Expect Mixed Trends On Profit-taking, Market Reactions To Decent Q1 Earnings Reports

Market Update for April 25

Equity prices on the Nigerian Exchange closed higher to open the last full trading week of April on a positive note, thereby pushing the NGX Index action higher for the fourth consecutive trading session on a high traded volume and strong positive breadth as shown in the market recording the highest number of daily advancers since the recent bull rampage commenced. 

The rise was despite the price adjustments in the shares of Fidelity Bank, GSK, Okomu Oil, Total, Infinity Trust Mortgage and SFS Estate Investment Trust for dividends recommended by their directors. It was also in spite of the selloffs in BUA Cement and others, the buying interests in Dangote Cement, Total Energies, Lafarge Africa, Stanbic IBTC, and others.  

The expected influx of Q1 earnings reports on the NGX this week will support the market upswing, as players look forward to decent earnings releases across the board to temper selling sentiment by investors reluctant to leave gains in the market. History has shown that for the most part of inflationary pressure, equities are actually a pretty good hedge against inflation, as companies push up prices in response to rising input costs.

The positive sentiment and momentum in the market, supported the ongoing bull rampage as momentum indicators and technical tools are confirming the bullish sentiment on a high traded volume as the NGX All-Share index’s action makes higher highs. This is on the back of the fixed income market ticking up, as well as the impact of oscillating oil prices in the international market as crude oil trading above $100 per barrel. These are expected to impact stock prices and the behaviour of some quoted companies on the exchange.

The mixed outlook for the quarter remains, as the filing of first-quarter earnings reports continued in the midst of corporate actions, qualification, price adjustment, AGMs, 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 markdown of prices for dividends and payment dates as announced by companies through the exchange. We note that today and tomorrow are the qualification date for NEM Insurance, Mansard Insurance and Wema Bank for the dividends of 22 kobo, 25kobo and 24 kobo per share respectively.  

Meanwhile, traders and Investors continue to watch the nation’s economic developments, especially given the recent forecast of World Bank that the nation’s economy could grow by as much as 3.4% this year, while observing developments in the fixed income market space. 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 ongoing rally, players should watch their stop-loss and profit targets to adjust positions and take profit as their target is met. Tentatively, the index action has formed a bearish hammer pattern reversal which requires confirmation in today trading, just as uptick in the fixed income market yields and oscillating rates of TBs may support the flow of funds into other assets like equity and real estate.

The Russia-Ukraine war, in the midst of the COVID-19 cases  in China, resulting to lockdown in some provinces have continued to influence commodities prices, especially crude oil which oscillates  in the international market to trade above $103 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 market’s uptrend in the midst earnings reporting season has created ‘buy’ signals for institutional investors 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 as indicated by bearish hammer candlestick formation which need confirmation.    

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 more Q1 numbers and reactions 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, Monday’s trading opened on the upside and pulled back by the afternoon, before oscillating for the rest of the session on buying interests and accumulation across sectors. This pushed the NGX’s index to an intraday high of 48,562.20 basis points from its lows of 48,089.55bps, before closing above its opening point at 48,543.36bps.

Market technicals were positive and mixed, as volume traded was lower than the previous day, in the midst of breadth favouring the bulls on buying sentiment as revealed by Investdata’s Sentiments Report showing 99% ‘buy’ volume and 1% sell position. The total transaction volume index stood at 0.98 points, just as the momentum behind the day’s performance remained strong with Money Flow Index looking up at 84.86pts, from the previous day’s 78.09pts, indicating that funds entered the market.  

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Index and Market Caps

The benchmark index gained 99.26bps at the end of Monday’s trading to close at 48,543.36bps, after opening at 48,459.65bps, representing a 0.17% up. Similarly, market capitalisation rose by N45bn, closing at N26.170tr, from the previous day’s N26.125tr, which also represented a 0.17% value gain.

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The day’s upturn was driven by buying interests in Dangote Cement, Lafarge, Total, Zenith Bank, GTCO, ETI, Fidelity Bank, Eterna, Oando, and Unilever, among others. This impacted positively on Year-To-Date gain, which increased to 13.64%, while market capitalization growth stood at N3.23tr YTD, representing a 16.78% rise over the opening level for the year.

Bullish Sector Indices

Performance indexes across sectors were bullish, except for NGX industrial goods that closed lower with 1.10%, while NGX Consumer goods led the advancers after gaining 2.45%, followed by Oil/Gas, Insurance and Banking with 1.44%, 0.39% and 0.34% respectively.

Market breadth was positive, as gainers outnumbered losers in the ratio of 43:16; just as activities in volume and value terms were mixed, as investors exchanged 328.39m shares worth N4.04bn. Volume was driven by trades in Zenith Bank, Oando, Mansard Insurance, Transcorp and FBNH.

Ikeja Hotel and Eterna were the best-performing stocks after gaining 9.93% and 9.92% respectively, closing at N1.55 and N7.31per share respectively on market forces and mandatory takeover. On the flip side, Unity Bank and Academy Press lost 6.00% and 5.98% respectively, closing at N0.47 and N1.10 per share, on selloffs.

Market Outlook

We expect a mixed trend on profit-taking and market reaction to decent Q1 earnings reports, as market players digest 2021 full year numbers and 2022 unaudited financials amid revaluation of quoted companies ahead of more Q1 2022 earnings expectation. This is expected to support this uptrend during this season, amidst 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, while the International Monetary Fund projected the nation economy to grow by 3.4% in 2022 on rising oil price.

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605