Nigeria’s Equity Rally Becoming Broader Based
Nigeria’s stock market continues to climb, as investor confidence rises and the economy benefits from wide-ranging reforms. At the time of writing on June 10, the All Share index was approaching 40,000, the highest level seen since late 2008. Since we initiated our bullish view on the All Share index in March 2012, the market has climbed by 88.4%.
The main reason for our optimism was the overhaul of the financial sector, which, following an increase of capital requirements and a series of other changes in the second half of 2011, appeared poised for recovery in 2012. Indeed, the banking sector has outperformed the equity market as a whole, climbing by 89.6% since March 2012. However, over recent weeks the momentum of the banking sector has eased somewhat, and non-banking stocks have outperformed.
Consumer stocks are part of the story, up 35% since the beginning of this year. Consumer stocks comprise about a third of the All Share index, and several key companies, such as PZ Cussons and Flour Mills Nigeria, have seen particularly strong gains since the beginning of the year. Profits for the largest consumer firms were actually slightly down in 2012 compared to 2011, but remained high by historical standards.
The most important driver of the All Share index’s recent rally has been Dangote Cement, by far the largest company on the exchange, representing more than 30% of the total by market capitalisation. Dangote is the undisputed leading provider of cement in a rapidly-growing region, and investors have received recent announcements outlining aggressive expansion plans throughout Africa very enthusiastically. The company has seen its share price soar by more than 63.9% since the beginning of year, accelerating an already upward trend. Profits in 2012 reached record levels, approaching US$1bn, a culmination of a steady climb since 2008, when net income amounted to just US$24.8mn.
Our Infrastructure team expects demand for cement to be extremely high in Africa over the foreseeable future, boding well for Dangote’s share price, and by extension Nigeria’s All Share index. While profit-taking may see the index lose some steam over the near term, we remain broadly optimistic over a longer time horizon.
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This Week’s Trivia Question
Last week, we asked: In which European country is China currently building a new city (or manufacturing and industrial zone, more accurately) in the suburbs of the capital? And who was arguably the most famous foreign resident of that capital city? (Hint: he lived there in the early 1960s and was responsible for a high-profile assassination.) The answer to the first part is Minsk, the capital of Belarus. The answer to the second part is Lee Harvey Oswald, the assassin of former US President John F. Kennedy.
This week’s question retains the ‘White Russian’ theme, but adds a Latin American twist. In which early 20th century Latin American conflict, which ended 78 years ago this week, did White Russian military officers play a pivotal role? And which graphic novel featuring the exploits of a Belgian reporter appeared to parody aspects of this conflict through fictional countries?