NGX Capitalisation Soars By N13tr In 2023 On News Listings, Transaction Volume Up 91.04%

Recap of 2023 and Outlook for 2024

2023 was yet another bullish year on the Nigerian Exchange despite being a transition year when Nigerians trouped out to exercise their civic rights at the general elections. The market sustained its post-COVID 19 rally for the third straight year on strong earnings performance and  corporate actions that were good enough to support equity prices. The year also saw the listing of new companies and fresh shares by existing companies, besides price appreciations especially among highly capitalized stocks. These reduced the effects of the weak macroeconomic reports and ongoing policy reforms by the government, especially the removal of the age-long subsidy on Premium Motor Spirit (commonly known as petrol), causing inflation to soar over the past seven months, made worse by unification of the exchange rate. There was a boost in domestic and foreign investor sentiment within the period, even as the Naira depreciation automatically made the prices of listed equities cheaper for foreign portfolio investors that are gradually returning to the market after they left in the wake of the COVID-19 outbreak.

We note that performance of the NGX did not reflect the economic reality as seen in the increased economic headwinds, as as companies, especially those in the service sectors continued to post impressive numbers that kept their prices in the northward direction. There was also the mixed outlook in the fixed income market as inflation rose to an all-time high of 28.22% in the history of Nigeria economy.

The NGX started the year on a bullish note, as market players reacted to the unaudited impressive full-year earnings reports of 2022 in the midst of cash scarcity, election uncertainties and rate hikes that supported inflow of funds into the equity space in the first month of the year in expectation of corporate actions in the subsequent months in Q1.  Being the historical peak of earnings reporting season of 2023 and some profit taking activities, the market pulled back for a period of two months before picking up again on the back of the new administration’s policy reforms. Interim dividend announcements and higher payouts by majority of companies that successfully grew their dividend also served as a boost.

Following investors’ reactions to the impressive half-year and Q3 numbers, which was further reinforced by the higher payout of the interim dividend paying banks, share prices of large cap companies appreciations, just as there was improved foreign investors inflow. Domestic institutional investors also increasing their holdings during the year, supporting the market rally which saw the Nigerian Exchange’s All-Share index hitting its first all-time high of 70,000 psychological line. After that, it broke out various marks- 71,000, 72,000, 73,000 and 74,000, while heading to 75,000 basis points. The NGX, therefore became the best performing stock market across the globe, a position it maintained, finishing the year 2023 higher.

Also, during the year, the NGX index sustained its uptrend in the face of monetary policy tightening by the Central Bank of Nigeria (CBN) which hiked its Monetary Policy Rate by a significant 575 points to 18.75%, from 13% for the period under review.

This aggressive rate hike continued in the nation economy, whereas the global economic looked gloomy due to the geopolitical tensions as a result of the raging war between Russia and Ukraine, as well as the Middle East conflict, even as other nations continue to threaten each other. These wars and news of war expectedly disrupted the global commodities value-chain, including oil, gas, and wheat, among others, leading to sharp rises in their prices, and the attendant imported inflation across the globe. There were monetary policy adjustments by central banks of the world to checkmate inflation. In Nigeria, the CBN left rates unchanged with Monetary Policy Rate at 18.75% the last meeting of MPC in July 2023.

The NGX, however, closed 2023 on a new motive Wave-5 extension after a slowdown in september, as investors reacted on the strength of activities within the period, factoring in the impressive earnings reports, higher dividend yields in the face of rising inflation. There was also the decline in fixed income market yields, especially as reflected in the last three TB primary market auctions and OMO, the Santa clues rally and year-end window dressing.

The increasing participation of institutional investors, especially Pension Fund Administrators, among others also supported the market in the second half of the year as reflected in the volume traded and liquidity level, with the seeming return of foreign investors and the prolonged problem in the forex market. Market dynamics in the recent markup phase showed an oscillating volume pattern that revealed the wait-and-see disposition of PFAs and others, who prefer to hold cash in the face of increasing economic headwinds and market disconnection from economic realities.

Primary market activities like right issue were listed in favour of VFD Group, Mecure and other companies during the year, which also supported market performance. In all, Mecure recorded 313.8% price gain, while the share price of VFD Group fell by 24.7%, in addition to appreciation by other highly priced equities and blue chip companies that rallied over the period. Below is the 10 Golden stocks Performance in 2023:

In the 12 trading months of 2023, the NGX All-Share index recorded gains in nine, and was down in others, resulting in a 45.90% gain at year-end, even as we note the improving momentum above the oversold state on a monthly chart of index action. Despite the market extending its four-year bull-run, some companies remain cheap, based on their strong fundamentals and high dividend yields, attracting more inflows to the market. Worthy of note also is the fact that some equities are selling at their new 52-week highs.

