on March 31.

Stock investors are returning to nation’s economy after the Central Bank of Nigeria spent the most external reserves in the foreign-exchange market since 2010 this year to shore up the naira, quelling speculation that they would let it keep tumbling from a record low reached in late February.

The suspension that month of CBN Governor, Mr. Lamido Sanusi, had jolted investors, sparking the currency selloff and turning Nigeria into Africa’s worst-performing stock market after Zimbabwe.

“Nigeria is our top pick at present,” Sven Richter, who oversees about $260m as the Johannesburg-based Managing Director of frontier markets at Renaissance Asset Management, said in an e-mailed response to questions April 17.

“We’ve seen some price decreases together with earnings results that were positive that has reduced valuation to attractive levels.”

Asset & Resource Management Company, which manages $2.6bn, sees value after the selloff in cement companies including Dangote Cement Plc and Lafarge Cement WAPCO Nigeria Plc because of the country’s need for infrastructure, according to Adewale Okunrinboye, an analyst at the Lagos-based firm.

Exotix Limited recommends buying shares from lenders including Zenith Bank Plc, Access Bank Plc and United Bank for Africa Plc because of their low valuation and growth potential, Kato Mukuru, an analyst at Exotix Frontier Equities, said in an e-mailed note to clients on March 24.

“Now is the time to have a strong bias toward Nigerian banks,” Mukuru said. “Nigeria also offers something that few sub-Saharan African banking systems can hope to offer-scale.”

Nigerian and Kenyan banks also continue to look attractive to Renaissance Asset Management, Richter said, without being more specific.

The selloff deepened as Sanusi was suspended after he alleged that billions of dollars in oil revenue were unaccounted for.

President Goodluck Jonathan said he removed Sanusi for “financial recklessness and misconduct,” actions that the ex-central banker denies. Jonathan announced a probe into the nation’s oil funds at the end of February.

The CBN sought to curb speculation that it would change the exchange-rate peg for the naira, with incoming Governor Godwin Emefiele saying such a move would be “devastating.”

The bank targets a range for the naira three percentage points above or below N155 per dollar at its twice-weekly currency auctions. It last moved the peg in November 2011, shifting it from a previous 150 per dollar.

While investors were “disappointed” with Sanusi’s suspension, the declines have created a cheap entry point for stock buyers, said Joseph Rohm, who helps manage $2bn of Investec Asset Management’s Africa funds.

“When stocks sell off that’s when we typically take advantage of more attractive valuations,” he said by phone from Cape Town, declining to comment on what he’s bought. “If we see a devaluation it’s likely to be quite measured and contained.”

Growing demand for dollars in the N80tn ($497bn) economy pushed the naira down 2.7 per cent in 2013, the fifth annual drop in six years.

The central bank has kept its key policy rate at 12 per cent since October 2011 while increasing the amount of capital that lenders must set aside as a buffer, causing a decline in banks as Guaranty Trust Bank Plc warned the rules would curb lending.

Fidelity Bank Plc is the nation’s worst-performing lender this year, sliding 26 per cent, followed by United Bank for Africa, which is down 24 per cent.

The central bank sold $5.8bn of foreign-currency reserves in the first-quarter to prop up the naira at auctions and in occasional sales directly to banks. That depleted reserves by 13 per cent, the biggest three-month drop since Bloomberg began compiling the data in 2010.

The naira weakened less than 0.1 per cent to N161.10 per dollar, extending losses this year to 0.5 per cent.

 

 

[Punch]