GSE to bounce back with 12% return - Databank analysis

The Ghana Stock Exchange (GSE) is poised to get back to winning ways, returning as much as 12.03 percent to investors by the close of this year, a recent analysis by investment advisory firm Databank has suggested.

This comes amid significant risks emerging from the banking sector on the back of the Domestic Debt Exchange Programme (DDEP). The Accra bourse endured a torrid 2022, when its primary tracker – the GSE’s Composite Index (GSE-CI) – slumped to -12.38 percent from a high of +43.66 percent the previous year: ending the period as one of the worst performers on the continent, as investor sentiments kept pace with happenings in the general economy.

However, Databank is forecasting that as the year progresses sentiments will normalise, with the domestic debt exchange expected to positively influence demand for equities; and with low-interest rates on Treasury securities also pushing investors to dividend-paying stocks.

This, it added, could push the GSE-CI – which has lost 1.19 percent year-to-date – to approximately 2,737 points (±500bps) at the end of 2023 from the 2.443.91 in 2022. If achieved, it will represent the second highest points attained by the Composite Index since its inception in December 2010, bettered only by the 2789.34 points recorded in 2021.

“Despite the sluggish start to the year, we expect the stock market to see some recovery and close 2023 in positive territory. From our technical analysis perspective, we forecast the GSE-CI to close FY22 at around ~2,737 points, translating into an annual gain of 12 percent (±500bps),” Databank’s Research said in its quarterly notes.

It expects the rally to be fuelled by dividend payouts as investors shift their attention to “high-quality companies with good fundamentals, defensive quality, and reasonable pricing power”, chief among them being MTN, petroleum stocks and Benso Oil Palm Plantation Ltd. (BOPP), which has seen its share price increase by 60.8 percent over the last year.

Sectorial analysis

The information and communication technologies (ICT)/ telecommunication sector was highlighted as a good pick for 2023, with market-leader MTN singled out for its consistent dividend payout history, expected strong performance and resolution of its tax issue with the Ghana Revenue Authority (GRA).

“We favour MTN GH as a good pick for 2023. The company has demonstrated a consistent dividend payout history since listing in 2018, generating an average dividend yield of 8.9% over the period,” the report said.

It added that the recent fine by the tax authority has been withdrawn, which is expected to boost the company’s profitability and lead to a generous dividend payment and stock price recovery.

In the oil marketing sector, Databank Research expects both GOIL and TotalEnergies to demonstrate resilience in the face of high inflation and FX volatility. While TotalEnergies is preferred for its stable and relatively higher dividend yield, GOIL is expected to see a profit margin recovery in 2023.

In the agricultural sector, BOPP is expected to continue offering investors good dividends this year, thanks to its robust earnings. The post-pandemic surge in CPO prices and a significantly weaker cedi have helped BOPP maintain good cash flow with a solid dividend yield, averaging roughly 8 percent in the past five years.

Databank Research expects the generous payouts to continue in 2023, with BOPP’s FY22 dividend yield increasing to 28.7 percent following an interim dividend payment for the 2022 financial year in the fourth quarter of 2022.

However, the report warns of risks in the banking sector. The central bank has instructed all banks in the country to forfeit dividend payments in 2023, a move aimed at safeguarding the industry’s solvency due to the DDEP.

“With government of Ghana securities accounting for an average of 35 percent of assets for banks operating locally as at first nine months of 2022, we expect banking sector profitability to come under pressure as the DDEP will result in lower interest incomes for local banks,” the report added.

This comes as the banking sector in 2022 recorded a significant decline in volumes traded, dropping by 55.25 percent year-on-year due to concerns about the potential impact of the DDEP, as selling pressure on the banking counters resulted in six declines against three gainers, occasioning a – 4.61 percent decline as against +20.70 percent return in 2021.

The consumer and manufacturing segment is expected to remain muted as inflation and depressed demand persist for much of the year.

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