Meanwhile, the benchmark Index, during the year, gained a total of 23,522.71bps, closing at 74,773.77bps, after touching a high of 74,850.26bps from its low of 50,830.51bps for the period. The index opened at 51,251.06bps, on strong buying interests that impacted positively on the index and stock prices, pushing them further up to breakout various resistance levels and psychological lines to record its new all-time high.

Total ‘buy’ volume for the year 2023 was 100% and 0% sell position, further extending the bull transition from 2020. Market capitalization rose by N13tr, closing at N40.92tr, from N27.92tr, representing a 46.18% appreciation in value, helped by the listing of additional shares as a results of bonus, right issues and admission of VDF Group  and Mecure on the exchange, coupled with capital gain of companies.

Traded volume for the period was significantly up by 91.04%, as market players exchanged 121.98bn shares, compared to 63.85bn units in the preceding year, just as market breadth for the period was sharply positive with gainers outnumbering losers in the ratio of 108:12 to sustained the past four years uptrend despite the aggressive rates hike and rising inflation hitting historical high in the year.

Bullish Sectorial Performance

The sectorial performance indexes closed green, with the NGX Insurance and Consumer Goods indexes closing 11.99% and 0.10% lower respectively. As shown by the chart below, the NGX Growth, Energy, Mainboard and Industrial Goods indexes boosted the market the most during 2022, outperforming the general market. The NGX Growth, Energy and Mainboard indexes gained a total of 41.63%, 34.05% and 33.48% respectively, driven by price appreciation of telecoms. Oil companies, building material and big names in the market that recorded gains. The NGX’s Dividend Yield index that was supported by price appreciations in dividend paying stocks with high yield that recorded 10.37%; the NGX industrial index garnered 19.67%, to support the market performance during the period.

Others represented in the chart below reveal investors’ positive sentiment and the clear decision among traders, as the market’s Price-To-Earnings Ratio is below 12times.

Best And Worst Performing Stocks For 2023

The best-performing stocks for the period under review were predominantly a mixture of low, medium and high caps across the sectors, led by Transcorp Hotel, which gained 1,022.90%, as a result of its low price attraction and market sentiments on its earnings performance, coupled with relatively small outstanding shares. It was followed by Chams and CWG with 795.5% and 721.8% respectively, just on positive sentiments for low price stocks and improving numbers for the period.  Transcorp climbed 666.7% up, on acquisition of Abuja distribution company, low price attraction and positive sentiment for power/utility companies, while MRS Oil chalked 644.7% on subsidy removal among others.

The worst performing stock was Royal Exchange Insurance which lost 40.6% of its opening price for the year, amidst selloffs, unimpressive earnings and impact of market forces; followed by Juli’s 25.3% slide, due to its weakened fundamentals and selloffs. VFD Group’s share price fell by a further 24.7%, after listing at N269.30 and right issue as a lower price showing an apparent lack of investor confidence in the stock, despite looking like a holding companies with different businesses. Champion lost 24.5% of the year’s opening value, due to profit taking, as investors’ seek to reposition in dividend paying stocks with prospect of future growth in earnings that will drive share price and payout.

Technical View

 The NGX’s Index action for the year on a multiple time frame of daily, weekly, monthly and quarterly revealed an uptrend that brokeout different strong resistance levels and psychological lines that supports trend continuation chart pattern, as the index is heading 75,000 marks ahead of the submission of 2023 unaudited Q4 and full year financial reports. At the same time, the NGXASI is trading above the T line and its 200-Day Moving Average on the daily and weekly chart, with positive sentiments and improved traded volume.

The market is still trading within the V-shape bullish pattern, despite the likely mixed trend on profit taking and price correction, any moment from now, depending on market forces ahead of first MPC meeting of CBN. The benchmark index has entered its overbought region on a daily and weekly time frame, reflecting an increased inflow of funds that pushed stock prices up in the last quarter of 2023, extending the historical positive sentiment that comes with yearend seasonality.

The trading patterns and momentum, going forward, are likely to improve further or change, as investors react to the expected Q4 and unaudited full-year earnings news, portfolio rebalancing and repositioning, with early filers kicking off the corporate action season in February with dividend news announcement. Vitafoam with its corporate action of N1.56 each is up marginally at end of 2023.  Market technicals for the year were positive, a situation expected to remain unchanged in the new month of January that comes with its own effects.

Market Outlook for the New Year

The outlook for 2024 remains mixed, as uptrend is expected to continue on value and low price to earnings ratio in the midst of relatively high dividend yields and corporate actions, despite uncertainties surrounding 2024 economic headwinds,  financial market and economic reset that comes with reforms of the government and global happenings to understand the important of fiscal and monetary policies in the midst rising  insecurity.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605