How 10 Most Capitalised Stocks Control over 60% of NGX Market Cap

A pinnacle Daily data analysis has revealed that out of the approximately 147 companies listed on the Nigerian Exchange Limited (NGX), 10 dominant firms are responsible for more than 60 per cent of the NGX’s total market capitalization, exerting a significant influence on the exchange’s overall performance

BUA Foods now leads the top 10 most capitalised stocks on the Nigerian stock market, followed by MTN Nigeria Communications, Dangote Cement, and seven other companies.

Checks by Pinnacle Daily show that the 10 companies hold an aggregate market capitalisation of ₦60.49 trillion, representing approximately 64.52 per cent of the total NGX market capitalisation of ₦93.76 trillion as of October 13.

In the last five months, these stocks have seen their capitalisation rise significantly.

Highlighting the top 10 must-capitalised stocks

BUA Foods leads the pack as the most capitalised stock now on the NGX with a market value of ₦11.33 trillion as of October 13.

The stock held the second position as of May 12 this year with an N7.52 trillion market capitalisation but has since, within the last five months, overtaken Airtel Africa, which hitherto was at the top spot at the time.

In just three years of its debut on the NGX, the consumer goods maker has seen its market value surge from a relative newcomer to now the most valuable company on the Nigerian stock market.

MTN Nigeria Communications now has the second most capitalised stock with a ₦9.89 trillion market cap, up from ₦5.86 trillion in the five months under review.

The telecommunications giant also overtook Airtel Africa to maintain its position.

Dangote Cement, coming from behind, also overtook Airtel, boosting its market capitalisation to N9.87 trillion from N7.42 trillion as of May.

Airtel Africa, after being overtaken by these companies, now settles as the fourth most capitalised stock with an N8.68 trillion market capitalisation, up from N8.11 trillion as of May.

BUA Cement, also founded by the chairman of BUA Foods, Abdul Samad Rabiu, followed with a current market capitalisation of N5.38 trillion, rising from N2.83 trillion in the last five months.

Seplat Energy holds the sixth position with a market capitalisation of N3.55 trillion, slightly up from N3.29 trillion in the review period.

A tier-1 Nigerian bank, the Guarantee Trust Holding Company (GTCO), climbed up the ladder to become the seventh most capitalised stock with a market capitalisation of N3.42 trillion from N2.36 trillion as of May.

This feat achieved by GTCO may not be partly unconnected with the ongoing recapitalisation of the banks, a mandate the Central Bank of Nigeria (CBN) vowed to use to sustain resilience and stability in the banking system.

Geregu Power followed in the eighth position with an N2.85 trillion market capitalisation, sustaining its value and remaining flat at N2.85 trillion as posted in May.

Another tier-1 bank, Zenith Bank, now stands as the ninth most capitalised stock, with a value of N2.79 trillion from N2.004 trillion in May.

Aradel Holdings is now representing the tenth most capitalised stock on the Nigerian stock market with a ₦2.73 trillion market value, rising from ₦2.19 trillion in May.

Sound fundamentals help stocks deliver value

The Head of Financial Institutions Rating at Agusto & Co, Ayokunle Olubunmi, attributed BUA Foods’ market capitalisation surge to the company’s fundamentals

He said, giving a relatively good profile of the company and also relative stability in the exchange rate, a lot of companies, such as BUA Foods, which had faced revaluation and devaluation losses by importing raw materials, have seen these losses disappear since last year.

Olubunmi believes that, to an extent, recapitalisation has helped many banks, but it is not what is really driving banks’ performance.

“For instance, if you look at GTCO, it just concluded its recapitalisation in August thereabouts. They’ve not even fully deployed the funds that they’ve raised.

“What you see is that it’s the historical performance of these two banks. They have had the highest profits in the banking industry. There’s no way the banking industry will be growing, that the growth will not reflect or even trickle down to these two banks,” Olubunmi said.

He noted that the sensitive nature of the financial industry, as one of the most regulated or the strongest sectors in the economy, means there is no way the stock market will grow without the banks also recording an increase in share prices.

“So, my own view, even if we’ve not had the recapitalisation exercise, those banks’ shares will not even be going up because even at that, if you go and compute it, you still notice that they are still trading at a discount compared to their peers globally,” he added.

At the time BUA Foods’ stock was listed on the NGX, it had a number of outstanding shares that were very high at the point of listing.

So when the market rally started, supported by the company’s green fundamentals, obviously, the market capitalisation would increase to a very high level, a stock market expert and Executive Vice Chairman of Highcap Securities Limited, David Adonri, explained to Pinnacle Daily.

“So, I think those are the factors that have propelled a stock like BUA Foods.”

He noted that in terms of profitability, the company has been improving over time even though the dividend payout is minor and not as impressive as what is obtained in the banking sector or the cement building materials sector.

“But the company has consistently been paying dividends. And if you then look at the potential of BUA Foods, you know it’s very, very bright.

Considering its location within the economy, in the agricultural space, where there is a very serious supply gap, a sector that has the potential to grow massively into the future.

“And when you have a well-organised business like BUA Foods that is also well-diversified along the value chains of the agricultural sector, then it’s not surprising that investors have been buying the stocks heavily,” Adonri explained.

He stressed that pressure has taken the company to where it is now as the most capitalised stock.

He noted that the other top stocks, such as MTN, Airtel Africa, and Dangote Cement, have traditionally, at least in the recent past, been leaders in the market because of the strength of their fundamentals.

“They have had some fundamentals. Although the recent floating of the Naira severely affected MTN, it has recovered. From the damage to the balance sheet, Airtel has been resilient.

“And BUA and Dangote Cement suffered minimally from that negative impact of the floating of the Naira,” he added.

According to Adonri, it is not surprising that GTCO and Zenith Bank are in the top 10 list because ordinarily, the banking sector used to be the pride of the market and the most centralised stock in the past.

“But when those other giants came in, they all stepped aside.

“But they are still very powerful in the market, and they are possibly the highest dividend payout companies within the market,” he said.

He noted that the bank’s stocks still command a lot of interest from investors and remain attractive laggards.

“They have a lot of investment into that sector, and then coupled with the huge success of their recent recapitalisation programme, which has attracted a lot of demand for their stocks, taking them to be within the top 10 highly capitalised companies listed in the market,” he said.

Dominance of a few stocks creates over-concentration of risks

According to Adonri, the worries over a few stocks dominating the market could be viewed from two perspectives.

On the one hand, he said, “The implication is that when you have very few stocks that are extra large and dominating the market, then it means that the market is not deep enough and may not be able to sell as the barometer for the economy because many other enterprises are yet to be listed in the market,” he said.

On the other hand, it also shows that before any stock can be listed on the market, it must meet certain criteria, the listing requirements, and post-listing requirements after being listed.

“A lot of the stocks we have in the market – some of them are not large companies; they are medium or small companies, and definitely they are unable to contribute materially to the market capitalisation, but they are still important,” Adonri said.

He pointed out that the implication is that any other companies that are out there that are even larger companies that are not listed and have been clamouring to be listed, like in the energy, power, and agriculture and even in the manufacturing sectors, if listed, they will materially expand the depth of the market and water down the concentration risk in the market.

“When you have a few dominating the market, it takes the market away from the ideal market, which should be a perfect market, where there is no enterprise with significant size to determine the direction of the market.

“Everybody is a price taker when you are in the perfect market. So, the market is still at a level that is lower than perfection, and that will make it a world-class market. That is the situation now,” Adonri explained.

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