“If you invested in MTN stocks on the 1st of January 2021, you would have made a 15.95% return on price appreciation as of 31st of December 2021. We believe that this explains the reason why MTN stock is a juicy one to have on the @NGX platform”.
Despite a litany of problems-anaemic economic growth, a high inflation rate, low participation by foreign investors and the seemingly permanent dollar crisis – the Nigerian equities market wrapped up trading for the year on a positive note, posting a Year-To-Date (YTD) return of 6.07%. The performance exceeded expectations as local stocks wobbled for most of 2021. According to data obtained from the Nigerian Exchange Limited (Formerly the Nigerian Stock Exchange), the stock market did not post double-digit returns in any month in 2021.
The stock market sustained its bullish run into the new year with NGX All Share Index (NGXASI) maintaining an upward trend to close with a YTD performance of 2.09% on Thursday, 6th of January 2022. The market is rising this January as it did in January 2020. Whatever happens down the line, it is a great time to invest in the Nigerian stock market. Even as we approach an election year, the modest return of 6.07% in 2020 provides some comfort that you may not lose money. But more importantly, a lot of Nigerian stocks currently remain undervalued and hence present attractive opportunities for investors buying for the long term.
The big question now is what stocks you should invest in. We compiled a list of stocks you should actively consider for your portfolio in 2022.
LAFARGE AFRICA PLC (NGX:WAPCO): Lafarge Africa is a top 3 cement manufacturer, alongside Dangote and BUA. In terms of revenue earnings, Lafarge Africa consistently outshines BUA Cement with full-year sales of N230.6 billion in 2020. This could be due to a price difference in their cement bags or customer base. Also, Lafarge is performing well in terms of compensating investors with ROI as the company declared a total of N16.11 billion in dividend payments last year, due to its strong cash flow and low debt ratio. The management of Lafarge Africa is keen on repositioning the company by culling problematic subsidiaries and reinventing its business strategies.
Regardless of its current situation, a majority of analysts give Lafarge a Buy recommendation owing to its strong fundamentals and its current low valuation. In addition, the recently published 2021-2025 National Development Plan (NDP) by the Federal Government of Nigeria, which is expected to heavily invest in physical infrastructure across the country, presents higher sales opportunities for cement companies.
However, Lafarge Africa must work on raising its profit after tax well above the N30.8 billion it reported in 2020 to maximise the benefits of its present efficient cost management strategy. After all, what use is revenue if it doesn’t result in a fat bottom line and create wealth for investors?
JULIUS BERGER (NGX:JBERGER): Nigeria’s leading construction company, Julius Berger Nigeria Plc, provides holistic services in planning, engineering and construction of infrastructure and industrial projects in Nigeria.
Julius Berger Plc recorded a revenue of N74.04 billion in the full year of 2020, a 2.43% increase over the prior year despite a significant decline in one of its main income-generating units -“its building works”-which fell by 56.37% owing to the Covid-19 pandemic effect on construction services. Despite the choppy year, the company declared N634 million profit to shareholders in 2020, signaling its commitment to keeping investors happy. On the capital appreciation front, if you invested in Julius Berger stocks on the 1st of January 2021, you would have made a 25.56% return on price appreciation as of 31st of December 2021. This provides opportunities for investors seeking short term positions in the stock for profit-taking.
A Lagos-based analyst noted that Julius Berger was awarded 8 major construction projects for 202; public construction projects, federal as well as state-level, is the major driver of the company’s revenue. Major local projects in Nigeria not sponsored by the Chinese government usually get assigned to Julius Berger. The MTN tagline “everywhere you go” befits JB; the firm’s blue logo is on signboards across Nigeria.
Like the cement firms, Julius Berger will profit from more investment in infrastructure envisaged in the National Development Plan. The surge in real estate activities and resumed investment in construction by corporates post-recession which is likely to be sustained as oil prices remain around $70 are upsides for the company. If the fuel subsidy is eliminated as envisaged in the middle of the year, more revenue may flow into construction activities.
Also Read: Berger Paints Appoints New CFO
MTN NIGERIA COMMUNICATIONS PLC (NGX:MTNN): MTN Nigeria Plc has consistently outperformed its peers in the telecom industry in terms of customer base, revenue and profit. Its positive outlook for revenue growth, profits and dividend payments is further strengthened by the recently obtained payment-service bank (PSB) license from the CBN which could see the company accelerate its mobile money payment services & agent network across the country. Also, the recently awarded 5G license could see the company roll out its 5G network across major urban areas in Nigeria later this year. The hybrid working system triggered by the Covid-19 pandemic coupled with the recent increase in Covid-cases provides an opportunity for MTN to boost its internet market share. According to the data obtained from the Nigeria Communications Commission, MTN Nigeria accounts for 41.7% of the internet market share by the end of Q3, 2021.
