Jan 2 (Lagos) - As we begin 2019 on fresh hope of revival in the stock market, let us take a look back at what were the best and worst stocks of 2018. Looking back can often offer valuable insight into what to expect in future especially when it comes to investment cycles and sentiments. 2019 is an election year so no doubt it will be compared to 2015 and 2011 by various analysts.
2018 behaved just like 2014 as both were pre-election years. Both times the market rallied furiously at the beginning of the year for a period of less than 1 month and then gave up all the gains for the rest of the year. By the time these years ended, investors were left in a hopeless situation of financial losses.
So let us begin with the five best stocks of 2018
1) CEMENT CO. OF NORTHERN NIGERIA PLC ( CCNN ) was the best performing stock in 2018, gaining 104% year to date and closing the year at N 19.40. However, the stock closed
38% below its year-high of N 31.35 which was achieved in July.
While biggest Cement Company's stock DANGCEM
struggled and second biggest Company WAPCO
got slammed, this Company lead the sector. This year could yet be the best for the stock given its small size and float and positive investor sentiment not to mention the 38% decline in stock since July. We will be expecting the stock to recover those losses this year.
2) Unity Bank Plc ( UNITYBNK ) - The smallest Bank of Nigeria was the leader of banks on the stock market in 2018 rising by 101% however we should consider the long term view as far as this stock is concerned.
Almost 5 years ago, this bank carried out a rights issue followed with a reverse split which increased the stock price from 50 kobo per unit to N 5 per unit as a result of reduction in shares outstanding by 90%. So the price we see today of N 1 per unit is equivalent to 10 kobo per unit on pre-split value. Basically shareholders have lost 80% in last 4 years as various corruption scandals unfolded at this bank. Also the Bank has not paid any dividend for as long as we can remember.
Going into 2019, we can expect the stock price to rally based on rumors of mergers and acquisitions just like in 2013 period. Who knows maybe this time someone will actually buy them out ? Even if the stock rises, we will choose to stay out of this one given our high corporate governance standard requirements before investing in any Company.
3) STERLING BANK PLC ( STERLNBANK ) - This mid-size Bank made some positive waves in 2018. A new CEO, a new outlook and aggressive marketing that cause mind share were a few things that stood out during the year. The stock rose 75% in 2018 and is still undervalued by book value like all other banking stocks in Nigeria.
We like this stock because it has significant holding from one of the biggest banks of the world, the State Bank of India (SBI). That arguably makes this the strongest bank of Nigeria but the Bank chooses to underplay that foreign interest and not many people know about it. SBI is a powerhouse Bank with a market cap of USD 38 billion which is almost 90% of Nigeria's foreign reserves.
All in all, Sterling Bank is a solid Bank and if this stock falls from current levels, it should be bought.
4) NEM Insurance Plc ( NEM ) - The only Insurance stock in top 5 best stocks of 2018 the stock was up 62% during the year. This surprised everybody because investors in Nigeria tend to dis-trust Insurance stocks and for good reason. Past experiences of investments in Insurance sector have been disappointing. The stock grew because they increased their dividend payout on top of excellent growth in financials. While other Insurance stocks like AIICO could not keep their gains, this stock did. Going into 2019, we should expect the stock to remain stable and not lose these gains because that would bring a sense of deja-vu to the investors. The stock was up a lot more earlier this year but it is that expectation of deja-vu in Insurance stocks that evaporated the gains.
This Company could also attract investment from International Companies as there are reports of International Companies looking to acquire Nigerian Companies. That reality should keep the Insurance sector buzzing in 2019 so look for quality stocks in this basket as most of the apples in this basket are rotten.
5) Learn Africa Plc ( LEARNAFRCA ) - This Company publishes textbooks for most of Nigeria's schooling system. Chances are you have used a lot of their products growing up in your schooling days. This is a small Company but it has a clean balance sheet and paid a dividend of 14 kobo per unit last year thats better than a lot of what bigger Companies offer to their investors in Nigeria. We feel this Company can do a lot better in time to come.
Given the P/E of under 4 and Price/Book ratio of 0.3, we would be comfortable in holding this equity. Not a lot of this stock is traded so there must be high insider interest and that could be a factor to be considered before deciding to invest here.
Now let us take a look at the 5 worst stocks of 2018 and whether they can turn around this year.
1) LaFarge Africa Plc ( WAPCO ) - The cement manufacturer has notified public about their upcoming rights issue which would be second in a short period. Also it would be sharply below the price levels of the previous rights issue of 2018. So investors who participated in previous rights issue got a very bad deal and are about to be diluted further. With already 8.67 billion shares outstanding, the Company is increasing that number at an alarming rate for existing shareholders.
Lafarge is a largest cement manufacturer in the world but its Africa operations listed in Nigeria are under pressure and the N 15 billion loss of 2017 is tough to comprehend.
The stock lost 72% in 2018 and is due for a rebound, but given the rights issue it could take some time so better to wait and watch for now.
2) AG LEVENTIS & CO PLC ( AGLEVENT ) - The stock declined 61% in 2018 and fell below the 50 kobo level following the removal of the 50 kobo rule. Currently the stock trades at 27 Kobo per unit.
The stock could bounce back given how much it has declined this year. But overall nothing much exciting here. Company reported loss in its 9 month income statement which intensified the decline in the stock price. Company also posted loss in 2017.
3) McNICHOLS CONSOLIDATED PLC ( MCNICHOLS ) - The stock lost 60% in 2018 and the market cap of this food manufacturer stands are N 140 million now. Given the competition in the sector and the lack of any credible outlook, and PAT of N 49 million, the Company does not have much to return back to its shareholders at this moment. Future sales are the only catalyst for this stock and until that shows in results its better to stay away for now.
4) AFRICAN ALLIANCE INSURANCE PLC ( AFRINSURE ) - Trading at 20 kobo per unit, the stock has lost 60% in 2018. The company does not pay dividend. Only way this stock going is going to rise is if results improve, dividend policy is put in place or if international investors decide to buy this stock.
Last is not likely because international investors are likely to go for quality names. Given a chance we will not buy the stock even at these levels and will not regret our decision even if the stock rises. This company claims to have 55 years of experience on its website and yet does not pay a dividend and has a market cap of only N 4 billion.
In our opinion NAICOM needs to do something about such Companies operating in the sector. Mergers in the sector are important to have strong Companies so that investors take the sector more seriously.
5) Chams Nigeria Plc ( CHAMS ) - Another victim of the 50 kobo rule like its predecessor in this list, the stock has lost 60% in 2018 and currently trading at 20 kobo per unit. Such Companies enjoyed the 50 kobo rule till it lasted but now their net worth is more clear and this Company is worth less than N 1 billion given the current stock price.
Company reported loss of N 1.2 billion in 2017 which led to the steep decline in stock price. In our opinion the stock exchange needs to have some minimum standards on valuation of Companies to remain listed.
In 2015 after the election result was announced, the ASI rose so sharply that the time was called Bullahari. However the next 4 four years have been disappointing due to deep recession, currency devaluation, policy flip-flops etc.
Let us hope that 2019 elections bring the kind of rally that lasts throughout the year and begins a long term bull market that Nigeria deserves and requires.
The currency risk that exists is something that will keep foreign investors guessing as indicators point towards another devaluation on the horizon. Hope the government can prove the doubters wrong and look forward to a good 2019.
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