Equities

Amidst Mixed Trend, Bargain Hunters Position On Pullbacks, Earnings Inflow

Market Update for March 1

Trading on the Nigerian Stock Exchange was yet again mixed and a very volatile on Monday, as the month of March kicked off on a positive note after the selloffs and pullbacks that dominated the month of February, making equity prices more attractive for new entry in the midst of some impressive corporate earnings and actions.

Stock yields are becoming better, with funds searching for higher return, while not overlooking the need for safety, at a time when the breakthroughs in the Coronavirus vaccines are expected to boost oil price at the international market. This is expected to positively impact Nigeria’s economic recovery as it helps to reduce her budget deficit, and even at the global level.

Such factors would strengthen market fundamentals as corporate earnings now hitting the market are better than expected, irrespective of the mixed payout.  These numbers are likely to support share prices, assuming the liquidity situation in the equity space improves.

Already, a pointer to the lack of liquidity in the market is the fact that the share prices of companies releasing their numbers are on the decline, no minding the fact that some surpassed market expectations, and not ignoring the possibility that the dynamics of these earnings have been factored into the share prices before now. This may be why the market is seemingly not reacting to the numbers being released to the investing public. 

The mixed macro-economic indices emanating from the National Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN), in the face of changing market trends and trading pattern now of concern to retail and institutional investors, there is the ever urgent need to invest wisely. One way of navigating these murky waters is to be guided by your set investment objectives, particularly entry and exit strategies, to survive and profit from the expected new trend.

In that way, should the full-year earnings reports and dividend news fail to impact and support the current trend, a big rotation in sector trends would also guide you, going into the future, especially as the NSE’s All-Share index action is trading currently in 50-Day Moving Average, after breaking down the 14 and 20DMA on a daily time frame.

Meanwhile, Monday’s trading opened on the upside before oscillating throughout the day, on position taking and selloffs as more earnings and dividend news hit the market. This situation pushed the NSE’s index to an intraday high of 39,973.12 basis points from its lows of 39,783.24bps, before closing above its opening level at 39,931.63bps on above average traded volume.

Market technicals were positive and weak, with volume traded higher than previous day’s in the midst of a negative breadth and mixed sentiment as revealed by Investdata’s Sentiments Report showing 72% ‘buy’ volume and 28% ‘sell’ position. Total transaction volume index stood at 1.07 points, just as momentum behind the day’s performance remained weak, with Money flow index looking up to 25.95pts, from the previous day’s 17.72pts, indicating funds enter  the market, despite the profit booking.

Index and Market Caps

At the end of Monday’s trading, the All Share Index gained 131,74bps, after opening at 39,799.85bps, representing a 0.33% rise, just as market capitalization similarly rose by N68.92bn closing at N20.89tr from N20.82tr, also representing 0.33% value gain. 

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Monday’s upturn was impacted by interests in stocks like BUA Cement, UACN, UBA, Zenith Bank, Transcorp, Neiemth Pharm, Ecobank Transnational Incorporated and AIICO, among others. This impacted mildly on Year-To-Date loss as it reduced to 0.84%, just as market capitalization stood at N28.21bn, or 0.90% below its opening value.

Mixed Sector Indices

Performance indexes across the sector were mixed, as the NSE Industrial Goods and Banking closed 1.47% and 0.25% higher respectively, while the NSE Insurance led the decliners, after losing 1.10%, followed by Consumer Goods and Energy with 0.48% and 0.10% respectively lower.

Market breadth was negative, as decliners outpaced advancers in the ratio of 29:12; just as activities in volume and value terms were mixed as volume traded was up by 7.24% with traders exchanging 543.99m shares, up from the previous day’s 507.25m units, while value of trades fell by 22.70% to N1.89bn from Friday’s N2.44bn. Volume was driven by trades in Wema Bank, Zenith Bank, Transcorp, UBA and United Capital.

UACN and AIICO were the best performing, gaining 6.67% and 5.22% to close at N8 and N1.21 per share respectively, on earnings expectations and dividend news. On the flip side, NASCON Allied and Champion Breweries lost 9.97% and 9.92%, closing at N14.45 and N2.27 per share, on the low dividend payout of 40 kobo and profit taking.

Market Outlook

We expect the mixed trend and momentum to continue, allowing bargain hunters take advantage of pullbacks to position as more companies release their full-year numbers to support the ongoing recovery in the midst of the rising fixed income yields. Consequently, there is the improvement in dividend yields occasioned by price corrections that had created entry opportunities for discerning investors ahead of earnings expectations, will attract more funds to the market in a short term.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, until the next MPC meeting in March.

The NSE’s index action and indicators are in divergence on a low traded volume and positive buying sentiments.

Also, the current undervalued state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation in the new year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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