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Tripling the NSE: How to reach a $250 billion market cap by 2020

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IMAGE: Oscar Onyema, CEO »


The S & P 500 tripled between 1994 and 1999 as productivity gains exploded with the internet or dot-com age. The Nigerian Stock Exchange (NSE), on the other hand hopes to grow tenfold to $1 trillion by 2016 from today’s levels of about $85 billion.

While it an ambitious dream (announced as the NSE’s new CEO Oscar Onyema took office some three years ago), observers of the market would tend to agree that is not feasible.

It may be time for the NSE and other regulators such as the SEC and CBN to review the nation’s stock market with a view of repositioning it as the major gateway to the future Africa of growth and innovation.

This will however not happen until Nigeria’s stock market size begins to mimic its economy.

Nigeria’s economy expanded at an average of 6 percent over the past 5 years and its GDP currently stands at a little over $510 billion.

The market capitalisation of all equities listed on its main stock index the NSE-ASI however stood at $85 billion as at August 22.
Market capitalisation as a percentage of GDP is equivalent to 16 percent, one of the lowest in the frontier market (FM) and emerging market (EM) space.

If Nigeria’s economy expands at the current estimated 6 – 7 percent range between 2014 and 2020, it would mean nominal GDP may approach $750 billion in 6 years.

Of course this assumes that the naira will not see significant devaluation (below the N180/ dollar mark) which we don’t expect to happen.

A growth in GDP to this levels would further highlight the low linkages of the stock markets to the economy (as market cap/GDP would drop more) making it unattractive to global investors.

Productivity, Planning and Prodding

The quickest way to increase the stock market’s capitalisation would be to boost productivity in Nigeria’s economy helping to increase profits for listed and unlisted firms, as well as the purchasing power of citizens.

As productivity gains picked up between the late 1990s and early 2000s in the US, the FED recognized that accelerating worker efficiency would contain inflation even as the economy strengthened and unemployment stayed low.

That allowed the Fed to keep interest rates little changed from 1996 to 1999, coinciding with the period when U.S stocks tripled.

One big way to boost productivity in Nigeria would be to unleash the power of natural gas as a cheap energy source for production.

Nigeria could position herself as a hub for manufacturing in Africa, with her discovered gas reserves estimated at 187 trillion standard cubic feet (scf).

Industrial parks targeting Asian and other manufacturers seeking to move to countries with cheap labour and other costs of production should be developed along the coast from Lagos to Calabar, and also in inland cities such as Kano, Kaduna, Abuja, Lokoja and Jos, fed by gas pipelines.

Beyond productivity is the issue of planning and co-ordination between the various agencies needed to improve Nigeria’s business climate to grow businesses and encourage new listings.

There may be a need to have one main agency comprising (representatives from the CBN, SEC, Trade and Investment etc) in charge of the push to increase the stock market’s capitalisation and relevance to the economy.

While the NSE-ASI would get an immediate boost if listed firms like Dangote Cement, and Nestle gain from a rise in productivity, which would translate into improved bottom-line, lower costs, growth and multiple expansion, there is also the sticky issue of getting unlisted firms to list on the bourse.

This is where prodding comes in.

We think it is unacceptable that a big firm like MTN Nigeria which reported revenues of $ 2.5 billion in the first half of 2014 and which up 37.2 percent of the MTN Group’s total revenues, has no primary or secondary listing on the NSE.

The government should come up with a stick and carrot (tax incentives) policy to encourage firms to list.

Urgency needed for NSE demutualization

There needs to be greater urgency by the NSE in its moves to demutualize the bourse.

Demutualisation is a process by which a member-owned Exchange is converted to a shareholder-owned Exchange. After demutualisation, the NSE would be exposed to robust corporate governance; enhanced efficiency and transparency associated with publicly quoted companies.

It also allows the Exchange to be competitive and to take up investments that could enhance efficiency and innovation.

The NSE demutualisation process that has stalled for over three years now, needs to be put on the front burner.

Sectors ripe for potential listings

With a potential combined Market Capitalization of $160.3 billion, getting the companies below to list on the exchange has the capacity to transform the NSE into a true emerging market Index.

Valuation of course is tricky, but using a combination of comparison

‘Providing proprietary research, commentary, analysis and financial news coverage unmatched in today’s market. Published twice weekly, Markets & Finance provides all the key intelligence you need.’to emerging market peers and potential price to sales ratios (P/S), gives an idea of what they might be worth once they go public.


