The Nigerian banks' results season kicked off on a positive note this week, with Zenith Bank and UBA reporting earnings broadly in line with our forecasts for the 15 months to December 31, 2009.
More encouragingly, they announced dividends of N0.45/share and N0.10/share, and respective bonus issues of one-for-four and one-for-five. The Nigerian Stock Exchange is up 3.5% for the week and 25.1% YtD. News on the confirmation of 38 ministerial nominees by the Senate during the week also supported the market, reflecting strong support from Nigeria's lawmakers for Acting President Goodluck Jonathan.
Pessimists turn optimistic? A rebound in equities today (1 April), following Wednesday's retreat, indicates that former pessimists on Nigerian equities may be growing increasingly optimistic on the market's outlook and are probably more willing to buy into the gains.
We think this is logical, particularly as we see no fundamental or technical reasons for the Nigerian equity market to weaken in the near term. From a fundamental perspective, Nigerian corporates look strong to us, and we expect them to see an average 210% improvement in earnings over 2010, largely driven by a recovery in the banking sector. We think this is supportive for Nigerian equities' attractive valuations (average 2010 P/E 8.4x, on our estimates) vs BRIC equities trading on an average 2010E P/E of 13.6x. From a technical perspective, we expect continued interest in Nigerian equities, particularly from local investors with relatively low exposure to equities: we estimate that pension funds and insurance companies have, on average, 15% of their investment funds in quoted equities; we note that pension funds and insurers have respective regulatory upper limits of 25% and 50% on quoted equity investments.
A sustainable rally? Over next week, we see reasons for investor optimism about a sustained rally in equities, specifically in light of: (1) more bank earnings releases post the Easter holidays, particularly GTBank (all banks have reported their December 2009 results to the CBN and are awaiting approval); (2) more ministerial confirmations by the Senate and the inauguration of a new cabinet during next week's Federal Executive Council meeting; and (3) the signing of the 2010 budget by the acting president.
Nigeria's upward momentum continues, by Rencap (http://www.businessdayonline.com/index.php?option=com_content&view=article&id=9770:nigerias-upward-momentum-continues-by-rencap-&catid=85:national&Itemid=340)
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