Post Views: 353 February market Roundup and Outlook for March Equity trading on the Nigerian Stock Exchange for the month of February 2019, which inci...
February market Roundup and Outlook for March
Equity trading on the Nigerian Stock Exchange for the month of February 2019, which incidentally was when the nation held her Presidential and National Assembly elections, closed positive, reversing the loss recorded in January. At the same time, it broke out the downtrend line on mixed sentiment and high transaction volume, despite the heightened political tension in the period.
Smart money returned mid-January after the market had suffered losses in 2018, which was extended into the year 2019, within which it suffered six straight sessions of losses to breakdown the psychological line of 30,000 basis points to touch 29,336.80bps. It thereafter rebounded on gradual return of foreign investors to position ahead of an expected post-election rally, based on projections; as well as earnings season. These scenarios pushed the market up, causing it to defy the perceived political risks during the period, based on expectation that the opposition Peoples Democratic Party (PDP) wins the Presidential elections, especially given its pro market leaning and anticipated economic reforms in that regard.
This however did not materialize, with the re-emergence of the incumbent President Muhammadu Buhari of the All Progressives Congress (APC), a situation that triggered profit booking, leading to selloffs in the last three trading session of the month, particularly in blue-chip stocks. These stocks that are targets of smart money is suggesting that they are selling down, irrespective of the impressive 2018 full year earnings reports seen so far from companies and the high dividend payout and yield.
The NSE All-Share index had before now formed multiple tops on a weekly time frame, signaling pullback, which was finally supported by the outcome of the February 23 elections.
Within the busy period under consideration, mixed economic reports emerged from the Central Bank of Nigeria (CBN) showing a slowdown in economic activities, particularly in the manufacturing sector as revealed by Purchasing Manager Index which stood at 57.1 points in February, from 58.5 points in January. From the National Bureau of Statistics (NBS) came data showing that 2018 full-year GDP improved to 1.93%, boosted by the non-oil sector; while January inflation rate dropped to 11.37% in January, down from prior month’s 11.44%.
These seemingly improved economic indices and corporate earnings that are hitting the market are yet to influence equity prices owing to the election season as another round of selloffs just started.
The market recorded 20 trading sessions of mixed performance during the month, with 13 sessions up and seven down, with the index closing positive at 31,721.76bps on Thursday, February 28, after touching the month high of 32,958.96bps and low of 30,521.42bps.
NSE index opened the month at 30,557.20bps, representing 3.81% growth over the period, with buying position at 49%, while selling volume was 51% to reverse the previous month’s bear market. Also, market capitalisation for the month chalked N434.6bn to close at N11.83tr, from its opening value of N11.39tr, representing 3.86% value gain, following the listing of some Rights issues during the month, added to the rally ahead of the ongoing 2018 full year earnings reporting season, in the midst of weak economic fundamentals and low investors confidence.
Sectorial Performance for the month was largely bullish, except for the NSE Industrial Goods that closed red for the period due to selloffs in CCNN and Lafarge Africa. Others were in green.
Best Performing Stock
Best besting stocks table was led Consumer Goods stocks, despite the weak numbers expected from that sector as revealed by their Q3 earnings position, followed by kobo and medium cap stocks, which were impacted by low valuation and expected full year earnings. The best performing stock for the month was Dangote Flour, which gained 81.66% of its opening price, despite its mixed and weak quarterly financials released to the market. ABC Transport was next, as its share price rose 58.82% on improving earnings and low valuation; followed by McNichols’s 54.55%; while Ikeja Hotels notched 42%.
It is safe to advice that you invest wisely in this pullback. Instead, we advise that you study the fundamentals of target companies before jumping in.
Worst Performing Stocks
C & I Leasing was the worst performing, after shedding 26.88% due to price adjustment arising from the company’s recent share reconstruction. It was followed by Vitafoam’s 20% slide for the period, due price adjustment for cash and script dividend, see others on the table
Volume And Breadth
During the month of February volume traded was up by 26.69% to 7.88bn shares, from 6.22bn billion units in the previous month, while Market breadth was positive and mixed as advancers outnumbered decliners in the ratio of 54:34 to halt the bear transition of January effect and negative sentiment surrendering election.
