Nigerian stocks have sustained their year-to-date bullish momentum, recovering from a brief profit-taking correction in June. The NGX’s All-Share Index (ASI) is consolidating near its recent all-time highs, positioning Nigeria as one of the world’s best-performing equities in the US dollar-adjusted index.
The major Nigerian stock market recently traded around ~242,145 points, a slight pullback from local highs of ~243,900. The Nigerian Exchange’s valuation settled at N156.2 trillion, providing investors with a substantial return of +56% year-to-date, largely due to aggressive institutional investor activity in high-conviction counters. Market participation has been broad, though upward movement has met some resistance in the 242k-244k region.
Tier-1 Banks Dominate Institutional Inflows
Tier-1 banks, including FIRSTHOLDCO, UBA, GTCO, and ZENITHBANK, are capturing most of the institutional liquidity as they work to meet statutory capital expansion requirements. While low-priced Small-Cap Momentum Plays like MCNICHO, VERITASKAP, and CWG have shown spectacular price rallies, analysts advise caution in distinguishing between turnaround stocks and pure “momentum” plays.
FIRSTHOLDCO’s stock price is experiencing one of the most forceful rallies among Nigerian top banks. This is attributed to its recapitalization exercise, strong institutional demand, and improved earnings. The commercial banking group has not only met but exceeded the Central Bank of Nigeria (CBN)’s compulsory N500 billion minimum capital required for an International commercial banking license.
This recapitalization involved multi-stage processes, including private placements into FBN Holdings plc, successful Rights Issues, and privately issued capital. It also included a N45 billion transaction from a private investor and the divestment of non-essential businesses such as FBNQuest Merchant Bank. Femi Otedola, FIRSTHOLDCO chairman, has outlined an ambitious capital base target of N1 Trillion to bolster its lending power across Africa.
Trading activity in United Bank for Africa Plc (UBA) remains robust on the Nigerian Stock Exchange, currently recovering off support levels. Institutional investors are positioning themselves in Tier-1 banks due to recapitalization efforts and pan-African earnings stability. UBA’s latest share price is 44.25, reflecting a 7.93% increase in recent momentum. Its share price range within a year is 34.25 – 55.20. The bank is financially stable, evidenced by strong retained earnings and shareholders’ funds exceeding N2 trillion, suggesting it may not face significant challenges in raising further capital.
Furthermore, Tier-1 banks like UBA, GTCO, FIRSTHOLDCO, and ZENITHBANK offer attractive dividend yield plays, as their earnings remain solid. Investors may opt for long positions to secure interim payout yields. The earnings momentum at these Tier-1 banks is expected to persist, even with elevated operational costs, given the sharp rise in lending yields that support strong top-line revenues.
FX Stabilization and Market Dynamics
The recent stabilization of the Naira at ~N1,380/$ – 1,385/$ and the growth in FX reserves towards $52 billion have helped restore confidence among foreign portfolio investors (FPIs). However, high yields on money markets, ranging from 18%-20%, may compete directly with equities as investment instruments, especially with the Monetary Policy Rate at 26.50%. Despite this, equities continue to serve as an excellent proxy against structural inflation.
Following multi-month rallies, many large-cap industrial and banking counters have reached fair value. This trend is driving institutional and individual investors towards bargain opportunities in mid-capitalized companies with low Price-to-Earnings (P/E) ratios. Market participants are observing significant year-to-date rallies (50-90%+) in various transportation, agribusiness, and niche mortgage servicers, such as ABC Transport, FTN Cocoa, and Abbey Mortgage. These rallies are fueled by enhanced operational outlooks, improved earnings perceptions, and the low P/E basis used for selecting these firms.
