Amid Mixed Trends, Investors Target Defensive Stocks To Protect Portfolios

Market Update for July 26

It was a mixed performance on the Nigerian Exchange at midweek, as the market upbeat slowed down on profit taking and selloffs in highly priced stocks that weighed on the benchmark NGX All Share index forcing it to close lower. Transaction volume was low, amid positive market breadth as the index remained in an uptrend, despite pulling back marginally to reveal a top reversal pattern. That needs confirmation as market opens Thursday morning.
As market players continue to digest the recent rate hike by Central Bank of Nigeria’s Monetary Policy Committee in the midst of the ongoing earnings reporting season, and more companies make their numbers available to the market, and the week’s treasury bill primary market auction closed on higher rates across the tenors at 6%, 8% and 12.15% respectively for 91 days, 182 days and 364 days. This is a minus for the equity market, but due to the earnings reporting season and inflow of some impressive results released so far, it may not affect the market so much, as more corporate earnings are released and economic managers list of the government are expected to hit the market before the July 31, 2023 statutory deadline.
During midweek’s trading, Cadbury Nigeria Plc released a disappointing half-year earnings reports showing mixed numbers. Top line was up by 28%, while the company reported a loss of N14.54bn, from the previous profit of N2.34bn, which represented a 721% decline, translatong to a loss per share of N7.74, against the previous half-yesr’s EPS of N1.25 each. Also, Livestock Feeds made available its six-month earnings report to the market, returning to profit, growing top and bottom lines by 29% and 138.78% respectively. Others that released their results after the market has closed are Juli Plc, as well as the audited account of Cutix ended April, Lasaco Assurance and UPDC. These numbers were mixed, as some came impressive and others below market expectation.
The expected release of more quarterly earnings reports that will drive increased volatility, especially rotation and portfolio reshuffling, especially in value-oriented sectors. This is against the backdrop of an environment where reform policies are driving hyperinflationary pressure in the face of an already heated economy and headwinds ranging from rising inflation, mostly driven by the subsidy removal from petrol, exchange rate volatility, a high interest rate regime and insecurity, among others.
This is despite the market entering into the distribution phase on mixed sentiment after testing a new all-time high of 66,017.90 points, in the midst of profit taking in some banking, industrial and consumer goods stocks, among others.
At this time, it is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged so far.
We also note that the earnings released so far reveal the state of these corporate Nigerian earnings power and others, which would expectedly be the game changer as we go further into the quarter. Already, all eyes are on the expected appointment of economic managers and minsters by this new government, a situation that will determine the rating of this new administration. More quoted companies, notified the exchange and investors of insider dealings in their stocks, their closed periods and board meeting dates to approve the half-year financials.
Technically, the market’s uptrend remains intact as it trades above the T-line, 50-Day Simple Moving Average and 100DMA on the daily and weekly chart in the midst of government economic and financial market reforms. This calls for a change in trading strategies and buying into value companies, amid the possibility of profit taking and correction any time. As such, technical traders and discerning investors must be guided, because higher prices will lead to lower dividend yields, even when market Price to Earnings Ratio is relatively low. It however provides better opportunities for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed in the face of high inflation.
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Oil price oscillation continued, extending its gains to trade at its three-month high of $83.44 per barrel in the midst of expected stimulus by China, output cut and rate hike by fed, despite the seeming inflation cooling gradually across many economies. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, midweek’s trading opened slightly in the downside and oscillated throughout the session on profit taking and buying interests in blue chip stocks and others that pushed the Index to an intraday low 65,549.37 basis points, from its highs of 66,009.80bps, before closing below it opening points at 65,687.16bps.
Market technicals were positive and mixed with a lower volume traded when compared to the previous session in the midst of breadth favoring the bulls on a selling sentiment as revealed by Investdata Sentiments Report showing 30% buy position and 70% sell volume. The total transaction volume index stood at 0.48 points, just as the impetus behind the day’s performance was strong, with Money Flow Index reading 79.69pts, from the previous day’s 85.26pts, indicating that funds left the market.
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Index and Market Caps
The NGXASI, at the end of the session shed 303.86 basis points, closing at 65,687.16bps, from its 65,988.81bps opening level, representing a 0.46% decline. Market capitalization also fell by N186.85bn to N35.75tr, from the previous day’s N35.93tr, which also represented a 0.46% depreciation in value.

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Midweek’s downturn was driven by profit taking and selloffs in shares of Unilever, MTNN, FBNH, Accesscorp, UBA, GTCO, Dangote Sugar, CHI Plc, Wapco and Cadbury, among others. This impacted negatively on Year-To-Date growth, which reduced to 28.17%, while Market Capitalization YTD gain slowed down to N6.98tr, representing a 28.14% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Energy and Insurance closed 4.91% and 1.02% higher respectively, while the NGX Banking led the decliners after losing 0.60%, followed by Consumer and Industrial goods with 0.45% and 0.02% respectively.
Market breadth was positive, as gainers outpaced losers in the ratio of 32:24, while activities s in volume and value were down after players transacted 500.43m shares worth N7.14bn, driven by trades in UBA, Accesscorp, Universal Insurance, FBNH and Zenith Bank.
NCR and Courtville Business Solution were the best performing stocks, gaining 10% each, closing at N3.96 and N0.66 per share respectively, on market forces and sentiment. On the flip side, Cadbury and Unilever lost 10% each, closing at N15.30 and N15.75per share, purely on the back of their unimpressive earnings and selloffs.

Market Outlook
We expect mixed sentiments to continue as market react to TB rates hike, earnings release so far, expectation of more earnings releases, bargain hunting and policy meeting outcome in the midst of profit taking, economic concerns and portfolio repositioning amidst supportive reforms of the government, just as more policy pronouncements and appointments would offer investment direction.
Also, more Q2 earnings reports are expected to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

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