Stock investors price-in outlook for unimpressive full year financials

Investors at the Nigerian Stock Exchange (NSE) have started reducing their equities wagers amid their expectations of unimpressive audited full year 2016 financials of companies.

Evidenced in this week’s negative start to trading in 2017, analysts said Nigeria’s weak macroeconomic environment which affected companies’ performance clearly signals their full year results will be unimpressive.

For first nine months through September 2016, the cumulative net income of 30 firms that make up the Nigerian Stock Exchange (NSE) 30 index or 87.50 percent of the total market capitalisation fell by 16.09 percent to N529.29 billion from N631.24 billion the preceding year.

Seven firms out of the NSE-30 also posted a cumulative loss of N121.71 billion in the nine months to September 30, 2016 as the economic downturn continued to blight every sector of the economy.

Uncertainty built around foreign exchange (FX) availability, tightened monetary policies, in addition to some tough fiscal policies weakened investors’ confidence towards investment in Nigerian equities.

After capping last year in red with 6.17 percent negative returns in post-recession dip, stock investors at the local bourse were unable to make big gains in early trading of this week.

Interestingly, while Nigerian stock market disappoints, other stock markets across the globe are outperforming on economy optimism as crude oil price advances.

“The equity market logged a softer start to 2017. Overall market sentiment was impacted by corporate earnings outlook”, said research analysts at Lagos-based Dunn Loren Merrifield said in their Tuesday equity note.

“Investors are wary of development in Nigeria’s macro economy and are not buying into stocks. We think the corporate results will be unimpressive as there were foreign exchange issues that blighted firms,” said Ayodele Akinwunmi, Head, Research and Strategy at FSDH Merchant Bank.

Saheed Bashir, head of research at Meristem Securities Limited in his recent comment said they do not expect a spectacular performance of equity market in first half (H1) of 2017.

He noted that the risks to their expectations remain smart execution of 2016/2017 budget, foreign exchange challenge and recovery in government fiscal stability in 2017.

Iheanyi Nwachukwu