2023 Outlook Mixed, On Sustained Recovery, Low P/E Ratio, Amid Election Worries

Recap of 2022 and Outlook for 2023

The nation’s stock market started the year on a bullish note, as market players reacted to unaudited impressive full year earnings reports of 2021 in the midst of relatively low interest rates and yield in the fixed income market that supported inflow of funds into the equity space at the first month of the year in expectation of corporate actions in sequent months in Q1.  Being the historical peak of earnings reporting season of 2022 and some profit taking activities, the market side-trended for a period of two months before picking up again on dividend announcements and higher payouts proposed by majority of companies that successfully grew their dividend.

Following investors’ reactions to the impressive 2021 financials and payout, which was further reinforced by the equally outstanding Q1 numbers and price appreciations of highly capitalized stocks. These supported the second quarter rally during the Nigerian Exchange’s All-Share index hit its 15-year high of 54,290.80 basis points, which made it the best performing stock market across the globe, a position it maintained , finishing the year 2022 higher.

Also, during the year, the NGX index completely reversed a corrective wave four which dragged it to 43,439.72bps in late October on monetary policy tightening by the Central Bank of Nigeria (CBN) which hiked its Monetary Policy Rate by a significant 150 points to 13%, from 11.5% for the first time in late May, after years of leaving the rate unchanged.

This aggressive rate hike continued, as the global economic looked gloomy due to the geopolitical tension arising from the war between Russia and Ukraine, two commodity nations in the twilight of February. This disrupted the commodities value-chain, including oil, gas, and wheat, among others, leading to sharp rises in prices, which resulted in imported inflation across the globe, especially as oil prices hit decade-high levels. In their bid to checkmate rising inflation, central banks across the world resorted to aggressive rates hike till November. In Nigeria, the CBN adjusted rate by a total of 500 basis points, leaving the MPR at 16.5% from 11.5% in May.

The NGX, however, closed 2022 on a new motive Wave-5 extension after a decline in Q3, as investors reacted on the strength of activities within the period, factoring in the impressive earnings reports, higher dividend yields in the face of rising inflation. There also the decline fixed income market yields, especially as reflected in the last three TB primary market auctions, the Santa clues rally and year-end window dressing.

The increasing participation of institutional investors, especially Pension Fund Administrators, among others, also supported the market in the first half of the year as reflected in the volume traded and liquidity level, despite the seeming low participation by foreign investors, post-Covid and the prolonged problem in the forex market. Market dynamics in the recent recovery or markup phase showed an oscillating volume pattern that are relatively low and indicative of low participation among PFAs and others, who prefer to hold cash in the face of uncertainties ahead of the 2023 general elections beginning in February.

BUA Foods and Geregu Power were two companies listed during the year, thereby supporting market performance. Both stocks recorded almost 50% price gain each, in addition to appreciation by other highly priced equities and blue chip companies that rallied over the period.   Below Is The Performance Of Invest 2022 10 Golden Stocks:

In the 12 trading months of 2022, the NGX All-Share index recorded gains in six, and was down in others, resulting in a 19.98% gain at year-end, even as we note the improving momentum above the oversold state on a monthly chart of index action. Despite the market extending it three-year bull-run, some companies remain cheap based on their strong fundamentals and high dividend yields, attracting more inflows to the market. Worthy of note also is the fact that some equities are selling at their 52-week highs.

Meanwhile, the benchmark Index, during the year, gained a total of 8,534.62bps, closing at 51,251.06bps, after touching a high of 54,290.84bps from its low of 42,479.57bps for the period. The index opened at 42,716.44bps, on strong buying interests that impacted positively on the index and stock prices, pushing them further up to breakout various resistance levels and psychological lines to record its 15-year high.

Total ‘buy’ volume for the year 2022 was 74% and 26% sell position, further extending the bull transition from 2020. Market capitalization rose by N5.62tr, closing at N27.92tr, from N22.30tr, representing a 25.2% appreciation in value, helped by the listing of additional shares as a results of bonus, admission of BUA Foods and Geregu power on the exchange, coupled with capital gain of companies.

