Meteoric rise of trillion-naira stocks fuels NGX’s record growth in 2023

Stocks with a market capitalization of over one trillion naira, colloquially known as SWOOTs, have emerged as the titans of the Nigerian Stock Exchange (NGX).

As of August 2023, the total market capitalization of these heavyweight companies stands at an eye-watering N25.1 trillion.

This marks a staggering increase of N10.9 trillion since the beginning of the year, illustrating not just the dynamism of these individual companies but also their pivotal role in driving the NGX to new heights.

According to an in-depth analysis conducted by NewsTimes, there are now seven elite companies on the NGX boasting a market capitalization north of N1 trillion, equivalent to about $1.29 billion, based on the current exchange rate of N775/$1.

The SWOOT club includes industry stalwarts like Dangote Cement, Airtel, Nestle, MTN, BUA Cement, BUA Foods, Zenith Bank, GTCO, and the most recent inductee, Seplat Plc.

The Expanding SWOOT Club

At the dawn of 2023, there were merely five companies that had entered the elite circle of SWOOTs, commanding a total market capitalization of N14.2 trillion or 54.8% of the NGX’s entire market value.

Fast forward to August, and we now have a more robust roster comprising Dangote Cement, Airtel, Nestle, MTN, BUA Cement, BUA Foods, Zenith Bank, GTCO, and the latest entrant, Seplat Plc. This expansion is not merely numerical; it is transformative for the NGX.

SWOOTs: The Pillars of NGX

As if to underscore their influence, the SWOOTs now account for a significant 70% of the NGX’s total market capitalization, which stood at N36.9 trillion as of the same month. In comparison, their contribution was only 50.8% a year ago.

Their ascendancy has also fueled the NGX’s All-Share Index to touch an all-time high of 66,549 points, underscoring their role as the prime movers of the stock market.

Shifting Economic Winds and Policy Decisions

The reconfiguration in the SWOOTs composition reveals the altering economic dynamics in Nigeria, partly catalyzed by recent economic policy initiatives. One key development was the unification of the naira, which significantly impacted the banking sector.

Banking stocks, particularly Zenith Bank and GTCO, have flourished, with investors injecting billions into these stocks. This trend has translated into all-time high profitability, as both banks reported year-to-date returns of 37% and 58%, respectively.

Sector-Specific Fortunes

Seplat’s entry into the SWOOTs is another intriguing development. The company witnessed a 52% increase in its share price year-to-date, thanks to rallying oil prices that have bolstered investor sentiment.

Meanwhile, Dangote Cement, the most capitalized stock within this group, saw its value rise by 38% year-to-date, taking its market cap to a jaw-dropping N6.2 trillion.

This behemoth now accounts for 24.3% of the SWOOTs and 16.5% of the NGX’s entire market cap.

Implications and Future Projections

So, what does the ascendancy of the SWOOTs mean for investors, market analysts, and the Nigerian economy at large?

  • For one, the dominance of these companies underscores the concentration of wealth and market power in a select few sectors. This poses both opportunities and risks.
  • The consolidation of market capitalization within a few companies poses a systemic risk to the NGX. Any downturn in these companies’ fortunes could disproportionally impact the market.
  • But on the bright side, these giants provide stability and confidence in the Nigerian stock market, serving as pillars that can withstand economic headwinds.
  • The SWOOTs often reflect consumer trends as high valuations in sectors like cement and food indicate robust domestic demand, which in turn speaks to broader economic health.

As these companies continue to grow, they attract more international attention and capital, reinforcing Nigeria’s position as a burgeoning financial hub in Africa.

However, this draws attention to the need for diversified investment options to mitigate risks associated with market concentration.

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