March Outlook: Mixed Trend, On Earnings Inflow, Dividend News, Profit Taking

Market Roundup for February

The month of February was a green one for the Nigerian stock market. It extended the positive outing of January in the midst of volatility, better than expected corporate earnings, higher payouts, and positive macroeconomic data to support the buying sentiment. The NGX All-Share index sustained its positive momentum and recovery ahead of more dividend declarations, or announcement by listed companies.

This coincided with the changing global trend as a result of geopolitical concerns over the face between Russia and Ukraine that has since assumed a global dimension, added to the rates hike and mixed yields in the domestic fixed income market. In this regard, 91-day and 364-day Treasury Bill rates declined further in the last primary market auction. This has created buy opportunities for discerning investors and the technically inclined traders, even as the market broke up the 47,000 psychological line in February. The uptrend occurred on the back of position-taking and lower traded volume when compared to transactions recorded in January, as early filers continued to hit the market with impressive numbers and dividend news that translated to better yields. 

During the month also, there were announcements of positive economic data, ranging from the slight decline in the January consumer price index, expansion in Purchasing Managers’ Index at above 50 points, sustained GDP growth, showing that Q4 domestic productivity output was up by 3.98%, a situation expected to support stock prices. This is in addition to the rallying oil prices in the international market, driven by the face-off between Ukraine and Russia, propelling global oil stocks and domestic economic recovery.

In the midst of these also was the news of the CBN extending the single-digit interest for its interventions in critical sectors of the economy to 2023, as the omicron variant of the COVID-19 pandemic. This is made worse by the rising of insecurity across the country. Add this to the incidences of policy mismatch between the fiscal and monetary authorities, then you have a very unfriendly situation that threatens the ongoing economic recovery.

The seeming economic recovery and the rise of crude oil above the nation’s $62 per barrel budget benchmark are positive signs for the equity market, going forward, despite the ongoing portfolio realignments, due to the ongoing volatility, expected improvements in yields at the fixed income market and uncertainty that comes with the pre-election year.

With the expected influx of more audited earnings reports and high inflation in the new month, a mixed trend is underway as a result of –taking and buying interests due to high dividend yields of blue-chips, as growth stocks become better and more attractive.

The composite index closed activities for the second month of the year on a positive note, as Monday’s market rally suggests a trend continuation, with the market yet to respond to the positive numbers as released due to liquidity challenges.

As noted earlier, the audited scorecards of various listed companies released so far have given insights into what we should expect from sectors and individual stocks. The possibility of uptrend is high, amidst portfolio reshuffling on the strength of the 2021 full year numbers and corporate actions. 

In the 20 trading sessions of February, the NGX All-Share index recorded gains in 11 and was down in nine, resulting in a 1.65% gain that pushed the NGXASI year-to-date to 10.95%. This happened as the market recorded a 14-year high, on post-pandemic shift in impressive company earnings performance, improving fundamentals, and high dividend yields that attracted more inflows to the equity space.

Specifically, during the month, the NGX rose by 769.86 basis points, closing at 47,394.53bps, which was it’s high, from its low of 46.626.42bps for the month, compared to the 46,24.67bps at which it opened, on high buying pressure. This impacted positively on the index and stock prices, pushing them up to breakout various resistance levels and psychological lines. Market capitalization rose by N419bn, closing at N25.54tr, from N25.12tr, representing a 1.67% appreciation in value. The month’s total ‘buy’ volume was 100%, extending the two-month bull transition, while volume index for the period was 0.93.  

Transaction volume for the period was down by 8.91%, at 6.24bn shares, as against 6.85bn units recorded in the preceding month, just as market breadth for the month was positive with gainers outnumbering losers in the ratio of 62:32 to support the January up market as liquidity flows into equity assets as a result of factors mentioned above.

Bullish Sectorial Performance

Performance indexes across the sectors and market rose, except for the NGX Growth index that closed the month lower by 1.74%. As shown by the chart below, the NGX Oil/Gas, Premium, Industrial, Banking, Insurance and Consumer Goods indexes boosted the market the most during the month, more than the general market. The NGX Energy index gained a total of 8.10%, driven by position taking in the oil and energy stocks.  

Others are represented in the chart below, revealing investors’ positive sentiment and buying interest among traders, as the market’s Price-To-Earnings Ratio is below 10x.

Best And Worst Performing Stocks For February

The best-performing stocks for the month under review were predominantly low and medium caps across the Insurance, Energy, Services, Consumer goods, and others, led by RT Briscoe, which gained 325% as a result of the takeover bid, despite the lack of fundamentals to support the rallying prices. It was followed by SCOA’s 172.12% gain, and the 88.30% notch by Academy Press. Learn Africa climbed 86.43% up, on market forces and seeming improvement in its earnings; just as Royal Exchange Assurance chalked 65.06%; among others.

The worst performing stock was Juli Pharmacy, which lost 13.17%, amidst selloffs and market forces; followed by Caverton’s 11.40% drop due to its unimpressive earnings. ABC Transport ’s share price declined by a further 11.11% showing display of sell down for dividend paying stocks, while others are booking profit.  Pharma-Deko and Computer Warehouse Group lost 10.91% and 10.57% respectively.

Technical View

The NGX’s Index action for the month was bullish, extending the V-shape recovery trend, as the index rally to breakout some strong resistance levels of 47,000 and 47,335.72 marks ahead of more audited financial reports. At the same time, it is trading above its shortest moving average, 20DMA, 50DMA and 200 DMA on the monthly chart, to reveal strength and positive sentiments and low traded volume.

The trading patterns and momentum going forward are likely to change, as investors react to the expected audited full-year earnings news, portfolio rebalancing and repositioning, with dividend news and rallying oil prices.

Market technicals for the month were positive, a situation expected to be mixed in the new month, that is the peak of the earnings reporting season.

Market Outlook

Mixed trend is expected to continue in the new month, even as the market outlook remains mixed and dicey due to the prevailing global trend, or pullbacks that may happen in the new month as a result of profit taking. The anticipated correction in the new month, or after, will strengthen recovery.  Despite the high inflation, insecurity and pre-election year uncertainties, as this impressive earnings and rallying oil prices will further boost market fundamentals as government and CBN extend low interest of single digit for critical sectors till 2023.

But investors at this point should not be greedy. Instead, your decisions must be guided by investment goals and exit strategies, even as the healthy inflow of funds into the equity assets due to prevailing low rates in money market is likely to continued even as we look forward to MPC meeting in the new month.

Again, the current breakout of resistance level offers trader’s opportunities to position for the short term, while investors should target fundamentally sound, and dividend-paying stocks for possible dividend income and capital growth.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467

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