Cordros Capital Allays Fear of Capital Market Bubble

Cordros Capital says the current rally in the country’s stock market does not, in any way, suggest a bubble scenario.

The company, in its 2018 outlook for the country, said the market was largely driven by fundamentals.

Presenting the outlook to newsmen in Lagos, the firm’s Head, Research and Strategy, Mr. Christian Orajekwe, said the equities gain of 2017 was the market’s first in three years of cumulative 40 per cent loss, adding that in Dollar terms, the return was around 25 per cent.

Orajekwe said, “Back-to-back gain of more than 80 per cent total is not a new phenomenon.   Bull markets do not die of old age.

“Compared to the last two years, Nigeria’s macro outlook is more favorable to equities”

He said the equities market recorded a strong January start this year like the case of 2007, 2010, and 2013, driven by a moderate improvement in the macro environment, stable to modest corporate earnings growth, modest improvement in portfolio inflows over 2017, marginal moderation of fixed income and treasury yields, and modest election concerns.”

To this end, the Head, Investment Banking, Cordros Capital, Mr. Femi Ademola, urged investors to cherry-pick stocks, and hold 2017 position and watch out for Q4 2017 and Q1 2018 earnings.

He said, “Small cap companies are to benefit from stronger recovery of economic activities, election-related spending, passage of the minimum wage bill into law, and improvement in public sector revenue while raw materials intensive companies are to benefit from the stability of the Naira.

“Highly geared companies are to benefit from the expected moderation of interest rates while cement companies are to benefit from the expected improvement in public sector construction activities as well as research/development and capital expenditure-oriented companies.

For consumers goods, the 2018 catalysts, according to Orajekwe, are: improvement in consumer spending (better macro, reduced inflationary pressure, election spending, passage of minimum wage); low interest rate and deleveraged balance sheet; Foreign Exchange stability; and impressive 2017 performance rubbing off on consumer goods stocks in 2018.”

However, the 2018 risks for consumer goods stocks, he added, included:  external pressure (continued modest or lower growth, forex and inflation risks, and constrained Government spending); competition (the attractive profits of 2017 and improved access to the United States Dollar will encourage mass return of the smaller players and ignite market share war); policy issues (fuel and power tariff hikes); and valuation issues (weak upside, following 2017 bull run).

-Commenting on the 2018 budget, he said early presentation was good albeit the likelihood of an early passage and signing of the budget.

“Oil revenue assumptions are realistic. Non-oil revenue estimates, particularly taxation and Internally-Generated Revenue are very ambitious. Other revenues are also ambitious, although they have strongly supported gross revenue in past years,” he said.

“A 50:50 split between domestic and external borrowing was observed. The risk of deficit exceeding budget is low to moderate. Except on extreme difficult revenue condition, priority will be given to capital expenditure,”  Orajekwe added.

Major catalysts for agriculture companies in 2018, he explained, include: supportive macroeconomic environment, energy diversification and expansion drive while the major risks include: policy reversal, unfavourable weather condition and security threat.

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