Sectoral analysis for stock investment(1)
February 19th, 2007 Ogbuotobo Chuks || chuks@stockmarketnigeria.com
By Ogbuotobo Chuks
Much has been said about what to expect in 2007 with respect to the stock market and investment. Some say 2007 will be bearish while others think otherwise. No doubt, the general state of the economy will rub off on the capital market, but all in all, profits are still there to be made and losses reduced. This write-up will briefly analyze key sectors of the capital market and their latent aces they hold for investors.
BANKING
Adjudged to be the most active and lucrative sector in terms of return on investment, the sector this year is going to be very competitive based on the earnings capacity of banks.
In as much as most banks were able to declare handsome profits in the first year post-consolidation, most of the banks are just coming out of the consolidation challenges that have impacted on their revenues and profits. This development, as well as others such as writing off of goodwill has dimmed the possibility of significant increases in earnings per share and even dividend payout of some banks this pear.
With further recapitalization requirements, banks are growing the volume of thjeir outstanding shares without profits to back them up. The inability to mop up banking stocks will therefore affect price movement. For potential as well as existing investors therefore, look before you leap and make the right choices.
BUILDING MATERIALS
For a sector that is profiting immensely from the federal governments policy ban on importation of cement and cement related items, the sector is battling to meet up with domestic demand of goods. Most which are facing capacity constraints are embarking on major restructuring and turnaround programs to rebuild plants and upgrade existing ones so as to increase output significantly.
Some players are however likely to incur huge debts arising from heavy bank borrowing to finance major restructuring works. Brand loyalty is however expected to separate the leaders from the laggards.
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