Following the various reforms in Nigeria, founder of Research Alpha Fund and a veteran Asia-Pacific investor Michael McGaughy, has described the country as an investment destination with investments doubling over the past 12 months.
McGaughy in an interview with Asian Century Stocks, identified Nigeria as offering unprecedented investment opportunities comparable to Indonesia following the Asian Financial Crisis. He pointed out that “While leaders like Milei in Argentina get more press, Nigeria’s reforms are just as significant.”
The Research Alpha fund, which has generated over 130 per cent return since inception, has been positioned in Nigerian equities since 2017 and is now witnessing the fruits of patient capital deployment.
He noted that Nigeria’s transformation began with President Bola Tinubu’s inauguration approximately two years ago, which triggered “far-reaching reforms, including freeing the currency, ending petrol subsidies, and deregulating electricity generation and distribution.” These measures, he said makes Nigeria “a developmental economist’s wet-dream.”
Noting that listed companies and the financial markets are reacting to the reforms, he said “after several years of slowing and negative earnings, firms are regaining pricing power and income statements are starting to reflect this.”
Whilst pointing out that Research Alpha fund has invested in Nigeria since it started, McGaughy although the country has been its “biggest drag on performance, thankfully we are now starting to see the light with many of our shares doubling or more in the last 6-12 months. But doubling after 8 years is not a great return. This is a nine per cent gross CAGR which gets whittled down after all the fees and expenses are included.
Nigeria’s All Share index is up nearly 18 per cent so far this year despite weak oil prices, Nigeria’s largest export. Local and foreign investors are becoming more active with foreigners accounting for 32 per cent of turnover in the first four months of the year, nearly triple last year’s participation rate.
He furthered that “one can find very good value there with most companies trading below 10x earnings. Despite rising prices, most stocks are still 70-90 per cent below their all-time USD highs. Our favorite NBFI (non-bank financial institution) is trading at some 3x earnings, has a five per cent dividend yield, and is down nearly 70 per cent from its 2008 USD high price.”
Pointing out the other reforms such as the oil sector, he said the launch of the Dangote refinery is set to end the foreign exchange-draining practice of exporting crude oil while importing refined products.
“More recently, leadership at the large state-owned petroleum company was replaced with directors who have relevant private sector experience. Like many state-owned oil companies, it’s rumored to be very corrupt and with new leadership, there’s a chance it can be improved.
“There’s also the launch of the massive Dangote refinery, which should end the FX draining practice of exporting crude and importing refined products. It’s big enough to supply all of West Africa so the country could start exporting refined products very soon. There’s a reason Aliko Dangote is the richest person in Africa, and I have no doubt that he’s an inspiration to younger Nigerians.
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