FBN held its 3rd annual investor conference in Lagos
Analysts at FBN capital say they expect a modest multiple expansion in equities in Nigeria in 2014. They said this while presenting the 2014 economic forecasts at the 3rd annual investor conference in Lagos themed: ‘Tomorrow’s Nigeria through Economic Empowerment’.
While giving the firm’s 2014 outlook on equity/fixed income views, Olubunmi Asaolu, Head, Equity Research, FBN Capital, said, “A modest multiple expansion is expected on equities.”
He added that at current levels, risk-reward appears slightly more favourable in fixed income instruments than equities.
The forecast, which is expecting to see more investment in the nation’s equities, is in line with Nigeria’s present stance as an attractive hub for investment.
Mr. Asaolu said within equities, banks and the cement industries are slightly favoured over consumer goods by FBN Capital.
For consumer goods, he indicated that FBN Capital believes that the market has expended its goodwill given the significant gains recorded in several blue chip names.
On the macro front, Gregory Kronsten, Head, Macroeconomic and Fixed income Research, FBN Capital, noted that the Central Bank of Nigeria’s rationale for caution and its tight monetary stance since quarter three of 2010 is likely to run through 2014.
According to him, the outlook on real growth of the nation’s economy is expected to rise to 6.8 per cent from an expected 6.7 per cent at 2013 year end, compared with 6.6 per cent at year end 2012. Inflation is also predicted to rise to 8.0 per cent year end 2014, from an estimated 7.7 per cent year end 2013, compared with 12.0 per cent year end 2012.
“The Monetary Policy Committee has maintained a tight monetary stance through its policy rate and tools such as the Cash Reserve Ratio (CRR) for banks.
“Rather than ease in the period to end-2014, our view is that it is more likely to tighten its position in further defence of its objectives.
“We think that the Monetary Policy Committee will leave its policy rate at 12 per cent and that the Central Bank will be able to hold the line on the current exchange rate management,” Mr. Kronsten said.
According to him, the stance has helped to deliver striking achievement on inflation, with the nation recording single digit inflation for nine successive months.
“The Central Bank is expected to narrow its objectives from single digit to a range of 6 per cent and nine per cent” he said.
“One reason for the tight monetary stance is to compensate for lapses in fiscal discipline, which in the MPC’s view have increased in 2013. The Federal Government’s intentions in its medium term expenditure framework are laudable,” he added.
Highlighting an attractive scenario for investment, Mr. Kronsten said “We see stability for the naira, a tight monetary stance and single digit inflation in the forecast period. The authorities believe firmly in offering positive returns in real terms.
“The main risk to this picture is not tapering, but a sharp fall in oil revenues. Our oil price projections however suggest that Nigeria will escape this fate.”
He also said there is an expected substantial rise in the nation’s GDP. He highlighted that presently, there is a robust GDP growth driven by the non-oil economy. Growth is above 5 per cent per year, for more than a decade. Though it slowed down to 6.2 per cent year on year quarter 2, 2013, he said it rebounded to 6.8 per cent in quarter 3, 2013.
He said there was good growth in the nation’s manufacturing sector, but not yet on a scale to deliver consistent double-digit GDP growth.
“Non-oil revenue is finally growing, but from a very low base. The contraction in the oil economy in five of past six quarters due to underinvestment and production losses” he said, adding that despite the seeming challenges, there is an expected substantial rise in the nation’s GDP.
