Expect Trend Continuation Ahead April Month-end Portfolio Realignments, Q1 earnings Inflow

Market Update for the Week Ended April 22 and Outlook for April 25-29

The bull rampage on the Nigerian Exchange continued last week as equity prices and the NGX All-Share index closed higher on strong buying interests and positive sentiment for stocks across all major sectors. This pushed the index above the 48,000 basis points mark and 15-year high, reflecting the inflow of funds to equities, just as the market capitalization crossed the N26tr mark to indicate an increase in investors’ wealth, in addition to the listing of new companies that impacted the key performance indexes positively.

This was despite, the ongoing global trends and uncertainties, arising from the aftermath of the war between Eastern European neighbours Russia and Ukraine. Also, there were a couple of price adjustments for dividends recommended by directors of blue-chip and large-cap stocks like Accesscorp, Unilever, FCMB, and Berger Paints. These have created attractive entry points for smart money and discerning investors.

The bears have been kept on the sidelines amid the persisting bull transition for two consecutive weeks on positive momentum and low price attractions as revealed by the low market price to earnings ratio (market PE ratio), as indicated by the recent revaluation based on impressive 2021 corporate earnings. Also, earnings and dividend yields in the stock market are better than those from the fixed income side in the face of rising inflation, which has triggered the flow of funds into equities as revealed by the Money Flow Index and improved transaction volume on a daily and weekly time frame, while also trading above the 20 and 50-day moving averages. This is despite the market volatility and uncertainty surrounding Nigeria’s pre-election year.

In investdata, data helps us to find the best stocks out there, and currently, some of the strong companies on the exchange are dividend growth names, which we research for potential investments in the short to long-term, because that is where the big money is made. This is why it is very important to understand the fundamental qualities of each stock, even as revenue and earnings growth are paramount, just like dividends are bonus issues.

The first quarter earnings reports continue to hit the NGX platform in the midst of rising production costs and inflationary conditions. In the week under review, there were impressive numbers from Lafarge Africa, Industrial & Medical Gases, Unilever, BUA Cement, Africa Prudential and Stanbic IBTC, but the Q1 results from Skyway Aviation Handling Company was not just below expectation, but disappointing. The expected numbers will demonstrate how well or not companies have been able to deal with the negative effects of the cost-push inflation on their performances in this new financial year. History has shown that for the most part, equities are actually a pretty good hedge against inflation, as companies push up prices in response to rising input costs to their customers or consumers.

The early stage of an inflationary cycle is where equities tend to do best. After that time, consumer sentiments sour, demand falls as prices rise, and so company revenues and margins suffer. But we are now at the early stage of this inflationary cycle, so we expect earnings to hold up. In the new week more companies’ earnings that would usually benefit from rising yields anyway as this increases their net interest margin. The energy sector also should report huge numbers on the back of surging energy prices. So, for now, we remain in a recovery and bullish camp, albeit with some expected more triggers along the way.

The lingering crisis in Ukraine and Russia in the face of the increase in sanctions imposed on the aggressor by the west continues, as Russia tries to reduce the impact, while gravitating toward allies like China and India. Also, central banks across the world continue to hike rates to checkmate effects of the rising inflation rate, which in mature economies is already hitting new highs.

This is already changing the global economic direction and expectations for 2022, even while COVID-19 remains potent. If this war in Ukraine is not put to an end soon, it may lead to another round of global economic depression or recession. Already, the World Bank Group in its latest Economic Update released on Sunday predicted that the raging war and sanctions on Russia is already negatively impacting economies around the globe, with emerging market and developing countries in the Europe and Central Asia region hardest hit. The war, the group said, has added to mounting concerns of a sharp global slowdown, surging inflation and debt, and a spike in poverty levels, resulting in economic impacts that have reverberated through multiple channels, including commodity and financial markets, trade and migration links and adverse impact on confidence.

