Blue Chips, Mid Caps Resist Further Decline, As Consumer Goods Stocks Suffer Losses
Market Update for July 15
Nigeria’s equity market seesaw movement continued during Thursday’s trading session with the composite NGX All-Share index resisting further decline at the recent strong support level of 37,854.17 basis points. The market side-trended on a low traded volume and positive breadth that signals the activities of smart money, even as supply dries up, indicating a possibility of markup in prices by institutional investors or buyers.
The mixed sentiments and ranging mode of the market is prevailing at this point of earnings reporting season as early filers hit the market with impressive numbers, amid the expected momentum, liquidity, and sentiments. Also, activities associated with this season are underway to support a reversal as the NGX index action has formed a hammer candlestick with low volume at a strong support level.
The NGX index action is holding strong at this point and level, as selloff and profit booking slows down ahead of inflation data and monetary policy meeting outcome as consumer price index had recently slide down for two consecutive months in the face of a weak economic recovery. Investors are on the sidelines, despite not expecting a change in monetary policy at this pace of growth and recovery as uncertainty looms. Also, money seemed to be flowing into the market as revealed by money flow index at the end Thursday’s trading.
Blue-chip and medium cap stocks are resisting decline at their five to six months’ strong support levels ahead of their quarterly financials that are around the corner.
United Capital Plc gave an earnings surprise of 51 kobo for the half-year with gross income of N6.85bn which beat market and analysts’ expectations, for which we expect the market to react, while investors are becoming more confident of good dividend at the end of the current financial year.
We know that corporate and analyst forecasts are made to be beaten. In fact, many analysts have typically increased their estimates for Q2 numbers, while companies are forecasting higher earnings in Q3, even as higher-than-expected earnings will make stocks cheaper. At the moment, the market’s Price-to-Earnings ratio, just like those of many companies, is trading below 18 times of their earnings. In an environment of relatively low interest and high inflation, stocks historically, tend to move higher on earnings performance.
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Thursday’s trading started slightly on the upside and oscillated marginally to negative position on indecision among buyers and profit-taking in manufacturing companies that pushed the key performance index to an intraday low of 37,855.92bps, from its highs of 37,805.95bps, closing slightly below its opening point at 37,866.90bps.
Market technicals were weak and mixed, with volume traded lower than the previous day’s, in the midst of breadth favoring the bulls on mixed sentiments as revealed by Investdata’s Sentiments Report showing 33% ‘buy’ volume and 67% sell position. The total transaction volume index stood at 0.73 points, just as the momentum behind the day’s performance was relatively strong, as seen in the 53.37pts Money Flow Index, compared to previous day’s 47.61pts, indicating that funds entered the market, despite closing flat.
Index and Market Caps
The benchmark NGXASI, at the end of the session, slipped by 5.65 basis points, closing at 37,866.90bps, from an opening level of 38,872.55bps, representing a 0.01% drop, just as market capitalization fell by N2.94bn, closing at N19.72tr, from its opening value of N19.73tr, representing a 0.01% value loss.
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The day’s downturn was due to profit-taking in Nigerian Breweries, Dangote Sugar, Honeywell, Vitafoam, University Press, FBNH, UPDC, Wapic, Sterling Bankand GTCO, among others, which impacted mildly on Year-To-Date loss, increasing it to 5.97%, while the drop in market capitalization YTD slide to N1.33tr, representing a 6.30% drop from its opening value for the year.
Bullish Sector Indices
The sectorial performance indexes were bullish, except for NGX Consumer Goods that was down by 0.72%, while NGX Oil/Gas index led the advancers, after gaining 0.83%, followed by Banking, Insurance and Industrial goods with 0.67%, 0.31% and 0.04% higher respectively.
Market breadth remained positive with gainers outnumbering losers in the ratio of 18:16, while activities in volume and value terms fell after stockbrokers traded 160m shares worth N927.86m, with volume driven by trades in ABC Transport, Africa Prudential, Aiico, Airtel Africa and Ardova.
Sovereign Trust Insurance and FTN Cocoa were the best performing stocks, gaining 10% and 9.76%, closing at N0.33 and N0.45 per share respectively on market forces and sentiments. On the flipside, Ikeja Hotel and UPDC lost 9.29% and 9.09% respectively, closing at N1.27 and N1.30per share, on profit taking.
Market Outlook
We are expecting a reversal depending on market forces today, as profit taking slows down and rekindled buying interests continued ahead of more Q2 numbers any moment from now, amid the declining volume and divergence that supports an uptrend while smart money takes advantage of pullbacks to reposition ahead of earnings and economic data expectations. It is noteworthy that oil price continues its recovery at the international market, even as corporate actions and interim dividend possibilities around the corner.
We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.
The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in the coming week.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08179547605
