Despite investors’ risk-off sentiments in Nigeria’s election year, analysts still see value in some stocks for investors in 2023.

The stocks include MTN Nigeria Communications Plc, United Bank for Africa Plc, Fidelity Bank Plc and Okomu Oil Plc.

Vetiva Research said “high conviction stocks” for 2023 include FCMB Group Plc, which opened this year at N3.85 with the analysts’ target price of N5 for the year.

It also listed Fidelity Bank Plc, which opened the year at N4.35 with target price set at N6.

The analysts said Dangote Sugar Refinery Plc is a good buy in 2023, considering its open price of N16.05 and target price of N54.37.

“High conviction stocks” are the companies the analysts believe have sound fundamentals and provide superior risk-adjusted returns over the next 12 months. These stocks are reviewed quarterly.

“In 2023, we remain optimistic about the growth prospects in the telecoms sector, with MTN Nigeria expected to maintain its impressive growth trajectory. However, the elections and transition period could initiate a dry spell, as investors remain on the side-lines ahead of the swearing in of a new administration,” Vetiva analysts said.

“This year, we expect a continuation of the investment strategy of 2022. We anticipate a continued emphasis on fundamentally sound stocks in the key sectors (telecoms, banking, consumer goods, industrials and oil & gas), with particular attention given to dividend-paying stocks. We expect another positive year for the equity market, mainly driven by local investors.”

Julius Berger Plc is among the stocks picked by Vetiva analysts. The stock opened this year at N24.50 and the analysts expect it to reach N34.79 in 12 months.

Another stock in the analysts buy list this year is MTN Nigeria, which opened at N215 per share and is expected to reach N313.08 by year-end.

Nestle Nigeria Plc is also said to have upside potential from its year-open low of N1,100 to a target price of N1,936.99. Okomu Oil, which opened the year at N165, is expected by Vetiva to reach N204.40 in 12 months.

Also in Vetiva’s picks for 2023 is Stanbic IBTC Holdings Plc, which is expected to rise from a year-open low of N33.45 to N42; TotalEnergies Nigeria Plc is also expected to rise from N193 at the beginning of the year to N296.56; and Lafarge Africa Plc, from N24 to target price of N30.97.

Meristem analysts believe that the risk premium on equities will remain elevated in 2023. They, however, want investors interested in the agricultural sector to buy Okomu Oil Palm and Presco. In the banking sector, they asked investors to buy Access Corporation, ETI, FCMB, Fidelity Bank, FBN Holdings, GTCO, Stanbic IBTC Holdings, UBA, and Zenith Bank, while also advising investors to hold Sterling Bank, Union Bank and Wema Bank.

“We note the likelihood of a market rally in January, especially due to the optimism that usually comes with the new year, portfolio rebalancing activities, and possible corporate actions like Dangote Cement buy-back,” Meristem analysts said.

“However, we expect this to be short-lived, as investors move to the less risky fixed-income investments, due to attractive rates and heightened political and economic risks. In our view, the mood in the market post-election will be largely dependent on the ease of transition of power, investors’ confidence in whoever emerges at the polls, and immediate policy decisions.”

While Meristem analysts also want investors to buy MRS, they asked them to hold Conoil, Seplat and Total.

For the healthcare sector, May & Baker, Fidson, GSK, and Neimeth are in the analysts’ buy list for 2023. For industrial goods, Dangote Cement, Lafarge Africa and Berger Paints are in the analysts’ buy list, while CAP is in their hold basket.

For the insurance sector, AIICO, Lasaco, Custodian and AXA Mansard are in the buy list. The analysts asked investors to hold stocks of NEM Insurance, Coronation Insurance and Cornerstone.

MTNN is on their buy list while Airtel is on hold list.

Analysts at Vetiva Research said: “In 2022, our conviction stocks recorded a weighted average return of 23 percent against the All Share Index 20 percent y/y return. This represents a 3 percentage point outperformance for our selections, with four stocks in the portfolio recording negative y/y price movements.

“This time, investors were mainly weary of consumer goods stocks, with that index closing marginally in the red (-0.06percent y/y). This could once again be attributed to the erosion of investor sentiment that accompanied the high inflation and continued weak foreign investor activity in the market. On the other hand, the strong crude prices reported during the year boosted confidence in the upstream oil and gas sector.

“However, investors were put off by the lingering fuel scarcity and weak margins in the downstream sector. Meanwhile, the industrial goods sector was positively affected by increased capital expenditure in the pre-election year.”

Meristem analysts expect inflation to remain elevated for the most part of 2023. “This is hinged on a number of factors: the lack of a clear path to end the lingering fuel scarcity; the possible removal of fuel subsidies in the second half of the year; the persistent FX illiquidity issue; and high spending ahead of general elections.”

“However, we do not expect a significant jump in the inflation rate due to the high base effect from 2022,” they added.

While acknowledging that the local bourse remains attractive among key peers, Meristem analysts said: “The Nigerian equities market presently trades at a price-to-earnings ratio of 10.2x, which is a discount relative to its five-year average of 13.31x, emerging markets P.E. of 10.7x, and developed markets P.E. of 13.5x.

“This suggests an undervalued market and makes a case for investors who are willing to take on the associated risk. Thus, we expect the low valuation to serve as an incentive for highly risk-tolerant investors to channel funds into the equities market in 2023.”

The analysts expect corporate performance to remain broadly positive in 2023, with equally impressive dividend declarations.

“The major downside risk to this is the inflation-driven surge in input costs and less favourable funding conditions which could incentivize firms to retain more income for investment purposes rather than distributing them in the form of cash dividends. Furthermore, we note the increased likelihood of certain corporates that require long-term funding to tend towards equity capital raise (like rights issue) due to the high cost of bonds,” they added.

“We anticipate a muted performance from the NGX in the first quarter 2023 as focus turns to the general elections in February. However, given our expectation of a recovery in the second half 2023, we continue to anticipate that the NGX will provide double-digit returns in 2023,” FBN Quest Research analysts said.

United Capital research analysts want investors to hold Dangote Sugar, International Breweries, Unilever, Flour Mills, Nigerian Breweries, Guinness, UACN, Dangote Cement, BUA Cement, Lafarge Africa, MTNN, Airtel Africa, Seplat and Presco. They advised them to buy Okomu Oil and TotalEnergies.

They said: “We expect the bears to resume activities across counters, as we anticipate further spread across other sectors as investors book profits from the extended rally. The CBN’s recent CRR debits in the money market will likely discourage investors from sustaining investment in equities in the short-term as they hope for improvement in money market yields.

“However, we see any downturn as a short-term buying opportunity as we expect investors’ risk-on sentiments will linger through Q1-2023, favouring the equities market, as the prevailing downward pressure interest rates will persist through the quarter.”