The financial market in 2024 has been a story of “two unequal halves”. In the first half, the domestic equities market surpassed previous highs, hitting the 100,000-point mark for the first time, as elation about reforms remained rife amongst investors. In the second half, fixed income yields hit unprecedented levels, moving in tandem with the MPC’s aggressive stance and, thus, reinstating investors’ belief in the rate transmission mechanism.
We believe 2025 may be reminiscent of 2024 as economic reforms by the FG continue to be rolled out, consolidating on those already implemented. Primarily, the journey to recovery will reflect improving macroeconomic conditions, which should have a positive impact on the financial markets in the coming year.
We expect still elevated yields, particularly in the first half, as the MPC maintains a hawkish stance to address inflationary pressures and significant domestic borrowing needs. However, a potential change in monetary stance, as the disinflationary trend kicks in, should cause yields to temper in the second half of the year. Also, we expect reduced borrowing in the domestic market as the Eurobond market becomes more accessible and favourable for emerging economies, further supporting our argument. Our base case estimates Treasury bill and bond yields are expected to moderate to c.18.5% and c.18.0% by year end.
For the equities market, macroeconomic challenges are expected to linger, yet opportunities for strategic positioning remain. We anticipate a strong start to 2025FY, supported by investors’ position for dividends, which will accompany financial results for 2024FY. Furthermore, we anticipate an increase in foreign portfolio investors’ (FPI) participation, supported by improved FX liquidity and strategic positioning in undervalued stocks. The prospects for monetary easing in H2-25E are likely to bolster positive sentiment, setting the stage for a stronger market performance in the latter half of the year. All in, we forecast a 23.0% return for the NGX-ASI in 2025E.
We present our views on the different sectors we cover in the following sections:
Financial services (banking): For 2025FY, we expect gross earnings to remain resilient, primarily fueled by growth in funded income. Our prognosis is underpinned by our expectations of (1) elevated interest rates in the interim and (2) growth in banks earning assets. However, non-core income will likely face pressure due to the CBN’s Net Open Position restrictions, eradicating FX revaluation gains. On risky asset creation, we expect banks to maintain a cautious lending approach despite the penalties associated with LDR-induced CRR debits, given the challenging economic environment. Elsewhere, we anticipate that higher interest rates will lead to increased funding costs for banks while rising operating expenses pressure profitability. Our top picks are (1) GTCO (BUY, TP: NGN64.98/s), as the HoldCo maintains a robust operational efficiency, and (2) ACCESSCORP (BUY, TP: NGN38.53/s), given their dominance in the corporate and retail segments of the industry.
We anticipate a robust performance for the Cement sector in 2025FY, underpinned by sales volume growth stemming from the government’s accelerated infrastructural projects and modest price adjustments to mitigate inflationary pressures. Although margin contraction is likely to persist due to sustained costs and currency pressures, robust revenue growth is expected to fuel earnings expansion. Overall, we maintain a neutral outlook on the sector, with WAPCO (BUY, TP: NGN83.01/s) as our top pick.
Agriculture: Despite the challenging operating landscape, we believe the lingering FX liquidity challenges and long-term sector growth prospects remain favourable for sector players. For OKOMUOIL, though we do not expect a significant increase in its maturities, we believe the upgrade of the milling capacity at the Okomu II plantation will cause an improvement in its production efficiency and, in turn, its volumes. For PRESCO, we expect the producer to deliver revenue expansion supported by improved volumes. Nonetheless, we remain concerned about rising costs, including increased fertiliser expenses, which have an FX passthrough and could potentially pressure margins. Thus, we are neutral on the sector – OKOMUOIL (HOLD, TP: NGN362.92/s) and PRESCO (HOLD TP: NGN474.72/s).
Consumer staples: Our outlook for the consumer goods sector is neutral, driven by macroeconomic challenges, including high inflation, cost and currency pressures, inadequate infrastructure, and weak consumer spending. Volume growth will remain under pressure due to increased price sensitivity. Companies with significant foreign currency loan exposure, such as NESTLE and DANGSUGAR, remain at a disadvantage due to ongoing naira depreciation. However, food companies like NASCON (BUY; TP: NGN39.48/s) are expected to outperform, benefiting from strong product demand and their ability to raise prices. In contrast, the performance of beer makers (NB, GUINNESS, and INTBREW) will be influenced by price hikes, improved product mix, and gains from recent rights issues, although inflation, currency pressures, and excise duties may increase cost burdens, pressuring margins and earnings.
In the Telecommunications sector, we anticipate sustained topline growth in 2025E, driven by a recovering subscriber base, which will bolster revenue expansion, particularly in the data segment. However, persistent currency pressures will remain a challenge. For MTNN, we anticipate a return to profitability, driven by topline growth and cost savings from the successful renegotiation of IHS tower lease agreements. Meanwhile, for AIRTELAFRI, we expect sustained naira depreciation to further pressure Nigeria’s operations, but a lower FCY debt burden and reduced FX losses will drive earnings growth. All told, we maintain a cautiously optimistic outlook for the sector, with MTNN as our top pick (BUY; TP: NGN234.32/s), presenting an upside potential of 33.1%.
Oil & Gas (downstream): We expect the downstream Oil & Gas players to remain resilient as higher product pricing supports top-line growth. We believe that crude oil price volatility and sustained currency depreciation will undermine margin growth expectations; however, with the growing domestic refining capacity, the dependence on imported petroleum products will reduce, thereby reducing the impact of currency depreciation on the cost lines of the Oil marketers. Our top pick remains TOTAL (BUY, TP: NGN838.93/s) as we expect the company to maintain its resilience in 2025, benefitting from its broad reach in the market.
Cordros
