By Chris Kay
(Updates Nigerian index closing price in 22nd paragraph.)
April 12 (Bloomberg) -- Clashes in the run-up to Nigeria?s elections that killed at least 200 people and the government?s bailout of banks have made the nation?s stocks so cheap that Mark Mobius, Standard Bank Plc and Renaissance Capital say it?s time to buy.
Nigeria?s shares tumbled 11 percent from this year?s peak in January, reducing the MSCI Nigeria Index to its lowest valuation compared with the MSCI Frontier Markets Index since December 2009, data compiled by Bloomberg show. Bank shares trade 30 percent below the average for lenders in Europe, the Middle East and Africa relative to assets, according to data from Renaissance Capital.
President Goodluck Jonathan, a Christian from the south, faces candidates including Nuhu Ribadu, a northern Muslim, in elections a week after the parliamentary vote was beset by bombings of two polling stations and delays caused by the late arrival of ballot papers. Investors are looking beyond the current turmoil as crude above $100 a barrel spurs 8 percent economic growth this year for Africa?s biggest oil producer while bank profits surge.
?Of course there will be volatility as a result of the elections, but from a longer range point of view we are quite bullish,? Mobius, who manages about $34 billion of assets as the executive chairman of Templeton?s Emerging Markets Group, said in a phone interview from Singapore yesterday. ?Banks are the biggest things we have in Nigeria,? including Zenith Bank Plc and United Bank for Africa Plc, he said.
Bank Earnings
Zenith Bank, Nigeria?s biggest lender by market value, said last month that 2010 profit jumped 81 percent, and Guaranty Trust Bank Plc, the third largest, reported a 62 percent increase. First City Monument Bank Plc, which ranks eighth for market value, posted a 12-fold surge in 2010 earnings and a decrease in non-performing loans to 5.5 percent from 8.7 percent of outstanding debt. United Bank for Africa, ranking fifth, hasn?t yet reported 2010 earnings. All four are based in Lagos.
?There?s fantastic upside at the moment,? Bo MacEwan, the head of trading at African Alliance Securities Ltd., a stock broker with offices in 12 countries on the continent, said in a phone interview from Johannesburg. ?We are engaging our clients to actually get stuck into the banks? he said, adding that Zenith and Lagos-based Diamond Bank Plc were the ?best call.?
Bailouts, Bombings
Central bank Governor Lamido Sanusi bailed out 10 of Nigeria?s 24 lenders in 2009 and fired eight bank chiefs after loans to equity speculators contributed to 700 billion naira ($4.5 billion) of non-performing debt, according to the Economic and Financial Crimes Commission.
The government rescued lenders by buying bad debt totaling 2.04 trillion naira through its Asset Management Co. of Nigeria. Amcon, as the state-owned vehicle is known, sold 20.7 billion naira of bonds last week.
Banks? fortunes are improving even amid violent clashes linked to this month?s parliamentary and presidential votes. More than 50 people have died in election-related fighting since July, according to Amnesty International, while sectarian violence in the north caused at least 200 deaths since Dec. 24.
At least 12 people were killed in an explosion at the office of the Independent National Electoral Commission in the central city of Suleja on April 8. Two separate blasts at polling stations in the northeastern city of Maiduguri killed three people and injured several others.
Inflation Pressure
Jonathan has led the People?s Democratic Party since the death in May of President Umaru Yar?Adua, a northern Muslim. The ruling PDP has won the lead in 52 of the 82 Senate seats declared to date, and 82 of 176 seats in the lower chamber. Ribadu?s Action Congress of Nigeria, or ACN, came second with 13 Senate seats and 32 in the House of Representatives.
The presidential election scheduled for April 16 pits Jonathan against 18 candidates including Ribadu and Muhammadu Buhari, a northern Muslim and former military ruler. Jonathan was leading at 62.1 percent in an opinion poll conducted by Ipsos for ThisDay, the newspaper in Lagos reported on April 6.
Increased government spending before the elections has fueled inflation, according to Sanusi. The central bank raised its benchmark interest rate for a second time this year to slow inflation, which is running above the central bank?s 10 percent target. Prices climbed an annual 11.1 percent in February, according to the National Bureau of Statistics in Abuja.
The parliament approved a 4.97 trillion-naira expenditure plan for the 2011 fiscal year last month, 17 percent more than Jonathan proposed in December
Export Earnings
The nation?s currency, the naira, fell to an 18-month low against the dollar last month.
?If we get through the elections I think there?s reasonable upside, it does look cheap by most metrics on the equity side,? said Stephen Bailey-Smith, a London-based emerging market strategist at Standard Bank Plc. Nigeria is ?pricing most of the bad news and not pricing much of the good news and what a post-election economy would look like and really where oil prices are,? he said.
While Nigeria, Africa?s most populous country, doesn?t get the full benefit of higher oil prices as it relies on fuel imports for more than 70 percent of its domestic needs, crude accounts for 95 percent of export earnings.
Foreign currency reserves have climbed 8 percent this year to $35 billion on April 7, according to the Abuja-based central bank?s figures, as crude surged 23 percent.
Valuation Gap
Growth of Africa?s third-largest economy is accelerating to 7.98 percent from 7.85 percent in 2010, according to government estimates.
Economic growth may ?accelerate? above 8 percent ?if they do a good job,? Mobius said. ?There a lot of political issues involved in the country and divisions, that?s going to be ongoing.?
Nigeria is in the top five holdings for the $1 billion Templeton has invested in frontier markets, Mobius said.
Banks comprise more than 30 percent of Nigeria?s All Share Index. The 202-stock gauge rose less than 0.1 percent, to 24,681.99, at the 3 p.m. close in Lagos, according to an e- mailed statement from the bourse.
The MSCI Nigeria Index, which includes the eight biggest companies, is valued at 7.26 times profits, compared with the average of 15.66 times for the MSCI Frontier Markets Index, according to data compiled by Bloomberg.
?With supportive macro-indicators and continued reform of the banking sector, the likelihood that the equity market will deliver is high,? Olaleye Adekeye, an analyst at Renaissance Capital in Lagos, wrote in a March 29 report. ?However, we postulate that the ride will not be a smooth one.?
--Editors: Philip Revzin, Ana Monteiro, John Kohut.
To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
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