Expect Mixed Performance On Profit-Taking, Repositioning, Amid 2022Q1 Earnings Inflow

Market Update for March 12

The bullish trend on the Nigerian Exchange continued Tuesday with another spike in investors’ demand for value stocks thereby pushing more funds into the equity space despite the oscillation in rates and flattish yields in the fixed income market ahead of today Central Bank of Nigeria primary auction.  

The benchmark NGX All-Share index sustained its positive outing for a third successive session on above average traded volume and positive market breadth that support the markup phase as smart money makes effort to move prices on the exchange.  This is an indication a return of strength and funds to the market ahead of the Q1 2022 earnings reporting season that will kick off any moment from now.

Tuesday’s trading pattern and improved buying sentiment confirmed the return of the bulls with the NGX index action crossing the 47, 000 psychological line again to test 47,231.66 points and reveal the recovery momentum of the market. It is also indicating the possibility of trend continuation as market players repositioned in fundamentally sound stocks and sectors with positive fundamental news that will support growth in Q2 and for the rest of the year despite the uncertainty that comes with the pre-election year.

This momentum is attributable to positive sentiments across the major sectors of the market and blue chips that pushed the index up, on an improved traded volume. This is just as the global and domestic cost-push 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 year, especially given the level of uncertainties.

Investdata Research’s mixed outlook for the month of April and the quarter remains, as the filing of first-quarter earnings reports is expected in the midst of corporate actions, qualification, price adjustment, AGM, and payment of dividends by listed companies. However, there is a need to watch the current trends, especially with bargain hunters still in the market cherry-picking fundamentally sound stocks. There are also the expected market reactions to the dividend markdown and payment dates of the companies on the exchange. We note that today is the qualification date for BUA Cement’s dividend of N2.60 per share. Others within the week are Stanbic IBTC Holdings, Unilever Nigeria, and FCMB. These are likely to influence the market positively or otherwise. 

Market players have continued to watch the nation’s economic developments and what is happening in the fixed income market with yields and rates. Already, all eyes are on plans announced by the CBN 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 of the market and the bull transition, investors and traders should watch their stop-loss and profit targets to adjust positions and take profit as their target is met. Tentatively, the marginal uptick in the fixed income market yields and oscillating rates of Treasury Bills may support the flow of funds into other assets.

The ongoing war in Ukraine and mixed sentiments in the global market are having an effect on the NGX in recent times, just as investors continue to keep their gaze on the 2023 general elections. This is amidst the 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 subsiding cases of COVID-19 in China, resulting in gradual reopening after the lockdown in some provinces have continued to influence commodities prices, especially crude oil which rebounded in the international market to trade above $105 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 uptrend as seen in the NGX index’s action in recent times ahead of the earnings reporting season has created ‘buy’ signals for smart and discerning traders. However, we warn that market corrections are not over yet because profit taking is part of the market dynamics, hence the need to rely on your stop-loss effectively. This is because the uptrend signals that profit-taking is underway, especially when it gets to the level where it pulls back.   

The candlestick formation at the end of trading reveals that buyers are in charge, a trend that may lead to a continuation or reversal, depending on market forces as all eyes are on companies’ Q1 results. The NGX index’s action broke out another major resistance level of 47,000 basis points, trading above its 20-day moving average, as volatility persists and the uptrend towards the next resistance level is sported around 47.465.17bps. Should the index break this point, the next visible level is 47,613.72 points.

Technically, the NGX index is making a higher high, as the session witnessed strong positive 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 the state of 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.

Meanwhile, Tuesday’s trading opened on the upside and it was sustained throughout the session on buying interests and positive sentiment that pushed the NGX’s index to an intraday high of 47,231.66 basis points from its lows of 46,872.25bps, before closing above its opening point at 47,205.03bps.

Market technicals were positive and strong as volume traded was higher than the previous day, in the midst of breadth favoring the bulls on buying sentiment as revealed by Investdata’s Sentiments Report showing 93% ‘buy’ volume and 7% ‘sell’ position. The total transaction volume index stood at 0.73 points, just as the impetus behind the day’s performance remained relatively weak with Money Flow Index looking up at 49.43pts, from the previous day’s 41.63pts, indicating that funds entered the market.  

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Index and Market Caps

The key performance index, at the end of the trading session, gained 337.08bps to close at 47,205.03bps, after opening at 46,867.95bps, representing a 0.72% growth. Similarly, market capitalisation rose by N181.72bn, closing at N25.45tr, from the previous day’s N25.27tr, which also represented a 0.72% appreciation in value.

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Tuesday’s upturn was driven by demand for Seplat Energy, MTN Nigeria, Lafarge Africa, CAP, UBA, Accesscorp, UCap, Zenith Bank, Vitafoam, Julius Berger, and Honeywell, among others. This impacted positively on Year-To-Date gain, which increased to 10.51%. Market capitalization growth stood at N2.67tr YTD, representing a 14.63% rise over the opening level for the year.

Bullish Sector Indices

Performance indexes across sectors were bullish, except for the NGX Insurance which closed 1.35% lower, while NGX Banking led the advancers after gaining 2.77%, followed by Consumer goods, Oil/Gas, and Industrial with 1.94%, 1.71%, and 0.10% respectively.

Market breadth was positive, as gainers outnumbered losers in the ratio of 30:17; just as activities in volume and value terms were up, as investors exchanged 245.42m shares worth N4.58bn. Volume was driven by trades in GTCO, Zenith Bank, Nigerian Breweries, Fidelity Bank, and Linkage Assurance.

Chemical Allied Products and Neimeth Pharmaceuticals were the best-performing stocks of the session, gaining 10% and 9.86% respectively, to close at N19.80 and N1.56 per share respectively on dividend N1.25 and Q2 earnings expectation. On the flip side, Academy Press and Caverton Offshore lost 10% and 9.92% respectively, closing at N1.44 and N1.18 per share, on profit-taking and selloffs.

Market Outlook

We expect a mixed performance on profit-taking and repositioning as market players digest 2021 audited financials and revaluation of quoted companies ahead of Q1 2022 earnings expectation. This is expected to support this uptrend during this earnings season, amidst the rebound of 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, while the International Monetary Fund is calling for a hike in the interest rates and further devaluation of the Naira.

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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, 08179547605

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