Expect Uptrend Amid Selloffs In Fixed Income Market, Ahead Of Q3 Earnings

Following the positive sentiments for blue-chip stocks on the Nigerian Exchange on Thursday, the composite index NGXASI sustained two consecutive sessions of bull-run to close higher on a low traded volume and positive breadth ahead of more quarterly earnings reports hitting the market and portfolio reshuffling for the month-end and the rest of the quarter.

As the earnings reporting season enters its peak next week and the statutory deadline of 30 days draws closer for the filing of quarter-end corporate results, results from the consumer goods sector results made available to the market during trading were altogether impressive. The earnings report for PZ Cussons for the full year ended May 31 and Q1 ended August 31, 2021, for example, turned positive with a final dividend of 25 kobo per share, just as Northern Nigerian Flour Mills recorded a growth of 85% and 19% in the top and bottom lines respectively for Q2 and earnings per share of 97 kobo, up from the 82 kobo posted in 2020.  These industry numbers have given insight into what investors should expect from companies like Honeywell, Flour Mills of Nigeria, and Unilever Nigeria

The buying interests of market players in shares of NGX Group, FBNH, Presco, Okomu Oil, and telecoms stocks continued to push the general market performance higher, as short term-fixed income instruments witnessed selloffs in the midst of the ongoing rally in the equity market where Price to Earnings Ratio remains low on the improvements in corporate earnings ahead of year end.

Technically, the NGX index’s action entered a new uptrend after breaking out the minor and major resistance levels of 41,510.19 basis points and 41,584.85bps to test 41,744.32bps on a low traded volume and mixed signals by the indicators. The possibility of correction at this point is high, with the expectation of more quarterly earnings hitting the market. However, the state of these expected numbers and level of liquidity in the equity space will determine how far this breakout and rebound will go.  As all eyes are on oil prices, meanwhile, as it now trades above $84 per barrel, despite the seeming pullback at the international market, FGN Bond Auction rates that will kick off any time from now, while the direction in the fixed income market remains unclear.

Meanwhile, Thursday’s trading opened on the upside and was sustained for the rest of the session, despite oscillating on position-taking and profit booking, a situation that pushed the key performance index to an intraday high of 41,744.32 basis points, from its lows of 41,230.41bps, after which it closed significantly above the opening points at 41,704.11bps.

Market technicals were strong and mixed as volume traded was lower than the previous day’s in the midst of breadth that favoured the bulls, and buying sentiment as revealed by Investdata’s Sentiment Report showing 92% ‘buy’ position and 8% sell volume. The total transaction volume index stood at 0.65 points, just as the impetus behind the day’s performance was strong, but slowed down as Money Flow Index dropped to 82.42 points, from the previous day’s 83.09 points, indicating that funds flowed out, despite the upmarket.

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Index and Market Caps

The benchmark NGX All-Share Index, at the end of Thursday’s trading, gained 454.40 basis points and closed at 41,704.11bps after opening at 41,249.71bps, representing a 1.10% growth, just as market capitalization rose by N237.13bn, closing at N21.76tr, from the opening value of N21.53tr, also representing 1.11% appreciation in value.

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Thursday’s upturn resulted from the demand for Airtel Africa, BUA Cement, NGX Group, MTNN, Nigerian Breweries, Dangote Sugar, UBN, ETI, Redstar, and Livestock Feeds, among others, which impacted positively on Year-To-Date gain that increased to 3.56%. Market capitalization stood at N706.79bn YTD, representing a 3.34% growth from the year’s opening value.

Bullish Sector Indices

Performance indexes across sectors were in the green, except for the NGX Oil/Gas Index that closed 0.36% lower, while the NGX Industrial Goods led the advancers after gaining 2.16%, followed by Insurance, Consumer Goods and Banking with 1.56%, 1.45%, and 0.17% respectively.

Market breadth was positive, as gainers outnumbered losers in the ratio of 23:18, while activities in volume and value terms were down, as investors exchanged 216.19m shares worth N3.38bn, compared to the previous day’s 499.51m units valued at N5.08bn. Volume was driven by trades in FBNH, ETI, Transcorp, Access Bank, and Fidelity Bank.

Cutix and NGX Group were the best-performing stocks after gaining 10% and 9.79% to close at N5.50 and N23.55per share respectively on market sentiments and the one-for-one bonus issue expectation. On the flip side, Neiemth Pharm and Universal Insurance lost4.86% and 4.67% respectively, closing at N1.76 and N0.20 per share purely on profit-taking and selloffs.

Market Outlook

We expect an uptrend as selloffs hit short-term fixed income market instrument in the amidst players reposition for Q3 earnings season and year-end, also react to these numbers, as more quarterly corporate earnings are expected to hit the market. Just as candlestick formation and volume traded at the end of Thursday trading revealed that trend was intact as institutional players are not selling. It is equally noteworthy that any pullback at this level is for the accumulation of more positions ahead of year-end seasonality. Also, many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data, the outcome of the Treasury bill auction was 91 and 182 days tenor rate remained unchanged and 364 days slightly down by 25 points to 7.25% for a whole one year ahead of earnings season portfolios repositioning. Also, investors are still observing the interplay of forces in the FX market as the CBN’s new digital currency platform. The day’s low volume suggests that institutional investors are not making a sell move yet in the market, as they look at the economic data and policy direction of the economic managers. It is noteworthy that oil price rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner for companies like Total, Seplat, Okomu Oil, Presco, Lafarge Africa, and others.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




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