Following close of yesterday’s trading session, the Nigerian equities market traded at a P/E ratio of 6.88x, a steep discount to African peers such as South Africa (14.74x, YTD; +6.1%), Egypt (12.26x, YTD; +9.7%) and Morrocco (19.77x, YTD; +1.3%). Ordinarily, this should spook investors’ interest in Nigerian equities.
However, this has not been the case with the local bourse remaining in a lull despite several bellwethers particularly in the banking sector posting impressive earnings growth. During the reporting period of October, the bourse headline index has shed 4.5% MTD. We note that the decline has been limited by the Nigerian Stock Exchange (NSE) regulation which has reduced volatility in large-cap stocks.
Juxtaposing the ASI’s 1-year movement against the average Trailing 12 months (TTM) Earnings Per Share (EPS) over the same period, our analysis showed an increasing divergence between earnings growth and stock market return. Over the past year, listed companies in the All Share Index have posted a 15.3% 1-year growth in Earnings while the ASI has plunged 20.5% within the same period. This shows increased investor apathy towards Nigerian equities following periods of inconsistencies in policy-making, increasing uncertainties on implementation of structural reforms and unfulfilled economic potential.
That said, not all the companies on the Exchange have been posting impressive earnings growth and the ASI growth in earnings has been largely supported by growth from the banking sector. Companies in the real sectors – Brewers, FMCGs and Industrials have lagged in growth, owing to the presence of structural barriers, macro weakness amidst poor demand from an increasingly shrinking consumer wallet.
We expect investor interest in Nigerian equities to remain subdued until the government and economic policymakers begin to implement assertive and bold policies to drive accelerated economic growth in a bid to fulfil Nigeria’s enormous economic potential as an economic powerhouse in Africa.