The Nigerian stock market has shown little excitement over the past month, despite record-breaking profits reported by listed companies for the third quarter (Q3) of 2024. Between October 8 and November 7, the NGX All-Share Index (ASI) dropped by 0.68%, from 97,584.81 points to 96,924.86 points, signaling a muted investor response to the strong earnings reports.
Despite impressive earnings, particularly from financial institutions, macroeconomic factors and concerns over stock valuations have dampened market performance. As of September 2024, Nigeria’s inflation rate remained high at 32.7%, up slightly from 32.2% in August. This has resulted in negative real returns for investors, with the NGX’s year-to-date (YTD) gain of 30% failing to translate into meaningful investor confidence.
Macroeconomic Factors Weigh on Investor Sentiment
The sluggish market performance is largely attributed to the persistent inflationary pressure and the ongoing devaluation of the Nigerian Naira. Over a span of just three months, from June to September 2024, the Naira depreciated by 12%, which further eroded the value of foreign portfolio investments (FPIs) in the market.
Adetola Freeman, an analyst with FBS Brokers, highlighted that despite strong corporate earnings, broader economic conditions have negatively influenced investor sentiment. “Investors are not impressed by the market’s performance because Nigeria has not proven to be an attractive investment destination in recent months,” Freeman noted.
Financial Sector Profits Not Reflecting in Stock Prices
The financial services sector has led in terms of profitability, with Nigerian banks posting triple-digit growth in net earnings for the first nine months of 2024. However, investor interest in banking stocks has remained subdued. As of November 7, the NGX Banking Index had gained only 4.17% YTD, despite strong earnings reports.
The sector’s underperformance can be traced back to the regulatory uncertainty created by the Central Bank of Nigeria’s (CBN) recapitalization mandate, which led to significant declines in banking stock prices earlier in the year. The NGX Banking Index dropped by 10.2% in Q2 2024 in response to the recapitalization requirement. However, with the release of strong Q3 earnings, the index rebounded, rising by 11% between October 8 and November 7.
Notable performers included Zenith Bank, which gained 15%, and GTCO, which saw a 13% rise during the same period. Despite these gains, both stocks have underperformed in comparison to other sectors, highlighting the broader investor caution surrounding the banking sector.
Industrial Sector Faces Sell-Off Despite Strong Earnings
The industrial goods sector also saw mixed reactions to strong earnings reports. Despite posting record profits for the first nine months of 2024, stocks in this sector, particularly those of Dangote Cement and BUA Cement, have suffered significant declines. The NGX Industrial Index dropped by 26.7% in H2 2024, with Dangote Cement’s stock losing 27% from its February high of N763 to N478.8 by November 7.
BUA Cement also saw a decline in investor sentiment, as its net profit for the period, though strong at N49 billion, represented a 36% year-on-year drop. The company’s stock price has fallen by 1.21% since the earnings release, reflecting investor concerns about long-term growth prospects.
Oil & Gas Sector: Mixed Performance Amid New Listings and Strong Earnings
The oil and gas sector has shown more promise, driven largely by the listing of Aradel Holdings Plc on October 14 and a positive market reaction to Seplat’s acquisition of Mobil Producing Nigeria Unlimited (MPNU). The NGX Oil and Gas Index gained 9.9% from October 8 to November 7, with Seplat’s share price increasing by 9% to N5,700.
However, outside of Aradel and Seplat, the sector has struggled to maintain investor interest. TotalEnergies, despite posting a record nine-month profit of N27.4 billion, saw no change in its share price, which remained at its peak of N673.9. Similarly, MRS Oil Nigeria, which reported an impressive 81% year-on-year increase in net profit, saw its share price slip by 1% since the earnings release.
Consumer Goods Sector Remains Unmoved by Losses
The consumer goods sector exhibited an unexpected trend as most companies in the space reported significant losses for the first nine months of 2024, yet the NGX Consumer Goods Index still saw a marginal increase of 0.5% between October 8 and November 7.
Nestlé Nigeria, which recorded a staggering 328% year-on-year rise in losses, saw only a slight decline of 0.56% in its stock price. Meanwhile, BUA Foods, despite posting a remarkable 3,783% year-on-year increase in net profit, saw no change in its share price, which remained at N394.9. This lack of movement despite strong earnings highlights the cautious market sentiment.
Valuation Concerns and Overbought Stocks
One of the key factors influencing market reactions is the high expectations set by analysts and investors, which can create challenges for stocks that exceed performance benchmarks. For example, Presco Plc, which exceeded analysts’ expectations in June 2024 by surpassing the N300 per share mark, has seen its stock price stagnate at its all-time high of N485.4, despite record-breaking financial results.
Analysts suggest that Presco’s stock may have become overbought, with its price being restrained due to a lack of strong demand to push it higher. This scenario, where stocks are perceived as overvalued, has become a common theme across several sectors in the Nigerian market.
Outlook: Market Faces Continued Headwinds
The Nigerian stock market’s subdued response to strong corporate earnings suggests that investor sentiment remains cautious, with concerns over macroeconomic conditions, inflation, currency devaluation, and regulatory uncertainty taking precedence over positive earnings reports. While some sectors, like oil and gas, have seen notable gains, the broader market faces ongoing challenges.
As investors continue to weigh Nigeria’s economic prospects, the market’s performance in the final quarter of 2024 will largely depend on any new developments in government policy, inflation control, and currency stabilization efforts. Until then, it is likely that the Nigerian stock market will remain in a holding pattern, with investors seeking clearer signals of sustained economic improvement.