Amidst Low Price Attraction, Investors Position For Q2 Earnings, Dividend

Market Update for July 23
Nigeria’s stock market had a mixed, but positive session on Tuesday, reversing previous day’s loss on a very low traded volume, amidst strong buying pressure as bargain hunters took advantage of new 52-week low prices to position as more companies present their half-year earnings releases and declare interim dividends.
With the mixed and even weak earnings reflecting the state of the economy, investors should not forget that we entered the earnings season with mixed expectations of good and even disappointing numbers with year-on-year earnings likely to decline.
Tuesday’s market rebound was seemingly coincidental and has no bearing with the day’s presentation of the cabinet list to the Senate by President Muhammadu Buhari, given that many Nigerians have expressed reservation about the caliber of persons on the list, of mostly recycled politicians. It is disheartening that the cabinet that would run the country over the next four years has little or no technocrats and academicians, but tells of a story of a government of political patronage, with little or no “good men.” We do not also expect a situation where the Senate will reject any nominee, even if there are so many good reasons why several of the nominees should not scale through even less proper scrutiny. We expect that the screening without portfolio being attached to the nominees will as usual mostly be a family affair and a mere bantering between the Senators and nominees (READ MORE).
The list only means the much expected economic policy reforms to trigger productivity and drive national output is a foregone conclusion, looking at the past performance of the reappointed ministers and others that made the list. This only means that the economy will run on monetary policies and accidental servings from the fiscal side.
Meanwhile, the Central Bank of Nigeria (CBN), Monetary Policy Committee (MPC) ended its two-day meeting also on Tuesday, leaving all its policy instruments unchanged (READ MORE), while emphasizing the need for economic growth, which has dominated discussions in the past four months. The committee realizes the danger of a stagnated economy and the need to stimulate growth and productivity through the private sector by providing credit to boost production and consumption while oiling the macro-economy. There have been serial directives to deposit money banks aimed at stimulating lending to the real sector of the economy, particularly the policy of a 60% minimum loan-to-deposit ratio, reduction of banks participation in government securities and interventions in different strategic sectors.
Trading on the Nigerian Stock Exchange (NSE) on Tuesday opened slightly on the downside in the morning session as indecision was evident among the traders in the early hours of the day, before the swing in expectation of more corporate earnings and seeming positive outcome of the MPC meeting. This pushed the index up sharply in the afternoon, touching intraday high of 28,144.87 basis points from a low of 27,791.98bps to close the session higher.
Market technicals for the session were positive but mixed, as volume traded was lower than the previous day’s, amidst breadth favouring the bull and positive buying sentiment as revealed by Investdata’s Daily Sentiment Report, with the day’s ‘buy’ volume at 100% of total daily transaction volume index of 0.33.
The momentum behind the day’s performance remained weak, despite moving up, as Money Flow Index read 20.31 points, higher than previous day’s 15.28bps, indicating that funds enter some stocks and the market as selloff slowdown and high cap stock prices inched up in the phase of prevailing low liquidity and indecision.

Index and Market Cap
The benchmark index NSEASI close Tuesday trading high gaining 336.18bps to close at 28,144.87bps after opening at 27,808.69bps, representing 1.21% growth, just as market capitalization rose by N163.84bn to close at N13.72tr, from an opening value of N13.55tr, which also represented 1.21% value gain.
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The upturn resulted from buying interest in low, medium and high cap stocks like Dangote Cement, MTNN, Nestle, Stanbic IBTC, Zenith Bank, CCNN, WAPCO, Flour Mills, FBN Holdings, Wema Bank, Access Bank, Honeywell and Transcorp Plc. This positively impacted the NSE’s Year-to-Date loss, reducing it to 10.45%, just as YTD market capitalization gain rose to N1.96 trillion, or 16.84%, above the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indexes were largely bullish, except for the NSE Insurance and Oil/Gas that closed lower by 0.18% and 0.66% respectively, while the Industrial Goods index led the advancers after gaining 3.91%, followed by Consumer Goods with 1.66% and next was banking with 0.46%.
Market breadth turned positive as advancers outnumbered decliners in the ratio of 21:15; market activities were down in volume and value traded by 52.69% and 6.76% respectively to 135.18m shares worth N2.09bn from the previous day 285.76m units valued at N2.24bn. The session’s volume was driven by trading in financial services and industrial goods stocks such as Guaranty Trust Bank, Zenith Bank, Lafarge Africa, Sterling Bank, and Wapic Insurance.
Neimeth and Lafarge Africa were the best-performing stocks to topped the advancers’ table with 10% and 9.92% gains respectively, closing at N0.55 and N14.40 per share, on market forces and improved Q2 numbers (READ MORE). On the flip side, Forte Oil and International Brewery lost 9.93% and 9.80% respectively to close at N18.15 and N13.80 on profit-taking and selloff.

Market Outlook
We expect the trend to continue depending on market forces and more earnings as bargain hunters take advantage of the prolonged bearish market, just as the half-year earnings reporting season enters peak period. Discerning investors should target value stocks considering the current low valuation to position for dividend income and capital gain, especially as the market’s Price to Earnings ratio is 7.28x, which is well below the 11.1x average of its peers and a five-year average of 13.2x. This revealed value and high upside potentials for a rally.
They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as Central Bank of Nigeria (CBN) had rollout it plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.
There is also the likely impact of portfolio repositioning for the second half of the year in the midst of expected Q2 numbers, especially banking stocks.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467