Notore, Est. Mkt Cap $1.2Billion

Notore Chemicals Limited, a $400 million (revenues) Nigerian company backed by private equity firm Emerging Capital Partners, is the only producer of urea fertilizer in Sub-Saharan Africa.

The company began production in 2009, after it bought and upgraded the plant of state-owned National Fertilizer Co. of Nigeria. The plant has the capacity to produce 350,000 metric tons of ammonia, 500,000 tons of urea and 650,000 tons of “bulk blend” NPK fertilizer a year.

Notore gets a potential valuation of $1.2 Billion, based on an above industry average price to sales P/S ratio of 3.


AFC, Est. Mkt Cap $900Million

Africa’s Premier Private Sector led Investment bank Africa Finance Corporation (AFC) is a prime candidate to bring to the stock exchange.AFC had total assets of $1.92 billion as at yr end 2013. Profits for the year came in at $80 million.

AFC with a Book value of $1.282 billion gets a potential valuation of $1.025 billion or 0.8 times book value.


NLNG, Est. Mkt Cap $23 billion

Nigeria LNG Limited is jointly owned by Nigerian National Petroleum Corporation (49%), Shell (25.6%), Total LNG Nigeria Ltd (15%) and Eni (10.4%).

The NLNG Plant has a capacity of 22 million tons per annum of LNG and 4 million tons per annum of LPG.

Prices are relatively opaque due to long term locked in contracts, but assuming a midpoint price of $248/ton, revenues may have averaged $5.4 Billion dollars in 2013.

NLNG gets a potential conservative valuation of $23 billion, due to a lack of clarity on gross margins and long term gas contract prices.

Apache Corp’s 13 percent stake in the Wheatstone liquefied natural gas project, in Western Australia, could be valued at about $2.5 billion, according to UBS AG. The Wheatstone plant will produce 8.9 million tons of LNG a year and is due to start in 2016.

Giving the same valuation to NLNG would value the Nigerian company at $46 billion, while listing NNPCs 49 percent stake would give it a $23 billion market cap.


NNPC JVCs, Est. Mkt Cap $100Billion

NNPC has Joint ventures with partners that include Shell, Chevron, Mobil, Agip and Elf. These companies were responsible for over 90 percent of Nigeria’s oil production, with revenues in excess of $75 Billion in 2013.

These Joint Venture companies can together command a market capitalization of over $100Billion when compared to emerging market peers like Petro china and ONGC of India.


Indorama EPCL, Est. Mkt Cap $540Million

Eleme Petrochemicals Company Limited is a polyolefin producer based in Rivers State, Nigeria. Eleme was a 100 per cent subsidiary of the Nigerian National Petroleum Corporation (NNPC), until the Indorama Group acquired a 75 per cent stake.

The Eleme Complex is designed to produce 240,000 metric tons per year of polyethylene, and 95,000 metric tons per year of polypropylene.

A 5 percent Federal Governments equity stake in the company, worth N4.2 billion potentially values the company at N84 billion or $540Million.

Interswitch, Est. Mkt Cap $164 million
Interswitch is a Nigerian Tech company that facilitates commerce in the mould of a VISA or MasterCard. In Dec 2010, Helios Investment purchased a 67 percent stake in Interswicth for $110 million, valuing the company at $164 million


MTN, Glo, Airtel, Etisalat, Est. Mkt cap $30 Billion
MTN group is valued at $42.6 billion in Johannesburg.
Nigeria makes up 37.2 percent of MTN Group’s total revenues, meaning the market is valuing MTN Nigeria at $15.8 billion.
MTN also has about 50 percent of the market so the four telecoms companies (MTN,Airtel, Glo, Etisalat) can garner a market cap of $30Billion when they choose to list on the NSE.


Unbundled PHCN Power Companies, Est. Mkt Cap $4.5Billion
The Power Sector Roadmap envisages that the 11 distribution and 6 generation companies will eventually be listed on the stock exchange. The companies get a potential valuation of $4.5Billion.


Others would include Dangotes refinery project when it comes on stream in 2016, as well as unlisted indigenous Nigerian oil and gas firms.

Article Credit: Businessdayonline

Updated 4 Years ago

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Tags:     The Nigerian Stock Exchange     Oscar Onyema     CBN