Nigeria’s Cheaper-Than-Ghana Stocks Lure Bargain Hunters

Nigerian stocks are rebounding from the worst selloff in more than two years as valuations cheaper than South Africa, Kenya and Ghana lure investors from Investec Plc to Renaissance Asset Management.

The Nigerian Stock Exchange All-Share (NGSEINDX) Index has gained 4.7 percent since sinking 10 percent in the first 11 weeks of the year, part of the worst quarterly drop since 2011. The Nigerian gauge is trading at 11 times future earnings, compared with 15 for South Africa’s FTSE/JSE Africa All-Share Index (JALSH) and Ghana’s equities benchmark and 12 times for the Nairobi Securities Exchange All-Share Index. Nigerian stocks are trading at their biggest discount to their Kenyan peers in a month after falling to the cheapest levels in almost 14 months against South African securities on March 31.

Stock investors are returning to Africa’s biggest economy after central bankers spent the most reserves in the foreign-exchange market since 2010 this year to shore up the naira, quelling speculation that they’d let it keep tumbling from a record low reached in late February. The suspension that month of central bank Governor Lamido Sanusi had jolted investors, sparking the currency selloff and turning Nigeria into Africa’s worst-performing stock market after Zimbabwe.

“Nigeria is our top pick at present,” Sven Richter, who oversees about $260 million as the Johannesburg-based managing director of frontier markets at Renaissance Asset Management, said in an e-mailed response to questions April 17. “We’ve seen some price decreases together with earnings results that were positive that has reduced valuation to attractive levels.”

Bank Bias

Asset & Resource Management Co., which manages $2.6 billion, sees value after the selloff in cement companies including Dangote Cement Plc (DANGCEM) and Lafarge Cement WAPCO Nigeria Plc (WAPCO) because of the country’s need for infrastructure, according to Adewale Okunrinboye, an analyst at the Lagos-based firm.

Exotix Ltd. recommends buying shares from lenders including Zenith Bank Plc, Access Bank Plc (ACCESS) and United Bank for Africa Plc because of their low valuation and growth potential, Kato Mukuru, an analyst at Exotix Frontier Equities, said in an e-mailed note to clients March 24.

“Now is the time to have a strong bias toward Nigerian banks,” Mukuru said. “Nigeria also offers something that few sub-Saharan African banking systems can hope to offer -- scale.”

Nigerian and Kenyan banks also continue to look attractive to Renaissance Asset Management, Richter said, without being more specific.

‘Financial Recklessness’

The selloff deepened as Sanusi was suspended after he alleged that billions of dollars in oil revenue were unaccounted for. President Goodluck Jonathan said he removed Sanusi for “financial recklessness and misconduct,” actions that the ex-central banker denies. Jonathan announced a probe into the nation’s oil funds at the end of February.

The central bank sought to curb speculation that it would change the exchange-rate peg for the naira, with incoming Governor Godwin Emefiele saying such a move would be “devastating.” The bank targets a range for the naira 3 percentage points above or below 155 per dollar at its twice-weekly currency auctions. It last moved the peg in November 2011, shifting it from a previous 150 per dollar.

While investors were “disappointed” with Sanusi’s suspension, the declines have created a cheap entry point for stock buyers, said Joseph Rohm, who helps manage $2 billion of Investec Asset Management (INVPNAS)’s Africa funds.

“When stocks sell off that’s when we typically take advantage of more attractive valuations,” he said by phone from Cape Town, declining to comment on what he’s bought. “If we see a devaluation it’s likely to be quite measured and contained.”

Dollar Demand

Growing demand for dollars in the 80 trillion-naira ($497 billion) economy pushed the naira down 2.7 percent in 2013, the fifth annual drop in six years. The central bank has kept its key policy rate at 12 percent since October 2011 while increasing the amount of capital that lenders must set aside as a buffer, causing a decline in banks as Guaranty Trust Bank Plc warned the rules would curb lending. Fidelity Bank Plc is Nigeria’s worst-performing lender this year, sliding 26 percent, followed by United Bank for Africa, which is down 24 percent.

The central bank sold $5.8 billion of foreign-currency reserves in the first-quarter to prop up the naira at auctions and in occasional sales directly to banks. That depleted reserves by 13 percent, the biggest three-month drop since Bloomberg began compiling the data in 2010.

The naira gained a fourth day, rising 0.1 percent to 161.80 per dollar at 3:03 p.m. in Lagos, paring losses this year to 0.3 percent.

‘Fast Dwindling’

Goldman Sachs Group Inc. doubts the central bank can keep warding off a devaluation. The “fast dwindling of foreign-exchange reserves” shows that “the question is no longer whether the naira will devalue but, instead, when and by how much,” JF Ruhashyankiko and Mark Ozerov, analysts at Goldman Sachs, said in a note on April 9. They see the currency at 195 against the greenback in the next 12 months.

With Jonathan’s ruling People’s Democratic Party facing a close contest at elections scheduled for February 2015 amid a series of high-profile defections to the opposition, the challenges weighing on the bourse probably won’t abate if foreigners see risks and pull out of the market, said Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd.

“The question is, how long will the central bank continue to use the reserves,” Yinkere said. “Foreigners, for us, will continue to feel risk in the currency.”

Negative Outlook

Standard & Poor’s placed the country’s credit rating on negative outlook on March 27, saying that PDP “infighting” heightens political and institutional risks while oil theft and pipeline shutdowns curb output. Nigeria depends on oil for about 80 percent of government funds and more than 95 percent of foreign income, according to the Finance Ministry.

Jonathan, 56, broke an unwritten PDP convention to rotate power between the mainly Muslim north and largely Christian south, his home region. He’s yet to declare whether he plans to run in 2015.

While the dispute will probably keep some investors out of the market, spending on infrastructure and pay raises given to state workers before the vote may give companies a boost, said Investec Asset Management’s Rohm.

“There are some aspects of the economy as we move towards the election that will benefit,” Rohm said. “Nigeria remains one of the most attractive long-term growth stories on the continent.”

To contact the reporters on this story: Chris Kay in Lagos at ckay5@bloomberg.net; Emele Onu in Lagos at eonu1@bloomberg.net

To contact the editors responsible for this story: Vernon Wessels at vwessels@bloomberg.net Emily Bowers

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