Earnings Induced Volatility May Linger Amidst Positive Momentum, Profit Booking

Market Update for the Week Ended February 4 and Outlook for Feb 7-11

Nigeria’s equity market sustained its bullish run during the past week, despite witnessing a mixed trend and performance, closing the period higher on an increased traded volume and positive sentiment that was driven by investors’ buying interest in energy and dividend paying stocks, a situation that has supported the ongoing rally and recovery in the new month and quarter.

This were also the better than expected corporate earnings that have continued to influence stock prices and attract more liquidity and inflows to the market ahead of dividend declarations by companies with December 31-year end.

Already, the 2022 corporate actions have earnestly kicked off with MTN Nigeria proposing N8.57 dividend per share for shareholders’ approval at its next annual general meeting, while it is taken for granted that those companies that did not release unaudited Q4 2021 financials accounts have opted to file their audited results within 60 days of the quarter end. Included on this list are big names and larger caps stocks expected to make available their full year audited account to the market before March 1, 2022. This is another factor that will impact the market positively, depending on the health of the expected numbers and dividend payouts from each of the companies.
At this point, it’s important for market players to understand market cycles and phases, as well as factors that influences stock price movements in any market situation, whether bullish or bearish. These are identified using the following: Change in trends or market characteristics on a daily time frame chart. This is purely technical, following price actions to observe changes in candlestick formations for supporting your trading decisions. Positioning, or sentiment has to deal with the numbers of deals, and volume that indicates or signals the presence of smart money or institutional investors. It can also be seen as effects of demand and supply dynamics. Stocks that attract the attention of institutional investors tend to rally faster and more significantly.

In fact, some institution will only buy the stock of a company they can accumulate sufficient shares to influence its strategic direction.

There are also policy or regulatory pronouncements, as we see in Monetary Policy Committee decisions that can change market directions and sentiments in addition to the rules of the Security & Exchange Commission. A recent example is the new NGX rule on corporate earnings filing option, in addition to government policy on the economy or a particular sector.

Finally, there are the corporate earnings that has to do with the general performance of listed companies and dividend paying stocks. Knowing that the power of earnings in equity investment cannot be overemphasized, as company earnings performance has 20% influence on stock price movement in short or long run, while market liquidity and economic fundamental has 50%, with sectorial policies or news having 30% impact on share prices.

During the week, share prices of Seplat Energy, Academy Press, Fidson Healthcare, Julius Berger, and Access Bank, among others hit their new 52-week high.
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Movement Of NGXASI
Meanwhile, it was a mixed trading week, as the market sustained the sixth successive week of positive outings that started in the last week of 2021 on the back of quarter and year-end window dressing, amidst the continued portfolio repositioning for dividend and capital gain. The week opened on a bullish note, gaining 0.91%, which was continued on Tuesday when the index closed 1.04% higher. This trend was short-lived at the midweek’s session, when the market suffered a 0.38% pullback on profit booking from recent rally y blue-chips stocks, before rebounding by 0.85% on Thursday due to buying interest in Dangote Cement, MTNN and others. The composite index reversed down again on Friday as profit-taking resurfaced, resulting in a 0.13% lose in the midst of corporate actions, and 2021 audited earnings reports. This brought the week’s total gain to 2.33%, a significant improvement on previous week’s 0.55% growth.
In all, the benchmark NGX All-Share index grew by 1,074.87 basis points, closing the week at 47,279.92bps, after touching an intra-week high of 47,335.60 points, from its low of 46,183.70bps. Recall that the week opened with the index at 46,205.05bps. Market capitalization increased for the week by N579bn, closing at N25.48tr, compared to the previous week’s N24.90tr, which also represented a 2.33% value gain.
Advancers chart for the week was dominated by low and medium cap stocks as usual, due to the continued positive sentiment for dividend paying stocks, as players took advantage of the breakouts and impressive earnings reports to reposition their portfolio on the strength of the Q4 earnings reports, sectorial fundamental news and positive economic data. We note that the NGX Index and price actions reveal the presence of buyers in the market, a situation that reflected in major sectoral indexes, just as gains in Seplat, Oando, and Conoil boosted the Oil/Gas index. While the board of Oando announced plans to publish its outstanding audited and unaudited results beginning from the 2019 financials between this quarter-end and December 31, 2022, there was news that Seplat is one of the players poised to acquire some Nigerian assets of Royal Dutch international oil company- Shell for up to $4n.

Market breadth for the week remained positive on a very high traded volume as a result of increased buying interests during the week, just as players expect global trend, economic recovery, and the better-than-expected earnings released so far, to support the recovery in the short to long-run, while investors increase their position in the hope of higher dividend payout and yields, just as fixed income market returns remain negative following the recent uptick in inflation.

During the week, gainers outnumbered losers in the ratio of 42:35, on buying sentiments, as revealed by the investor sentiment report showing a 95% buy volume and 5% sell position. Money Flow Index was flat at 75.23bps from the previous week’s 75.46 points, an indication that funds left the market slightly.

The NGX index action, on a weekly chart remained strong and bullish, as momentum indicators were positive and strong on the activities of market players, just as the NGXASI now trades above the 47,000 points. The candlestick formation, at the end of the week, revealed bullish uptrend on a high traded volume in the midst of impressive corporate earnings and buying sentiments. The candlestick pattern indicates a possible continuation of trend but depends on market forces in the new week. Meanwhile, market recovery is still strong. Also, all eyes are on fixed income market yields and oil prices to further support market fundamentals and attract liquidity to the equity space. The NGX at this point is creating new buying opportunities for discerning investors.

Mixed Sectoral Indices
Sectorial performance indexes were mixed, with the NGX Oil/Gas, Industrial Goods and Banking closing 7.69%, 3.14% and 0.38% higher respectively, while the NGX Insurance led the decliners, after losing 1.73%, followed by the Consumer Goods with 0.81%. Transactions in volume and value terms were up as investors exchanged 1.79bn shares worth N19.61bn, compared to previous week’s 1.45bn units valued at N19.08bn.

This volume was driven by Financial Services, Conglomerates and ICT stocks, particularly Fidelity Bank, Transcorp, GTCO, Courteville Business Solutions and Chams,
RT Briscoe and Academy Press were the best performing stocks for the week after gaining 40% and 31.91% respectively, closing at N0.28 and N1.24 per share respectively on market sentiment. On the flip side, Courteville Business Solution and Caverton lost 11.67% and 11.43% respectively, at N0.53 and N1.55 per share, purely on profit taking and the unimpressive earnings report.

Outlook for the week
We expect the earnings reporting season induced volatility to continue in the midst of the positive momentum and profit booking, as investors and traders react to numbers and expected corporate actions. We note that income investors continue to position for dividend announcements that just kicked off with MTNN’s corporate action of N8.57 final dividend, and ahead of February early filers like United Capital, NB, Zenith Bank, Africa Prudential, Nestle, Access Bank, Dangote Cement.

On the strength of the impressive numbers seen so far and the expected payout ratio, funds are likely to flow towards the better investment yield or return. We note also that funds and portfolio managers continue to take position on the strength of the Q4 numbers released, ahead of the 2021 audited financials. For now, many stocks remain within their buy ranges to attract funds into the equity space.

Also, investors will continue tracking yields movement in the fixed income market. Last week’s high volume suggests that institutional investors are gradually returning to the market. It is important also that oil price continues to rally in the international market, trading above $91 per barrel; corporate actions, as well as the 2021 audited numbers that are around the corner.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605

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