Stock prices’ free fall widens investment opportunities

The Nigerian equity market is offering long-term investors opportunities to invest as most of the stock prices have declined significantly below their opening values.

The bear run in the stock market, which has depressed the benchmark Nigerian Stock Exchange (NSE) All-Share Index (ASI) by 13.1 percent so far, has cut the prices of many stocks by over 25 percent.

The price reduction, according to analysts, is an entry opportunity for investors considering the fact that the price declines are not necessarily as a result of weak fundamentals of the stocks.

The stock market has been fluctuating since the beginning of the year following negative reactions by investors to political risks that characterised the general election in the first quarter of the year.

There were expectations that the market would rebound after the successful elections.

However, the delay in the composition of the federal cabinet that will show economic direction of the Buhari administration and those to drive it, has kept the market under the pressure of bears.

Foreign investors are reluctant to take advantage of the low valuations as they appear to be more interested in seeing the economic policy direction of President Muhammadu Buhari in his second term, while domestic investors are also waiting for foreign investors to move first, as usual, before increasing their stakes in the market.

Consequently, all the sectoral indices are in negative, safe for the Premium Index that gained 3.3 per cent year-to-date.
Similarly, most stocks have dipped to their two-year low, thereby offering investors an opportunity to buy the stocks at very attractive prices.

For instance, Okomu Oil Palm Plc is selling 32 per cent below its year’s opening price, while Presco Plc is trading 30.9 per cent lower than its opening price.

Transcorp Plc is selling 44 per cent lower than the price it was at the beginning of the year, while UAC of Nigeria Plc offers 44 per cent discount below its opening price.

Guinness Nigeria Plc is 42 price lower, just as International Breweries Plc, Nigerian Breweries Plc and Dangote Sugar Refinery Plc are 60 per cent, 42 per cent and 35 per cent lower respectively.

PZ Cussons Nigeria Plc is 50 per cent lower than its opening price, while Ecobank Transnational Incorporated, Fidelity Bank Plc, Jaiz Bank Plc, United Bank for Africa Plc, Unity Bank Plc and Zenith Bank Plc are 48.2 per cent; 26.1 per cent; 23.1 per cent; 27.9 per cent; 40 per cent; and 29.1 per cent in that order.

Investors buying the shares of FBN Holdings Plc, Stanbic IBTC Holdings Plc and United Capital Plc will do so at a rate that is 37.7 per cent, 20.5 per cent and 32.6 per cent cheaper respectively.

Other stocks depressed by the bears are: Consolidated Hallmark Insurance Plc(21 per cent); Goldlink Insurance Plc (62.2 per cent); Law Union & Rock Insurance Plc (35 per cent); Linkage Assurance Plc (27.7 per cent); NEM Insurance Plc(25.5 per cent); Glaxosmithkline Consumer Nigeria Plc (42 per cent); Cement Company of Northern Nigeria Plc(27.8 per cent); Conoil Plc (24.1 per cent); Eterna Plc (44.6 per cent); Forte Oil Plc (40.7 per cent); Total Nigeria Plc (43.4 per cent).

Commenting on the low prices, Sola Oni, a stockbroker and chief executive officer of Sofunix Investment and Communications, said many shares were trading below their intrinsic values, describing it as a buy signal for any investor that wants to take position and beef up portfolio.

He said: “This is a buyers’ market where investors should contact their stockbrokers for informed investment advice. Market has never been static, hence, bull run is at the back of the door. As ministers commence operations, there will be activities in all facets of the economy and this is expected to impact positively on the capital market. Informed investors are quietly taking advantage of the current bearish run to increase their holdings. No time to buy stocks is better than this moment. Investors buy into future of companies. The current results of many of our quoted companies are heart- warming but they are historical. Expectation of every buyer is that the company will performance better and churn out higher returns,” he stated.

On their part, analysts at United Capital Plc said in second half of the year, policy uncertainties would remain one of the biggest concerns for investors.

“This position is buttressed by several factors. For instance, President Buhari is unlikely to form his cabinet until the end of Q3, 2019, if the experience from 2015 is anything to go by. This is likely to slow investment planning as important decision in the strategic sectors of the economy as well as policy formulation across the sectors, have to wait for the ministers to settle in,” the analysts said.