Meanwhile, the trading environment and conditions in the Nigerian market have changed on improved traded volume and positive sentiments, suggesting that more investors are buying into blue chips at a time of price adjustment for dividends. This is amidst reactions to the 2021 corporate actions and impressive earnings released so far, as reflected in the high payout ratios of most quoted companies that submitted their financials lately. This continued volatility may not be unexpected, given the high level of uncertainty and risks associated with a pre-election year.

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In the midst of bullish trends witnessed during the week, the share prices of Fidelity Bank, Guinness, Oando and Sahco, among others, hit new 52-week highs, as investors reacted to their strong numbers, positive news and corporate actions announced.

Movement Of NGXASI

The NGX index witnessed another bull run as the week recorded three up markets and one down session, following which the benchmark index closed higher to remain in the markup phase. Also, all eyes are on the first quarter scorecards with the hope that they will support the uptrend. The rising inflation is, however, a threat already with increased negative returns in the fixed income market. This may further attract more funds into stocks as a hedge against inflation and protection of capital.

The week’s trading after the Easter Monday holiday started on a negative note, after the NGXASI lost 0.03%, halting the previous Thursday’s positive position, but rebounded at the midweek, closing 1.45% higher. This trend was sustained on Thursday and Friday when the market gained 0.21% and 0.49% respectively, bringing the week’s total gain to 2.00%, compared to the previous week’s 1.99% positive position.

In all, the benchmark index gained 949.27 basis points, closing the week at 48,459.65 bps, which was the intra-week high, from a low of 47,459.18bps, leaving the year-to-date growth in the index 13.44%. Recall that the week opened with the index at 47,558.45bps, just as market capitalisation rose by N512bn, closing at N26.13tr, from the previous week’s N25.64tr, which also represented a 2.00% value gain.

Stocks prices continued to rally during the week as low, medium, and high cap stocks dominated the top gainers’ chart, amid buying pressure and repositioning of portfolio ahead of more Q1 numbers, as investors taking advantage of high earnings yields and breakout to buy-in.

Market breadth for the week was positive as advancers outnumbered decliners in the ratio of 50:29 on positive sentiments, as revealed by the investor sentiment report showing 100% ‘buy’ volume. Money Flow Index was flat at 52.32bps from the previous week’s 52.73 points, an indication that funds are yet to enter the market on a weekly chart, while the daily time frame confirmed the inflow of funds into the market.

The NGX’s index action remains strong on a weekly chart, as the index trades above the ‘T’ line on the bullish engulfing candle to break out the major strong resistance levels of 47,613.72 points on a high traded volume and above 20- and 50-day moving average to reveal strength. The candlestick formation, at the end of the week, showed that the market is on an uptrend, as players digest the Q1 numbers already released to reposition their portfolios for Q2, as more 2022 first-quarter corporate earnings to give direction. The candlestick pattern indicates a possible continuation of the trend, depending on market forces in the new last week of April.

Bullish Sectoral Indices

All the sectorial performance indexes for the week were bullish, except for the NGX Insurance index that closed 0.05% lower, while NGX Oil/Gas led the advancers after gaining 6.36%, followed by Consumer, Industrial Goods, and Banking with 3.31%, 1.65%, and 0.60% respectively.

Transactions in volume and value terms were mixed as players exchanged 1.30bn shares worth N17.81bn, compared to the previous week’s 1.25bn units valued at N22.37bn. Volume was driven by Financial Services, Energy, and Consumer goods, especially by trades in Fidelity Bank, Zenith Bank, Universal Insurance, Honeywell, and Transcorp.

Meyer and Eterna were the best-performing stocks during the week after gaining 45.63% and 33.00% respectively, closing at N2.33 and N6.65 per share on market sentiment and mandatory takeover approved by SEC. On the flip side, Academy Press and John Holt lost 18.75% and 17.44% respectively, at N1.17 and N0.71 per share, purely on selloff.

Outlook for the week

We expect a continuation of the trend in the new week, being the last in the month of April, as more Q1 corporate earnings hit the market ahead of the statutory deadline for submission, just as portfolio repositioning for Q2 will continue as market players analyzing economic data and numbers to guide their decision. Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue. We note that income investors have sustained buying into dividend-paying stocks,

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605