Traded volume for the period was down by 14.27%, stockbrokers only crossed 68.85bn shares, compared to 80.31bn units in the preceding year, just as market breadth for the period was slightly negative with decliners outnumbering advancers in the ratio of 52:47 to sustained 2021 position that reflected the impact of aggressive rates hike and rising inflation hitting historical high in the year.

Mixed Sectorial Performance

The sectorial performance indexes were mixed with the NGX Insurance and Consumer goods indexes closing 11.99% and 0.10% respectively in the red. As shown by the chart below, the NGX Growth, Energy, Mainboard and Industrial Goods indexes boosted the market the most during 2022, outperforming the general market. The NGX Growth, Energy and Mainboard indexes gained a total of 41.63%, 34.05% and 33.48% respectively, driven by price appreciation of telecoms. oil companies, building material and big names in the market that recorded gains. The NGX’s Dividend Yield index that was supported by price appreciations in dividend paying stocks with high yield that recorded 10.37%; the NGX industrial index garnered 19.67%, to support the market performance during the period.

Others represented in the chart below reveal investors’ positive sentiment and the clear decision among traders, as the market’s Price-To-Earnings Ratio is below 12times.

Best And Worst Performing Stocks For 2022

The best-performing stocks for the period under review were predominantly mixture of low, medium and high caps across the sectors, led by Multiverse, which gained 1,890%, as a result of its low price attraction and market sentiments. It was followed by Wema Bank and Thomas Wyatt with 441.67% and 169.44% respectively, just on share reconstruction and sentiment.   Academy Press climbed 158% up, on corporate action and low price attraction, while Champion Breweries chalked 134% on acquisition and merger plan among others.

Source: Investdata Research

The worst performing stock was Regency Insurance which lost 50.98% of its opening price for the year, amidst selloffs and impact of market forces; followed by Livestock Feed’s 49.80% slide, due to its weakened fundamentals and profit taking from its earlier rally at the beginning of 2022. Caverton’s share price fell by a further 42.44%, showing an apparent lack of investor confidence in the stock, despite the seemingly open doors policy of the company during the period. University Press lost 35.37% of the year’s opening value, due to profit taking, as investors’ seek to reposition in dividend paying stocks with prospect of future growth in earnings that will drive share price and payout.

Source: Investdata Research

Technical View (Opening chart)

The NGX’s Index action for the year on a daily time frame revealed an uptrend and breakout of the cup and handle chart pattern that supports trend continuation, as the index is set to breakout another strong resistance level of 51,466.18bps and 52,000bps ahead of the submission of 2022 audited financial reports. At the same time, the NGXASI is trading above its 200-Day Moving Average on the daily and weekly chart, with positive sentiments and improved traded volume.

The market is still trading within the V-shape recovery pattern, despite the likely mixed trend on profit taking and price correction, any moment from now, depending on market forces ahead of 2023 election. The benchmark index has entered its overbought region on a daily and weekly time frame, reflecting an increased inflow of funds that pushed stock prices up in the last two months of 2022, extending the historical positive sentiment that comes with yearend seasonality.

The trading patterns and momentum, going forward, are likely to improve further or change, as investors react to the expected Q4 and unaudited full-year earnings news, portfolio rebalancing and repositioning, with early filers kicking off the corporate action season in February with dividend news announcement. Vitafoam with its corporate action of N1.52 each is declining.  Market technicals for the year were positive, a situation expected to remain unchanged in the new month of January that comes with its own effects.

Market Outlook for the New Year

The outlook for 2023 remains mixed, as the recovery is expected to continue on value and low price to earnings ratio in the midst of higher dividend yields and corporate actions, despite uncertainties surrounding 2023 general election which if successful will lead to financial market and economic reset that comes with reforms as the three presidential candidates are pro market and businessmen that understand the important of economic progress in checkmating insecurity.

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CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605

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