Nigeria | NGX

Nigerian Equities have rallied hard in the last few weeks on the heels of the fiscal and monetary initiatives of the new administration. Investors have cheered the removal of the Petroleum subsidy, as well as the unification of the FX rate. Both actions have long been overdue and highlight the market-friendly attitude of the Tinubu administration. In terms of market performance, the NGXINDX has rallied c.11% in the last three weeks, ticking a 15-yr high.

Following two months of sustained losses on the domestic bourse, the equity market rose 6.4% m/m in May to 55,769.28 points. In part, the performance of the market was buoyed by a late rally towards the end of the month due to the opportunities presented by previous price corrections, and market reacting positively to critical reforms promised during the inaugural speech by President Bola Tinubu on May 29th. Consequently, YTD return of the market rose to 8.8% against 2.2% the prior month while market capitalisation advanced ₦1.8tn to ₦30.3tn. Trading activity for the month was mixed as average volume traded fell 44.4% m/m to 592.7m while average value traded rose 43.8% m/m to ₦7.5bn. The top traded stocks by volume for the month were ACCESSCORP (1.1bn units), UBA (1.1bn units), and FIDELITY (0.5bn units), in contrast SEPLAT (₦29.4bn), GTCO (₦13.6bn), and ACCESSCORP (₦12.1bn) led the value chart for the month.

On May 29, 2023, Nigeria witnessed the inauguration of President Bola Ahmed Tinubu as the 16th President of the Federal Republic of Nigeria. The inauguration came on the heels of the President's victory in the February 2023 election, which was tagged as the most keenly contested in Nigeria.The President identified improvement in security and safety as a primary goal. The administration plans security-related investments in personnel, training, equipment, pay, and firepower.

The global beer market sustained its resilient performance in 2022, despite the negative spill-overs from the multiple macroeconomic headwinds that impacted input costs and supply chain in the year. Based on an estimate by Statista, the global beer market expanded 18.2% y/y in 2022 to $643.4bn – the fastest in the last 5 years. This was mainly driven by an estimated 6.4% y/y increase in sales vol- ume to about 964.9 million hectolitres (mhl) and price increases on most brands’ product portfolios in reflection of the surge in the global inflation rate in the year. However, the knock-on effect of the war in Eastern Europe – the spike in raw materials, logistics, and operating costs – drove a sizeable 28.0% y/y jump in the average cost of beer production according to an estimate by Israel-based Social Invest- ment Platform – eToro. Consequently, leading global brands such as AB-InBev and Heineken group reported a decline of 0.1ppt and 19.4% in EBIT margin and PAT, respectively.

With a five-year net income CAGR of 7.7%, NESTLE appears resilient amidst macroeconomic volatilities. We like the diversity of its product mix and aggressive advertising via online channels & flagship campaigns like the Maggi O Setigo Cooking Show and the Golden Morn heritage Campaign that have partly supported volume growth. Similarly, the company's ability to raise product prices in response to rising input costs has also boded well for its revenue. Our retail product price survey revealed that between August 2022 and February 2023, the company raised prices across its major product lines by an average of 17.0%. We note that the sustained price increases and strong volumes were responsible for the 27.0% and 25.6% revenue growths in FY'22 and Q4'22, respectively, that masked production and finance cost pressures.

Dangote Cement Plc (DANGCEM) commenced 2023 with a bang, exciting market watchers with prospects of more near-term rewards. Indeed, given the company's lean free float (c.12.3%) and concentrated ownership, a share buyback plan was always going to excite markets. In our view, the renewed interest in the ticker may have also been inspired by experiences from the previous tranches of the programme, wherein the buybacks were executed at multi-year high prices (albeit at the market). However, there is no guarantee that events will play out the same way this time as investors await further details on the timing and terms of the share buyback, which, per SEC directive, would have to be executed before the 12th of December 2023.