Valuation for Nigeria Stocks Very Attractive Despite Slowing Economy

Despite a slowing economy, Nigeria stock market has emerged as the place in Africa to invest due to its very attractive valuation that is an entry point for investors.

Nigerian equity remains attractive from an equity standpoint as it has a forward price to earnings (P/E) ratio and dividend yield of the NGX ASI is 5.4x and 5.7 percent, according to a recent report by investment house Chapel Hill Denham Limited.

That compares with markets such as India with P/E of 20.4x and a dividend yield of 1.40 percent.

According to the report, Egypt has a P/E ratio of 6.1x and a dividend yield of 3.20 percent, while MSCI emerging market has a P/E ratio of 11.80x and a dividend yield of 2.80 percent.

“We highlight that whilst the Nigerian equity market has recorded significant returns, there is still potential for positive returns in 2025, according to attractive valuations,” said analysts at Chapel Hill Denham.

Underpinned by the recapitalisation carried out by the banks and listing of companies such as Aradel and IV as well as corporate actions on dividend, the ASI NGX gained 37.40 percent in 2024 as it closed above 100,000 points.

The Oil and Gas sector led the pack as it gained 160 percent last year; Insurance, 123.30 percent; Consumer Goods, 54.40 percent; Industrial Goods, 31.7 percent, and banking sector, 20.90 percent.

There were a series of activities which lifted investors’ optimism about the equities market such as corporate actions by Seplat Energies, buy out of minority shareholders in Flour Mills of Nigeria, and impressive earnings performance by Unilever.

Banks delivered returns to their owners as revaluation gains and high yield environment supported earnings with sector players boosting the best dividend paying stocks.

Analysts are of the view that President Bola Tinubu’s bold reforms are propitious to the economy even as the removal of subsidy on fuel and the unification of the exchange rate to spur foreign investment have stocked a red-hot inflation that is ravaging Nigerians.

Nigeria’s headline inflation rate surged to 34.60 percent in November 2024, up from 33.88 percent in October 2024, according to the latest report from the National Bureau of Statistics (NBS). This represents a 0.72 percent increase from the previous month, highlighting the ongoing economic pressures facing the country.

The Monetary Policy Committee of the Central Bank of Nigeria has raised the country’s interest rate by 25 basis points to 27.50 per cent in November from 27.25 per cent in September 2024.

As of the latest update on 28 Dec 2024 0:15 GMT+0, the Nigeria 5 years government bond has a yield of 20.119 percent. This yield represents the annual return that investors can expect to receive if they hold the bond until its maturity in 5 Years.

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