Increased Buying Interests In Banking Stocks Ahead, On Interim Dividend Inflow, Portfolio Rebalancing

Market Update for August 30

Trading activities on the Nigerian Exchange on Tuesday extended its negative outing for a second successive session on low traded volume and flat market breadth that reflected the low liquidity and continued mixed sentiments. The benchmark NGX All-Share index closed slightly lower, to range, as revealed by the index’s action and structure.  The news of acquisitions in the banking sector is a plus as the banks are expand, driving higher liquidity and profitability margin with Accesscorp and Fidelity Bank making moves.

Also, Fidelity Bank announced its first interim dividend and its ultimate entry into the rank of first-tier banks late Tuesday as a leader of second-tier banks with an impressive performance half-year and higher payout as seen in its just released half year result of 2022. Highlights of the result included the growth in gross earnings and profit after tax, which translated into an 20% jump in Earnings Per Share from 69 kobo in 2021 to 80 kobo. Arising from this, we project a full-year EPS of N1.60 to N2.00 for the full-year earnings.

The latest macroeconomic numbers revealed growth, despite the slow pace that indicates an expansion in some sectors in the face of the high cost of doing business and rising inflation that had limited demand for goods and services. On the strength of the Q2 GDP and corporate numbers, market players will continue to rebalance their portfolio ahead of the release of the August Purchasing Managers Index and inflation data. This will further put the fixed income market under pressure due to the fixed rate return which is already in real negative return because is below the prevailing rate of inflation.

The ongoing market mood across the globe and what is happening in the local economy today, as traders and investors are facing market uncertainties and volatility day in and day out. However, it doesn’t have to be a scary time if you have the tools and knowledge to effectively combat the oscillation so that you can gain the confidence that you need to trade and invest in today’s fluctuating market.

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The top reversal pattern in the midst of buying sentiment after making lower highs on high traded volume that signal possibility of selloffs or pullbacks depending on market forces, being the last trading day of the month. These reveal the undervalued state of the market on the strength of the stronger corporate earnings, as seen in the high dividend yields indicating the possibility of a higher payout as a hedge against the soaring inflation.

The volume pattern in recent days and weeks reveals accumulation in some sectors and individual stocks, as selloffs have slowdown in some other stocks and sectors as money flow index has also suggests that funds are entering the market despite the mixed trend and breadth. The prevailing market condition is creating ‘buy’ opportunities for discerning investors and traders that understand stock market dynamics, especially as these companies’ earnings performance beat market expectations to indicate their inherent value and the cheap state of these stocks.

The NGX index’s action as at end of Tuesday’s trading is still trading above the ‘T line’ and the 20-day moving average, to formed a double top that signal reversal as sector rotation and portfolio rebalancing increased amidst the recent scorecards of many companies on the exchange. It is, therefore, time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power.

To navigate the new month profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Oil prices extended its pullbacks to trade at $99.56 per barrel in the international market, following the fear of recession that linger on aggressive interest rate action by central banks droving bearish sentiment. As impact of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession. Despite the bailout package of china’s government to simulate economic activates and stable employment.

Tuesday’s trading opened slightly on the upside, but oscillated to pullback in the midday to afternoon on selloffs in blue-chips, a situation that pushed the NGX’s index to an intraday low of 49,625.32bps from its highs of 49,682.93ps, before closing slightly below its opening point at 49,646.69bps.

Market technicals were weak and mixed, with lower volume of shares traded than the previous day in the midst of flat breadth on a selling sentiment as revealed by Investdata’s Sentiments Report showing 30% buy volume and 70% sell position. The total transaction volume index stood at 0.71points, just as impetus behind the day’s performance was relatively weak as Money Flow Index is looking down at 35.56pts, from the previous day’s 44.07pts, indicating that funds left the market.

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Index and Market Caps

The key performance index NGXASI, at the end of day trading, slide by 34.06bps, closing at 49,642.69bps, after opening at 49,676.75bps, representing a 0.07% drop, just as market capitalization fell by N18.37bn, closing at N26.78tr, from the previous day’s N26.79tr, which also represented a 0.07% depreciation in value.

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Meanwhile, Tuesday’s downturn was driven by selloffs in Unilever, Cadbury, FCMB, UACN, AXA Mansard, GTCO, UPDC, NAHCO, Honeywell and Sterling Bank, among others, which impacted mildly on Year-To-Date gain, which reduced to 16.21%.  Market capitalization gain YTD also rose to N3.35tr YTD, representing a 20.19% rise over the opening level for the year.

Mixed Sector Indices

The sectorial performance indexes were mixed, as the NGX Energy and Insurance closed higher by 0.10% and 0.08% respectively, while NGX Banking index was down by 0.13%, Just as NGX Industrial and Consumer goods closed flat.

Market breadth was flat, as gainers were equal to losers in the ratio of 13:13; just as transactions in volume and value terms were mixed, after stockbrokers traded 125.95m shares worth N3.07bn, with volume driven by trades in Mutual Benefits Assurance, Fidelity Bank, Accesscorp, FBNH and MTNN.

E-tranzact and Sovereign Trust Insurance were the best-performing stocks, gaining 9.65% and 7.69% respectively, closing at N2.50 and N0.28per share respectively on market forces. On the flip side, Courtville Business Solution and FCMB lost 7.69% and 4.06% respectively, closing at N1.04 and N0.81 per share, purely on profit taking.

Market Outlook

We expect increased buying interest in banking stocks to continue on interim dividend expectation and portfolio rebalancing on bargain hunting as players interpret GDP 3.54% growth and impressive half-year results in expectation of more bank’s scorecards, especially from GTCO, UBA and Accesscorp in the midst of sovereign risks, as all eyes are on interim dividends.

We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to 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.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605