Improved Sentiments Ahead Still On Higher Dividend Yields, Positioning Amid Pullbacks

Market Update for March 24

The loss momentum on the Nigerian equity market increased Thursday on mixed sentiment and buying interest, following which the NGX All Share Index closed lower, reversing the previous session’s positive outing on price adjustment of GTCO for a dividend of N2.70 per share, and profit-taking in telecoms and consumer goods stocks.

This pullback broke down the 47,000 psychological line for the first time since February 2, 2022 on a low traded volume, but positive breadth as the index tested 46,931.38 basis points, indicating that the market has entered the decline phase. This, however, needs to be confirmed, especially with bargain hunters still in the market cherry picking fundamentally sound stocks ahead of quarter-end window dressing in the midst of earnings season that ushers in Q2 portfolio reshuffling on the expected Q1 2022 earnings reports of listed companies on exchange.

Market players continue to keenly observe the nation’s economic developments and what is happening in the fixed income market with yields and rates becoming mixed and flattish. Already, all eyes are on the plans by Central Bank of Nigeria (CBN), as announced during Monday’s Monetary Policy Committee (MPC) meeting for the 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.

There is a noticeable increase in the rate at which listed companies are giving notice of their closed periods and board meetings to consider their Q1 2022 financials, ahead of the March 31, 2022 deadline for the submission of audited reports for the 2021 year-ended December 31. We note the renewed buying interests, as bargain hunters take advantage of the pullbacks to position in expectation of dividend qualification dates, and the end-of-quarter window dressing by fund managers. On Thursday also, Cadbury Nigeria presented its audited financials for year-ended December 31, 2021, with the board recommending a dividend of 18 kobo per share, from earnings per share of 23.94 kobo, compared to the 49.61 kobo of which 49 kobo in the was paid the previous year.

With the mixed sentiment and profit-taking at the close of Thursday’s trading, investors need not panic at this level. Tentatively, the continued mixed direction in the fixed income market yields and declining rates of Treasury Bills may trigger flow of more funds to the equity space, despite the prevailing mixed trend and sentiment in the stock market amidst the ongoing war in Ukraine, and panic selloffs that have affect the market in recent times.

The oscillating oil price as it trades  above $115 per barrel at the international market is pushing production cost up, heightening inflationary pressure across the globe and weakening economic outlooks, thereby influencing the monetary policy of central banks as they move to checkmate impacts of the Russia-Ukraine conflict on the global economy to avoid global recession.

The ongoing correction as seen in the NGX index’s action during the earnings reporting season has created ‘buy’ signals for smart and discerning traders. However, we warn that market consolidation and corrections are not over yet, hence the need to rely on your stop-loss effectively. This is because the oscillating trend signals that a major uptrend is underway, especially when it gets to the level where it is considered good enough for fixed income market players, among others, to jump back into equity positions.  

Thursday’s candlestick formation shows that sellers are in charge, a trend that may likely lead to a continuation or reversal, depending on market forces as trading opens Friday. The NGX index’s action broke down the strong support to a decline phase, trading below its 20-day moving average. As volatility persists and downtrend towards the next support level is sported around 46,882.34bps. Should the index break this point, the next visible level is 46,598.19 points.

Technically, the NGX index broke down its consolidation range, even as Thursday’s session had a mixed sentiment that could be linked to profit and position taking across the major sectors that pulled back recently. The possibility of the market reversing this trend is a function of impressive numbers and improved economic condition during this earnings season, following which we advise investors to play dividend stocks to reduce investment risks around the market.

Meanwhile, trading for the session started on the downside and oscillated on selloffs and buying interests in blue-chips that to pushed the NGX’s index to an intraday low of 46,931.38 basis points from its highs of 47,017.56bps, before closing below its opening point at 46,961.62bps.

Market technicals were positive and mixed as volume traded was lower than the previous day’s with breadth favouring the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 35% ‘buy’ volume and 65% ‘sell’ position. Total transaction volume index stood at 0.58 points, just as impetus behind the day’s performance remained  relatively strong with Money Flow Index looking flattish at 57.13pts, from the previous day’s 57.40pts, indicating that funds left the market slightly.

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Index and Market Caps

At the end of Thursday, the composite NGXASI shed 206.12bps to close at 46,961.62bps, after opening at 47,163.94bps, representing a 0.43% decline. Similarly, market capitalization fell by N109bn, closing at N25.31tr, from the previous day’s N25.42tr, which also represented a 0.43% depreciation in value.

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The downturn was driven by selloffs and profit-taking in MTN Nigeria, Flour Mills of Nigeria, UACN, GTCO, NGX Group, and UBA, among others. This impacted negatively on Year-To-Date gain, which reduced to 9.94%. Market capitalization growth stood at N2.65tr YTD, representing a 13.84% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Banking and Consumer Goods closed 0.09% and 0.07% lower respectively, while NGX Energy led the advancers after gaming 0.87%, followed by Insurance with 0.73%, while NGX Industrial Goods closed flat.

Market breadth was positive, as gainers outnumbered losers in the ratio of 16:14; just as activities in volume and value terms were down, as investors exchanged 214.70m shares worth N2.63bn. Volume was driven by trades in Fidelity Bank, GTCO, Zenith Bank, UBA and Custodian Investment.

Veritas Kapital Assurance and FCMB were the best-performing stocks for the session, gaining 9.52% and 7.46%, to close at N0.23 and N3.60 per share respectively on market forces and expectations. On the flip side, RT Biscoe and Consolidated Hallmark Insurance lost 9.72% and 9.09% respectively, closing at N0.65 and N0.60 per share, on profit taking.

Market Outlook

Play with your stop-loss, as we expect sustained improved sentiments on higher dividend yields, as bargain hunters take advantage of the pullbacks to position and investors digest the inflation data, ahead of the inflow of more 2021 audited financials with dividend announcements. This is expected to support an uptrend during this earnings season, amidst the oscillating oil prices, just as the market continues to interpret economic data in relationship with 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, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund is calling for a hike in the interest rate and further devaluation of the Naira.

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