Also, within the period, quarterly and some full-year earnings reports were released by Cutix, which presented its Q3 figures; Newrest ASL submitted full-year audited numbers, offering shareholders 20 kobo dividend per share (READ), as well as an application for voluntary delisting of its entire shares in issue (READ). The Transnational Corporation of Nigeria (Transcorp) also presented its audited 2018 full-year report (READ); just as Transcorp Hotels, Nigerian Breweries, Zenith Bank, United Capital, Africa Prudential and Dangote Cement, with mixed numbers but high dividend payout, except for Transcorp.
The good news is that the companies above ushered in an earnings season that is expected to support prices, despite negative sentiment at month end due to profit taking and the possible reaction to Presidential election outcome, which conspired to mute the impact of impressive dividend payout from December year end accounts.
Traders and investors are expected to take advantage of this pullback to position in dividend paying stocks in the new month, which incidentally also is the peak of December year-end earnings season, regardless of the recent wave in equity prices. A decision on whether to HOLD, BUY or SELL at this time would depend on your investment goal, as more earnings reports grace the market.
The slow expansion in economic activities, with real sector PMI at 57.1 points in February signals what is likely to happen in this election season, especially as all attention is focused on politics. Worse still, crude oil price is still oscillating, just as the 2019 budget may become Nigeria’s most delayed in the 20 years of this fourth republic. Besides its delayed presentation by the Federal Executive Council to the National Assembly, all attention of players in both arms of government has been fixed on the bitter battle for re-election. It is therefore highly unlikely that the spending plan for this year 2019 could come earlier than July, anything earlier would be a miracle.
Also important to note is the fact that the tenure of the CBN Governor, Godwin Emefiele, expires on June 3, which means he would still chair the Monetary Policy Committee (MPC) meeting holding this month and May. With a new Governor likely in the offing, economic activities may slowdown until after May 29, when the new government is inaugurated. Considering these factors and the ongoing election season, investors who understand the dynamics of the stock market should use the pullback as an opportunity to enter “good” stocks. So far, over 90 quoted companies, including blue chip and growing companies with December year-end are yet to release their audited reports to the market ahead of the March 31 deadline. But before taking a decision, define your expectations, so that when such are not met you cut your loss as quickly as possible to protect your capital.
As traders and investors, always set target based on the prevailing market value of target stocks on the exchange, their third quarter earnings position, previous full-year Earnings Per Share; as well as the last dividend paid. This comparison will help you project as to whether the company would likely maintain; cut, increase its payout or not, before jumping into any trade.
Earnings count in any market situation and remain a factor that influences equity price movements, determine dividend payout and corporate actions of these companies, which are expected to attract more market players, dividend investors and possibly institutional investors to the market.
In the Nigerian stock market, the month of March is the peak period for earnings reporting season, which suggests that traders and investors should be in the market to benefit from corporate actions already pouring in. This is because earnings season momentum and liquidity determine market movement.
Factors to stimulate stock market in March and April
• New economic policies and reforms agenda, or a retool of existing ones are possible to drive development and growth.
• Expect up and down movement due to profit taking and disappointments with some corporate results released.
• Also the source of funds flowto the market may cause fluctuations as foreign and institutional investors return or exit the market. The oscillation will create entry and exit opportunities.
• More 2018 full year audited earnings and quarterly results would be released into the market, with earnings from blue-chip companies likely strengthening fundamentals, especially from Total, Nestle, Guaranty Trust Bank, UBA, Access Bank and Unilever.
• As investors reshuffle their portfolios to move into equities with strong fundamentals, high Dividend Yield and possibility of issuing bonus shares, we should expect stock prices to be in the upward direction, if their numbers beat expectation.
• Expect a more vibrant market as players position for the last month of 2019Q1, taking profit to reposition for Q2, even as we expect liquidity to improve.
• Market outlook for the month of March and April remains mixed, but investors should decide wisely, using dates, bids, offers and volume when taking investment decision .
• Managing risk and protecting capital at this point is very important, so you will be able to determine when to buy or sell by watching the stocks and the market, using technical analysis, aided by investdata buy & sell signal.
• Let numbers emanating from companies and the markdown dates guide you into profitable investment.