Just as there will always be a social hierarchy separating the top guns from the underdogs, the Nigerian Stock Exchange (NSE) too has its own hierarchy, with the Blue-chip stocks at the very top as the leaders.
Blue-chip companies are the ones with established practices that have operated for many years, having dependable earnings and known to pay steady dividends to investors. They are also known to have the highest value on the NSE, and asides being established and well-capitalized, when the chips are down, they typically have the highest chances of coming out strong. These are the NSE 30 stocks.
The stock market has faced a tremulous couple of months. From the impact of the oil market to the pressures of the Covid-19 pandemic, the market has been expectedly volatile. However, if there are companies that will survive the turmoil, these are the companies.
Performance overview of the NSE 30
In the month of May, the equities market traded on a bullish note, holding on to its positive performance from April. In the entire month, the market recorded 13 days of positive returns and five days of declines.
The overall performance is attributable to heightened buying interest across large-cap counters in a myriad of sectors, and this was propelled by relatively affordable valuations, higher dividend yields, and investors regaining confidence in the market as a result of the optimism based on the gradual easing of the lockdown.
The NSE 30, which tracks the 30 most capped stocks on the bourse, returned 11.05% month-to-month to investors in May 2020 (April 2020: 9.4%), albeit -7.16% YTD. The NSE 30 closed higher in May primarily owing to the rebound in oil prices as well as the receipt of $3.4 billion IMF facility, salvaging Nigeria’s external reserves. The overall economy had expanded by 1.87 per cent in the first quarter of 2020 amidst the impact of the pandemic, defying most analysts’ expectations and projections.
The local market was driven by a decent appetite for stocks, even in the face of reduced offshore supply. Domestic participants of the market stimulated the buy-side, with many investors taking advantage of the relatively affordable prices of the market.
The performance was driven by gains in companies like MTNN and BUACEMENT, with investors reacting positively to the release of their Q1’20 and FY’19 results, respectively. Other companies that witnessed strong growth include Nigerian Breweries and Guaranty Trust Bank (GTB.)
The Cement-makers had a field month, as locals were bullish on their stocks. BUACEMENT and DANGCEM combined, accounted for 30% of the NGSE ASI. Stocks that were actively purchased (predominantly by foreign accounts) include those of NB, NESTLE, FBNH, and GUARANTY, while stocks like WAPCO and DANGCEM were actively sold. There was also a slight increase in institutional activity (both local & offshore). However, the majority of the trades made in May were as a result of short-term money.
Akintunde Sulaiman, a research analyst at Greenwich Trust Limited, noted that, “The rally witnessed on the index is largely due to bullish run witnessed in UNILEVER (+61.90%) to settle at N17 per share from N10 the prior month, likewise NB (+44.33%) to close the month at N43.3 per share from N30.00 the prior month, also MOBIL (+32.94%) appreciated from 160.9 per share to close at N213.9 per share, then STANBIC (+25.61) closed at N35.8 per share to N28.5 per share, and ZENITH (+18.18%) fastened to N16.9 per share from N14.3 per share.”
In terms of the outlook for June, he explains:
“In June, we expect the market to remain positive as bargain hunting activities continue to drive the market as well as investors looking out for dividend-paying stocks as we approach the H2 earnings season. However, we do not rule out the occurrence of price-taking and sell down by investors.”
Still speaking on the performance, Vivian Alozie, a research analyst with Afrinvest West Africa, gave a broader perspective, stating that “Foreign investors, being trapped at the moment and unable to really take FX out, are taking a position in equity.”
She added that, “Local investors are absorbing more risks due to the low yields in fixed income and stocks are currently returning better than Treasury bills and bonds. Finally, oil price recovery in May relative to what was seen in April further strengthened investor sentiment.”