Audited Earnings, Dividend May Dictate Market Direction, Amidst Profit-Taking

Market Update for the Week Ended February 14 and Outlook for Feb 17-21
The bearish sentiments and sell pressure continued on the Nigerian Stock Exchange (NSE) last week as more 2019Q4 unaudited and full-year audited numbers continued to grace the market, even as monetary and fiscal policy inconsistency continued to threaten investor confidence. This has extended the downtrend for the third consecutive week on a declining traded volume, which signals that reversal is underway depending on the full-year corporate actions and dividend news of many companies with December year-end.
The mismatch of funds and policies in the nation’s financial market has continued to drive the volatility witnessed in the stock market so far, as inflow and outflow from equity assets in recent times stay high despite the relatively low-interest rate regime in the money market and declining yields in the fixed income segment. The expected audited earnings and dividend declaration season may fire up the market again if payouts beat market expectations. That means there is potential for big volatility ahead, a situation that can be both a blessing and a curse, depending on the actual numbers.
It is over three months since the apex bank restricted local investors, fund managers, and Pension Fund Administrators from participating in its Open Market Operations, primary and secondary market operation. This has dragged average yield in the market to between 6 and 7% from 10-14%, at a time Dividend Yields of many stocks on the exchange are higher than the prevailing returns in the Treasury instrument and others.
However, the performance of the global stock markets for the period under review was mixed as a resurgence of the Coronavirus weakened investor confidence, negatively impacting the global economy, thereby threatening the outlook for trade-in 2020.

Movement Of NSEASI
During the week, the All-Share Index recorded a mixed performance with two days of up, and three sessions of the down market, closing the first trading session of the week on a negative note, after losing 1.05%. This was reversed on Tuesday and was sustained in the midweek, gaining 0.36% and 0.02% respectively; it then pulled back into the bear region on Thursday and Friday, giving up 0.05% and 0.39%, due to the continued sell down to close the week negative.
The benchmark NSEASI opened at 28,067.09 basis points, touching an intra-week high of 28,119.19bps and low of 27,637.33bps on a continued sell down and profit across sectors, except the Industrial Goods. The index closed the week at 27,755.87bps, representing a 1.11% decline on a lower traded volume. Also, market capitalization fell to N14.46tr, from an opening value of N14.62tr, representing a 1.11% value loss. This was lower than the rate of decline in the previous week of 2.69% loss, despite the price adjustment in Vitafoam shares for its dividend of 42kobo.
The Advancers’ table for the period was dominated by low cap stocks, as sell pressure continued on medium and large companies with accumulation in high Dividend Yield stocks persisted in the midst of unaudited and mixed corporate earnings that impacted the week negatively while investors cautiously awaited the release of more audited accounts and corporate actions. During the week also, directors of Nigerian Breweries presented its full-year audited reports as expected, accompanied by announced of N1.51 dividend per share.
Also, the prevailing negative sentiment was evident in market breadth that was down during the period, with decliners outpacing advancers in the ratio of 35:19. The impetus behind the week’s performance was strong despite sliding down, as revealed by the Money Flow Index reading 67.68bps, compared to the 73.60bps of the previous week.
The low volume of trade indicates the wait and see attitude of traders and investors ahead of the release of the audited 2019 full-year accounts, even as Investdata’s Sentiment Report for the week was negative at 25% ‘buy’ volume, and 75% ‘sell’ position, on a transaction volume index of 0.74.

NSEASI Weekly Time Frame
From the above weekly chart of NSE Index, Fibonacci levels are already forming support and resistance levels, and you combine them with other price areas that a lot of other traders are watching, then the chances of market rebounding from these areas of 50% to 61.8% are much higher. It is clear fund managers are holding cash in expectation of economic data like the January inflation and Q4 2019 GDP reports slated for February 17 and 24 respectively. This will determine which windows they will be looking for, whether the equity or fixed income market as assets repricing persist in the financial market.
The negative sentiment behind the NSE Index action and trading pattern during the week remained dicey, despite the earnings expectations that support a reversal in trend. The index broke down the 27,702.46bps within the period, an indication of weak inflow into the market as institutional investors and fund managers await the audited earnings reports.
The NSE index is sustaining a downward movement on a declining traded volume, signaling a slowdown in the recent recovery as selloffs and profit-taking persisted at the end of the second trading week of the month.
The index on a weekly time frame is trading above its 20-Day Moving Average, The Relative Strength Index reads 48.18, indicating relative strength. However, Money Flow is reading 67.68 points and looking down on the weekly chart which is an indication that funds are leaving the market and individual stocks.

Bearish Sectoral Indices
All the sectoral indexes were down during the week, except for the NSE Industrial Goods that closed slightly up at 0.78%, while the NSE Consumer Goods Index led the decliners, after shedding 6.47%, followed by the NSE Insurance, Oil/Gas and Banking indexes that were down by 2.16% 0.69% and 0.21%, respectively.
Market transactions, in terms, of volume and value for the week were down by 43.04% and 47.03% respectively, as investors exchanged 912.18m shares worth N12.13bn, as against the previous week’s 1.48bn units valued at N20.3bn. This volume was mainly driven by trades in financial services stocks, especially Zenith Bank, Guaranty Trust Bank, and UBA.
Livestock Feeds and United Capital Plc were the best-performing stocks for the week, topping the advancers’ chart after gaining 16.67% and 15.29% respectively, closing at N0.70 and N2.94 per share on low price attraction, and earnings expectation with dividend income. On the flip side, Linkage Assurance and Skyway Aviation lost 25.81% and 23.26% respectively, closing at N0.46 and N2.87 per share on profit-taking and selloffs.

Market Outlook
We expect more audited earnings reports and dividend news to dictate the market direction in the midst of profit-taking and repositioning by market players, as more OMO and bond investments mature, making more funds available for equity investment, despite the fact that funds managers are holding on to cash. This is just as more liquidity finds its way to high Dividend Yield stocks with sound fundamentals, which will also be based on a seemingly positive outlook for the domestic economy, despite the mixed outlook for 2020 from various analysts.
Discerning investors, nonetheless, should take advantage of the current low stocks valuation to position for medium to long-term. It is noteworthy that the market is selling at a discount and therefore offers high upside potential.
We should, however, not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With a dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.
Again, the current undervalued state of the market offers investors opportunities to position for the short to long-term, which is why investors should target fundamentally sound and dividend-paying stocks for possible capital appreciation in the New Year. This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Opportunities & Trade Ideas Summit.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.
Meanwhile, we thank all the participants of the PHC Invest 2020 Summit last weekend, as we also welcome you all to a bullish 2020. The home study packs of Invest 2020 Opportunities and Trade Ideas Summit containing the 10 Golden Stocks for 2020 are available with an average return of 13.37% in less than 30 days. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion
CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467

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