Expect Fresh Positioning On Low Valuations, As Investors Review Banks’ Earnings, Dividends

Market Update for April 8

Trading activities on the Nigerian Exchange for the ongoing week opened on a negative outing Monday, extending the bearish momentum for the fifth straight session on a low traded volume amid negative market internals that weighed on the benchmark NGX All-Share index. This forced it to close lower ahead of the unusually long holidays to celebrate the Eid-el-Fitr  which marks the end of the holy month of Ramadan, when the Moslem world observes fasting and abstinence, even as market players continue to digest the inflow of mixed corporate earnings reports released so far. There is high expectation of more banking results after the insurance companies  one after another notified the NGX and investors of a delay in filing their 2023 audited financials and Q1 2024 earnings reports.

After trading session on Monday, the NGX witnessed an influx of full-year audited results from first tier banks and financial services holding companies showing impressive performance and increased payout as revealed by dividend growth for 2023. It’s expected that the market will react to these positive numbers after the holidays when trading opens on Friday, especially those that beat market expectation in their dividend payout. The final dividends for these banks are N3.50, N2.70 and N2.30 respectively for Zenith Bank, GTCO and UBA. On the strength of these banks’ earnings power, robust balance sheet and growth margin, meeting the N500bn new minimum capital base stipulated by the Central Bank of Nigeria if they must maintain their international operating licenses is achievable. Already, Accesscorp and GTCO have announced plans to raise fresh capital by way of right issues.

The market is pulling back and experiencing selloffs in the face of mixed corporate and macroeconomic numbers from listed companies and the economy. This is a pointer to the state of the economy and impact of the ongoing government policies ahead of the Consumer Price Index for the month of March that will further point to where the economy is standing. However, investors and traders should buy the dip, as relative stability return to the foreign exchange market in the aftermath of the latest intervention by the CBN when it sold US Dollars cheaper to BDCs after clearing the outstanding FX backlogs. This had led to the recent appreciation in the value of the Naira against the US Dollar.

As market fundamentals continue to change amid increasing volatility, portfolio rebalancing and sector rotation will persist on the strength of numbers and policy direction of government. Already, investors and analysts are interpreting the corporate earnings released so far ahead of TB primary market auction, March inflation reports and first quarter 2024 earnings reports among other factors. These are expected to give investors an insight into what would come from the companies for the rest of the year in search of higher returns to hedge against the runaway inflation.

The NGX index’s action has entered the decline phase and is heading to breakdown the 50-day moving average that revealed continuation of correction and pullbacks in the midst of expected positive reaction to the latest banking results that may trigger a reversal which needs confirmation as trading opens on Friday. Although, we see government and its economic team trying to return the nation’s economy to the path of recovery, even with the continued mismatch of policies and implementation style that reflects a disconnection between the fiscal and monetary perspectives. It does seem that the MPC has sacrificed the economy on the altar of attracting foreign inflows with the increasing interest rate for improved foreign exchange supply that will help address FX challenges and checkmate inflation, while fiscal authority has recently hike electricity tariff that will further increase cost of production and put pressure on inflation. Already, CBN managing the naira is telling on the nation external reserves as it slides recently.

Power generation company- Geregu released its Q1 scorecard as one of the early filers and the numbers were impressive, as top and bottom lines inched up signaling a good start for the new financial year. More companies on the Exchange have continued to announce their closed period and board meetings to approve their unaudited Q1 2024 reports. The latest are Wema Bank, Africa Prudential, NCR Nigeria and McNichols among others, while Airtel Africa updated the market on the ongoing share buyback. Also, Presco and VFD Group informed NGX of delays in filing their audited 2023 financials.

Hence, investors should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.

Technically, the NGX is heading to its oversold stage that creates opportunity to buy, with selling sentiment continuing as revealed by the candlesticks formation and momentum indicators that shows weakness in the market, while the ADX is looking down at 31.76. The RSI and Money Flow Index are down, reading 52.26 and 34.50 points against the previous session 55.04 and 38.46 points respectively. These indicates a downtrend. Market players should watch out and trade with caution after the index had broken down the T line and momentum is weak. Also, trading volume pattern remain mixed, suggesting the wait and see mood in some sectors. There is some position taking as returns from other investment windows remain below inflation, while the Naira continues to look up in recent days.

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Oil price on Monday pulled back to continue its oscillation, trading at $90.25 per barrel in the midst of global growth in demand and production cuts by OPEC and Russia, which has put pressure on prices and cost as reflected in the latest inflation reports. As geopolitical tensions in the Middle East gradually slowing down, while Ukraine and Russia war persisted. The rising geopolitical tension across the globe remained a major threat to many economies and the commodity market and other factors that impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement that drive volatility. As middle East conflict and war in Ukraine last.

Monday’s trading opened in the downside and it was sustained for the rest of the session, despite oscillating, on profit taking in banking stocks and others. This situation pushed the NGX’s index to an intraday low of 103,047.10bps from its highs of 103,548.20bps, before closing below its opening figure at 103,047.10bps.

Market technicals for the session were negative and weak, as volume was lower compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 0% buy position and 100% sell volume. The total transaction volume index stood at 0.90 points, just as momentum behind the day’s performance was weak as Money Flow Index was down at 34.50pts, from the previous day’s 38.46pts, indicating that funds left the market.

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Index and Market Caps

At the end of Monday’s trading, the composite NGX All-Share Index shed 390.60bps, closing at 103,047.07bps after opening at 103,437.67bps, representing a 0.38% decline, just as market capitalization fell by N220.82bn, closing at N58.28tr from the previous day’s N58.50tr, which also represented a 0.38% depreciation in value.

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Meanwhile, the session downturn was driven by selloffs and profit taking in the shares of UBA, FBNH, GTCO, Accesscorp, Flour Mills, NB, Unilever, Zenith Bank and NB among others, which impacted negatively on Year-To-Date gain which reduced to 37.81%. Market capitalization YTD gain stood at N13.89trillion, representing 40.12% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes were down, as NGX Banking led the decliners after losing 2.672%, followed by Consumer goods with 0.27%, while NGX Energy, Insurance and Industrial goods finished flat.

Market breadth was negative as losers outnumbered gainers in the ratio of 23:17, while activities in volume and value were down after investors exchanged 245.86m shares worth N3.22bn. Volume was driven by trades in Abbey Building, GTCO, Accesscorp, Transcorp and Zenith Bank.

Morison Industry and Omatek were the best performing stocks, gaining 9.91% and 7.69% closing at N2.33 and N0.84per share respectively on market forces and sentiment. On the flip side, Abbey Building and Champion Breweries lost 9.75% and 9.68% respectively, closing at N2.50 and N3.36 per share, purely on selloffs and profit taking.

Market Outlook

We expect a mixed sentiment and position taking as players digest banking earnings  with dividend announcements, while taking advantage of low valuation to position and rebalancing portfolio.

This is amid the volatility and pullbacks that add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd