Expect Uptrend On influx Of Impressive Earnings, Amid Portfolio Realignments

 Market Update for October 28

Equity prices on the Nigerian Exchange closed higher on Thursday to reverse midweek’s loss position on a high traded volume and positive market breadth as investors weighed the impact of the strong corporate earnings against the weak and slow economic recovery in the midst of unclear direction of yields in the fixed income market. The long tenored rates at the just conclude Treasury Bills primary auction declined by 0.26 points to 6.99% from 7.25%, while the shorter tenored 91 and 182-day rates remained unchanged at 2.5% and 3.5% respectively.

The impressive and better than expected Q3 earnings reports in the equity market have rekindled investor confidence and buying interests, a situation that impacted stock prices positively to sustain the uptrend, amidst reactions to earnings surprises that helped AIICO, Cadbury, MTNN, Transcorp, NB, Guinness, UBA, Zenith Bank and Lafarge Africa to breakout their minor and major resistance levels. During the sessions, numbers came from blue chips and high-priced stocks like Airtel Africa, Lafarge Africa, among others, in additions to the corporate action of N1.00 interim dividend from Lafarge Africa and earnings reports from other companies, made available after trading session for the day. Investors are likely to the numbers which came stronger than expected to react positively to it on Friday.

The anticipation of more earnings and the positive state of the ones released so far have given investors hope for continued growth in the economy despite the impact of the foreign exchange market crisis that reflected on the last quarter-to-quarter performance of these listed companies.

Technically, the NGX index’s action is set to breakout 42,000 psychological line as influx of positive earnings reports trigger portfolio rebalancing and sentiment that reveal the presence of buyers. Also, the strength behind the uptrend is waxing stronger as indicated in the ADX reading 50.21 as against the previous day 48.44 which is above 20 points and money flow index at 74.80 points on a daily chart. The possibility of correction after, or during this peak of earnings season is high, with the expectation of more quarterly earnings hitting the market. The candlestick formation confirms an uptrend, signaling that buyers are in control as volume traded was up from the previous day.

However, the state of these corporate earnings and level of liquidity in the equity space will determine how far this rally will go, with all eyes on oil prices at the international markets, currently trading above $84 per barrel, despite the seeming oscillation at the international market, as the direction of yields in the fixed income market remains unclear.

Meanwhile, Thursday trading opened slightly on the upside, which was sustained for the rest of the session, despite oscillating on position-taking and reaction to impressive numbers. This situation pushed the composite All-Share index to an intraday high of 41,975.68 basis points, from its lows of 41,778.04bps, before closing above its opening level at 41,961.14bps.

Market technicals were positive and strong as volume traded was higher than the previous day’s in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata’s Sentiment Report showing 93% ‘buy’ position and 7% sell volume. The total transaction volume index stood at 1.51 points, just as the momentum behind the day’s performance was strong, as Money Flow Index inched up to 74.80 points, from the previous day’s 73.88 points, indicating that funds entered the market.

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Index and Mkt Cap Movement

The benchmark index NGXASI, at the end of Thursday’s trading gained  171.55 basis points and closed at 41,961.14bps after opening at 41,789.59bps, representing a 0.41% growth, just as market capitalization rose by  N89.53 bn, closing at N21.90tr, from the opening value of N21.81tr, also representing 0.41% appreciation in  value.

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Thursday upturn was driven by demand and reactions to impressive results from MTNN, Guinness, Cadbury, University Press, ETI, Vitafoam, Zenith Bank and Livestock Feeds, among others. This impacted positively on Year-To-Date gain that increased to 4.20%. Market capitalization stood at N841.20bn YTD, representing a 3.98% growth from the year’s opening value.

Bullish Sector Indices

Performance indexes across sectors closed higher, except for the NGX Insurance index that fell by 0.21%, while the NGX Consumers goods led the advancers after gaining 1.47%, followed by Banking, Oil/Gas and Industrial Goods with 0.52%, 0.19% and 0.10% respectively.

Market breadth remained positive, as gainers outnumbered losers in the ratio of 23:13, while activities in volume and value terms were up, as investors exchanged 558.89m shares worth N4.40bn, compared to the previous day’s 284,60m units valued at N3.20bn. Volume was boosted by further trades in FBNH, C/I Leasing, UBA and Access Bank.

Cadbury and University Press were the best-performing stocks after gaining 10% each to close at N8.80 and N1.98 per share respectively on the strength of their impressive quarterly earnings reports and market forces. On the flip side, Mansard Insurance  and Japaul Gold lost 6.02% and 4.44% respectively, closing at N2.34 and N0.43 per share purely on the weak Q3 earnings performance.

Market Outlook

We expect an uptrend on influx of impressive corporate earnings as players adjust their portfolios, while reacting to positive numbers, just as more earnings are expected to hit the market on Thursday. Also, the candlestick formation and volume traded at the end of midweek trading revealed indecision as institutional players are not selling yet. 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 26 points to 6.99% for a whole one year ahead of year end portfolios repositioning. Also, investors are still observing the interplay of forces in the FX market as the CBN’s lunched e-naira. 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, NB and others.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605