Nigeria’s stock market, with a total equity market capitalization of over N33 trillion and a significant N5 trillion gain in the first half of the year, is currently trading at a discount, according to analysts. Despite recent market rallies, Codros Securities analysts believe that the Nigerian Exchange All-Share Index (NGX ASI) is undervalued, trading at a 7.4% discount to its 10-year average and a 17.6% discount to its frontier market peers.
The analysts argue that the current market valuation is unjustified, considering the consistent and strong earnings growth in recent times. They highlight that most regularly traded stocks are currently trading below their fair value. While acknowledging the recent market rally, analysts maintain that there is still room for an expansion of valuation multiples as long as corporate earnings remain resilient.
Imafidon Adonri, Vice President of Highcap Securities, attributes the low market valuation to the market’s concentration on a few companies. Out of over 200 quoted companies, 15 stocks, including Dangote Cement, MTN Nigeria Communications, and Guaranty Trust Bank, constitute 80% of the market capitalization. Adonri emphasizes the need for an ideal market structure and composition to enhance liquidity and depth.
Adonri warns that the imbalance in the equities market poses a liquidity threat and that price depreciation in one dominant stock could trigger a persistent bear run. He calls for the prioritization of the listing of privatized companies and multinationals in the telecoms, oil, and gas sectors to boost market performance.
Amaechi Egbo, an independent investor, suggests that an active primary market segment is necessary to achieve liquidity and prevent a few stocks from dictating the market’s direction. He points to successful privatization exercises in other countries as examples where citizens benefited from the transformation of enterprises.
Market participants and stakeholders emphasize the importance of an efficient and balanced market structure, increased liquidity, and enhanced information dissemination to unlock the true potential of the country’s stock market.
