Investors Await Confirmation Of NGSE Rebound To Position Amidst Attractive P/E Ratio

Market Update for August 19
Activities resumed on the Nigerian Stock Exchange Monday, with trading closing positive, despite the volatility, as the composite NSE All-Share index opened higher due to a rebound in the prices of stocks in the morning after four consecutive days of decline on selloffs.
Monday’s upturn was on the back of interim dividend expectations and payouts, just as highly capitalized stocks displayed conflicting situations between buyers and sellers, reflecting the apprehension among market players who had lost money. This situation was despite the buying opportunity offered by the prevailing low valuation.
These signs of low confidence and cautious trading as the nation’s economy remains unpredictable with the government yet to provide a direction, even as unfavorable economic statements and actions daily hit the market, making a mess of some seemingly positive macroeconomic indices in recent times.
However, with the ongoing induction for the Ministers-designate, preparatory to the inauguration of the new cabinet on Wednesday, it is likely that real governance will address the prevailing socio-political and economic issues by way of policy formulation and implementation. This is expected to improve Nigeria’s economic situation through effective coordination of monetary and fiscal policy, even if this will depend largely on who is assigned what portfolio in the new cabinet.
Meanwhile, Monday’s trading was very positive and volatile as the NSE All-Share index gapped up at its opening, moving higher and oscillating between midday and early afternoon. This could, however, not be sustained as the index, touched intraday highs of 27,172.47 basis points, from its low of 26,928.36bps, before finishing the day at 27,115.89bps on an improved traded volume.
Market technicals for the session were positive but mixed as traded volume was slightly lower than the previous session’s in the midst of a positive breadth and mixed sentiment, as revealed by Investdata’s Daily Sentiment Report, showing ‘buy’ volume at 77% and sell position of 23% as total daily transaction volume index stood at 1.20.
The momentum behind the day’s performance remained seriously weak despite Money Flow Index reading 8.79points, down from Friday’s 0.00bps, an indication that funds entered some stocks and the market amidst the persistent low liquidity and selloffs.

Index and Market Cap
At the close of Monday’s trading, the benchmark index gained 190.60bps to close at 27,115.89bps, after opening at 26.925.36bps, representing a 0.71% rise, just as market capitalization climbed N92.82bn up, closing at N13.21tr, from an opening value of N13.09tr which also represented 0.71% value gain.
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The day’s advance was driven by the ‘buy’ interests in stocks like MTN Nigeria, Guaranty Trust Bank, Zenith Bank, Stanbic ITBC, UBA, FBNH, UACN, Dangote Flour, and Oando, among others. This impacted positively on the NSE’s Year-to-Date loss, which reduced to 13.73%, just as YTD market capitalization gain inched to N1.42 or 12.61% from the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indices were largely bearish, except for the NSE Banking and Oil/Gas indices that closed up by 1.34% and 0.5% respectively, while the Insurance index led the decliners, after shedding 2.41%, followed by the Consumer Goods index with 1.59%, just as Industrial Goods dipped by 0.25%.
Also, market breadth turned positive as advancers outnumbered decliners in the ratio of 20:13; even as market activities were mixed as traded volume slipped 2.92% down at 250.74m shares from the previous day’s 258.29m units. Transaction value rose by 19.10% to N4.17bn, compared to Friday’s N3.35bn. The day’s volume was driven by trades in financial services, industrial goods and conglomerates stocks such as Lafarge Africa, Transcorp, Zenith Bank, UBA and FBNH.
Conrtville Business Solution and UACN were the best-performing stocks as they gained 10% and 6.67% respectively, closing at N0.22 and N4.80 per share, on the back of market forces and low price attraction. On the flip side, Cadbury and Chams lost 9.71% and 8.38% respectively to close at N9.30 and N0.21 on profit-taking and market trend.

Market Outlook
We expect the mixed performance to continue as bargain hunters reposition, taking advantage of the seeming improvement in economic indices that released recently and the corporate earnings that revealed the true position of listed companies. Also, long-term investors are reshuffling their portfolios in expectation of interim earnings reports of dividend-paying companies. Monday’s rebound was good but needs confirmation before investors and traders jump into any new position, especially those who are part of our ‘buy and sell’ signal setup.
Discerning investors should target value stocks considering the current low valuation as they position for dividend income and capital gains, especially as the market’s Price to Earnings ratio remains attractive at 5.45x, which is well below the 8.24x average of its peers and its 9.56x five-year average. The current situation has revealed the existence of value and the high upside potentials for a rally. But then, wait to confirm reversal before jumping into a new position.
Investors should also take into consideration the expected economic reforms as the government is set to assign portfolio to the minister-designates, given that the Central Bank of Nigeria (CBN) had earlier rolled out plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.
There is also the likely impact of portfolio repositioning for the last quarter of the year ahead of Q3 financials in the midst of analyzing Q2 numbers and unfolding political events.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467