Bargain Hunting May Linger, Amid Positioning For Dividend, Q1 Earnings

Market Update for March 5

The seesaw movement on the Nigerian Exchange resurfaced again Tuesday, in the midst of volatility and market players analyzing the 2021 corporate earnings performance ahead of the Q1 earnings expectations, while bargain hunters continue to take advantage of the recent pullbacks to position in undervalued stocks.

The seeming positive outing on improved buying sentiment in the banking and energy sectors of the market supported a rebound on a low traded volume and negative market breadth to halt the previous session loss position as the benchmark all-Share index resisted further decline.

The regained momentum was attributed to buying interests in blue chips that pushed the key performance index marginally up, despite the decline liquidity on the equity space with funds moving to other investment outlets, especially as fixed income market yield curve continues to expand. This is just as global and domestic cost-pushed inflation crisis continues to threaten economies around the globe. Analysts expect that Q1 corporate scorecards will offer insights into what investors should expect from quoted companies in this pre-election year, especially given the level of uncertainties.

Investdata Research’s mixed outlook for the month of April remains, as filing of first-quarter earnings reports in the midst of corporate actions of qualification, price adjustment, AGM, and payment of dividends by listed companies. However, there is need to watch the current trends, especially with bargain hunters still in the market cherry-picking fundamentally sound stocks. There is also the expected market reactions to the dividend announcements and numbers released in the hours leading to the end of March. We note that this Wednesday is the qualification date for MTNN’s dividend of N8.57, as well as the annual general meeting and payment date for Zenith Bank’s N2.80 dividends. These are likely to influence the market positively. 

Investors have continued to watch the nation’s economic developments and what is happening in the fixed income market with yields and rates staying mixed and flattish. Already, all eyes are on the plans by the Central Bank of Nigeria (CBN), as announced during the last Monetary Policy Committee (MPC) meeting to fulfill its promised intervention in the distribution of premium motor spirit and diesel. The aim is to ease the pains of the scarcity among manufacturers, SMEs, and households across the country, in the face of the epileptic power supply.

Despite, the rebound at the close of Tuesday’s trading, investors and traders should watch their stop-loss and profit targets to adjust positions. Tentatively, the uptick in the fixed income market yields and oscillating rates of Treasury Bills may trigger the flow of funds into other assets.

The ongoing war in Ukraine, and mixed sentiments are having its effect on the market in recent times, just as investors continue to keep their gaze on the 2023 general elections, amidst uncertainty and the heightening insecurity in the country, following attacks here and there, especially the recent attack on an Abuja-Kaduna train with over 930 persons onboard in Kaduna.

The Eastern European crisis and rising cases of COVID-19 in China, resulting in fresh rounds of lockdown in some provinces have continued to influence commodities prices, especially crude oil which is now oscillating in the international market, trading above $106.20 per barrel, after touching $120.27 in the previous days. This has continued to push production costs up, worsening inflationary pressure across the globe and weakening economic outlooks for 2022 and 2023, thereby influencing the monetary policy of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession.

The price corrections as seen in the NGX index’s action during the earnings reporting season have created ‘buy’ signals for smart and discerning traders. However, we warn that market corrections are not over yet, hence the need to rely on your stop-loss effectively. This is because the oscillating trend signals that a major uptrend is underway, especially when it gets to the level where it is considered good enough for fixed income market players, among others, to jump back into equity positions.  

The candlestick formation at the end of trading reveals that buyers are having the upper hand, a trend that may likely lead to a continuation or reversal, depending on market forces as all eyes are on companies’ Q1 results. The NGX index’s action broke down another minor support level of 46,800, trading below its 20-day moving average. As volatility persists and the uptrend towards the next resistance level is sported around 46,846.16bps. Should the index break this point, the next visible level is 46,920,72 points.

Technically, the NGX index is making higher lows, as the session witnessed improved sentiment that could be linked to the repositioning of portfolios ahead of Q1 numbers and reaction to corporate action dates. The possibility of the market sustaining this trend is a function of an inflow of impressive Q1 numbers and improved economic condition during this Q2, following which we advise investors to play defensive with sectors having strong demand and dividend stocks to reduce investment risks around the market.

Tuesday’s trading started on the downside and oscillated for the rest of the session on buying interests and profit taking that pushed the NGX’s index to an intraday high of 46,795,23 basis points from its lows of 46,687.84bps, before closing above its opening point at 46,777.37bps.

Market technicals were mixed and weak as volume traded was higher than the previous day, in the midst of negative breadth on mixed sentiment as revealed by Investdata’s Sentiments Report showing 68% ‘buy’ volume and 32% ‘sell’ position. The total transaction volume index stood at 0.68 points, just as the impetus behind the day’s performance remained weak with Money Flow Index flat at 24.08pts, from the previous day’s 23.81pts, indicating that funds entered the market.  

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Index and Market Caps

At the end of Tuesday’s trading, the composite NGXASI inched up 89.52bps to close at 46,777.37bps, after opening at 46,687.85bps, representing a 0.19% up. Similarly, market capitalization rose by N48.26bn, closing at N25.22tr, from the previous day’s N25.17tr, which also represented a 0.33% value gain.

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Tuesday’s upturn was driven by demand for Seplat, GTCO, Oando, UBA, Accesscorp, FBNH, Zenith Bank, Fidson Healthcare, FCMB and Caverton, among others. This impacted positively on Year-To-Date gain, which increased to 9.51%. Market capitalization growth stood at N2.41tr YTD, representing a 13.40% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Banking and Energy closed 1.73% and 1.42% higher respectively, while NGX Insurance led the decliners after shedding 0.93%, followed by Consumer and Industrial goods with 0.34% and 0.05% respectively.

Market breadth was negative, as decliners outnumbered advancers in the ratio of 20:18; just as transactions in volume and value terms were up, as players traded 257.41m shares worth N2.34bn. Volume was driven by trades in Fidelity Bank, Transcorp, WAPIC, GTCO and Accesscorp

Meyer and Regency Insurance were the best-performing stocks of the session, gaining 8.86% and 7.14% respectively, to close at N0.86 and N0.30 per share respectively on market sentiment and forces. On the flip side, NPF Microfinance and Learn Africa lost 9.64% and 9.14% respectively, closing at N2.25and N1.69 per share, on profit taking.

Market Outlook

We expect the market to sustain the sentiment on bargain hunting as players digest 2021 audited financials to reposition for Q1 2022 earnings expectation.  This is expected to support an uptrend during this earnings season, amidst the oscillating oil prices, just as the market continues to interpret economic data in relationship with the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund is calling for a hike in the interest rate and further devaluation of the Naira.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605