Analysts also noted that MTN Nigeria has consistently provided returns for investors on both dividend payments and capital appreciation fronts. According to data from its official website, MTN Nigeria Plc posted a breathtaking revenue figure of N1.35 trillion at the end of 2020 and has never been shy of paying robust dividends to investors. Similarly, investors received a total dividend payout ratio of over 90% of profit in the same period. If you invested in MTN stocks on the 1st of January 2021, you would have made a 15.95% return on price appreciation as of 31st of December 2021. We believe that this explains the reason why MTN stock is a juicy one to have on the NGX platform.
MTN Nigeria’s management is strategic, consistent, and agile. With the approval-in-principal license for PSB, the proposed 5G deployment, and the recently diversified ownership structure which made MTN shares publicly available to the general public on December 1, 2021, these actions explain a positive outlook for the stock. MTN remains a very good buy.
ZENITH BANK PLC (NGX:ZENITHBANK): Zenith bank Plc is the largest Nigerian bank by market capitalisation. The bank’s strong fundamentals, consistent dividend payment, high dividend yield and potential for capital appreciation makes it an attractive stock for short and long-term investors. For the full year 2020 result, Zenith Bank’s gross earnings increased by 5% to N696.5 billion; its non-interest revenue rose to N251.7 billion, and interest income improved by 1% to N420.8 billion. Despite a difficult macroeconomic environment, Zenith bank Plc has made a total payment of N262.16 billion to its shareholders in the last three years, according to data obtained from its official website. In fact, the banking sector has defied the odds as it continues to experience tremendous growth.
With Zenith increasing its activities in terms of retail customer deposits, corporate deposits, loans and heavy investment in technology coupled with the recovery in economic activities, we expect these to filter positively into the bank’s performance.
Also Read: Lafarge Promises Shareholders New Phase of Growth, Pays 100k Dividend
SEPLAT ENERGY PLC (NGX:SEPLAT): SEPLAT is an independent oil and natural gas producer with shares listed on the Nigerian Exchange Limited (previously NSE) and the London Stock Exchange (LSE) simultaneously. The stock is currently trading around 650-655 Naira bandwidth, well below its 52-week high of 770 Naira. Despite the global pandemic which led to a downturn in crude oil prices in 2020, the company experienced a further cost reduction, improved operational efficiencies and reported revenue of USD530.47 million, plunging 24% year-on-year. SEPLAT displayed resilience through these tough periods by paying down USD100 million worth of debt, making USD58 million in dividend payments to shareholders and completing funding for the ANOH Gas Project.
The positive outlook for the stock is due to the uptick in crude oil prices which is expected to remain strong through 2022 due to an improvement in economic activities. Also, the ANON Gas project investment is expected to increase the company’s natural gas production which creates an opportunity for SEPLAT to rebalance revenue and reduce its exposure to crude oil. Once Operational, the ANON Gas Processing Plant which is a 50-50 joint venture owned by SEPLAT and Nigerian National Petroleum Corporation will be a major gas supplier to Nigeria’s power sector as the country is keen on transitioning to a cleaner energy source.
We believe that these interesting stories could translate into an increase in SEPLAT’s stock price and higher dividend payments to investors.
As we look forward to the release of 2021 full year corporate results, we expect that these targeted stocks could deliver positive results and beat their prior-year results. Analysts also have noted that investors should look out for the stocks of financial, cement manufacturing, oil & gas and telecommunication companies as they are expected to post impressive earnings.
Also, the increase in oil production volume by the Organisation of Petroleum Exporting Countries (OPEC) and the spur in global economic activities could result in higher FX inflows for Nigeria. We expect that this could reduce the exchange rate volatility and influence the Nigerian equity space. However, the anticipated interest rate hike in advanced economies, the pre-election factors and the stability of the Naira are some of the factors that could shape foreign investors participation in the Nigerian equities space in 2022.
Disclaimer: Please note that this article should not be seen as a guide or recommendation for investment purposes. All contents have been curated based on the writer’s analysis, research and selected analysts opinions of Nigerian stocks.