Mixed Sentiments Yet, As Investors Digest Earnings Inflow, Ministerial List

Market Update for July 27

Thursday’s was a quiet but mixed session on the Nigerian Exchange, as profit taking activities and bearish sentiment extended, pushing the benchmark NGX All Share index further south, on a low traded volume and negative market breadth. Just as the index maintained an uptrend amidst the influx of mixed earnings reports, as impressive numbers continued to emanate from the services sectors, especially the financial services providers.
With more earnings reports expected to hit the market ahead of the July 31, 2023 statutory deadline, market players and watchers will continue to digest the numbers released so far, as guide to repositioning their portfolios on the strength of company earnings power and growth prospects. It is noteworthy that the government finally submitted the list of ministers to the Senate for confirmation. These economic managers are expected to formulate policies in line with the government’s vision in line with the expectations of Nigerians.
During the trading session and after, more than 20 companies made available their corporate scorecards. These include Ecobank Transnational Incorporated, Wema Bank, University Press, Africa Prudential, Ikeja Hotel, Transcorp, CAP, NEM Insurance, Total Energies, Livestock Feeds, Morison Industries, Berger Paints, NB, Guinness Plc, Learn Africa, Capital Hotel, Cutix, Redstar Express, Trans-nationwide Express, Transcorp Hotel, and MRS Oil, among others. As mentioned earlier, these numbers were mixed, being a combination of impressive and even excellent reports, while others came below market expectations.
The expected release of more quarterly earnings reports will drive increased volatility, especially rotation and portfolio reshuffling in value-oriented sectors. This is against the backdrop of an environment where reform policies are driving hyperinflationary pressure in the face of an already heated economy. There are also headwinds ranging from rising inflation mostly driven by the subsidy removal from petrol, exchange rate volatility, a high interest rate regime and insecurity, among others.
This is despite the market entering into the distribution phase on mixed sentiments after testing a new all-time high of 66,017.90 points, in the midst of profit taking in some banking, industrial and consumer goods stocks, among others. At this time, it is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged so far.
We also note that the earnings released so far reveal the state of these corporate Nigerian earnings power and others, which would expectedly be the game changer as we go further into the quarter. Already, all eyes are on the expected appointment of economic managers and minsters by this new government, a situation that will determine the rating of this new administration. More quoted companies, notified the exchange and investors of insider dealings in their stocks, their closed periods and board meeting dates to approve the half-year financials.
Technically, the market’s uptrend remains intact as it trades above the T-line, 50-Day Simple Moving Average and 100DMA on the daily and weekly chart in the midst of government economic and financial market reforms. This calls for a change in trading strategies and buying into value companies, amid the possibility of profit taking and correction any time. As such, technical traders and discerning investors must be guided, because higher prices will lead to lower dividend yields, even when market Price to Earnings Ratio is relatively low. It however provides better opportunities for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed in the face of high inflation.
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Oil price oscillation continued, extending its gains to trade at its three-month high of $83.44 per barrel in the midst of expected stimulus by China, output cut and rate hike by fed, despite the seeming inflation cooling gradually across many economies. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Thursday’s trading started slightly in the downside and oscillated for the rest of the session on buying interest in some stocks and profit taking in blue chips and others that pushed the Index to an intraday low of 65,436.85 basis points, from its highs of 65,730.43bps, before closing below it opening points at 65,482.91bps.
Market technicals were negative and mixed with a slightly higher volume traded when compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata Sentiments Report showing 16% buy position and 84% sell volume. The total transaction volume index stood at 0.50 points, just as the impetus behind the day’s performance was strong, with Money Flow Index reading 74.13pts, from the previous day’s 79.65pts, indicating that funds left the market.
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Index and Market Caps
At the end of Thursday’s trading, the composite NGXASI shed 204.25 basis points, closing at 65,492.91bps, from its 65,687.16bps opening level, representing a 0.31% decline. Market capitalization also fell by N111.15bn to N35.63tr, from the previous day’s N35.75tr, which also represented a 0.31% value loss.
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Meanwhile, the session downturn was driven by profit taking and selloffs in shares of Unilever, NB, FBNH, GTCO, Flourmill, Cornerstone and Cadbury, among others. This impacted negatively on Year-To-Date growth, which reduced to 27.80%, while Market Capitalization YTD gain slowed down to N6.81tr, representing a 27.77% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Insurance and Consumer Goods closed 0.95% and 0.66% lower respectively, while the NGX Energy led the advancers after gaining 0.88%, followed by Banking and Industrial goods with 0.01% and 0.01% respectively.
Market breadth turned negative, as losers outnumbered gainers in the ratio of 38:14, while activities in volume and value were mixed after players transacted 509.25m shares worth N4.80bn, driven by trades in Japaul Gold, UBA, Transcorp, FCMB and Fidelity Bank.
Lasaco Assurance and Multiverse were the best performing stocks, gaining 10% and 9.96% respestively, closing at N2.09 and N2.98 per share respectively, on impressive Q2 numbers and market forces. On the flip side, Japaul Gold and Cadbury lost 9.91% and 9.80% respectively, closing at N1.00 and N13.80per share, purely on the back of profit taking and unimpressive earnings.

Market Outlook
We expect mixed sentiments to continue as market players digest the corporate earnings, changing economic fundamental and concerns, with the ministerial list released, expectation of more earnings inflow. There are also factors such as bargain hunting and policy meeting outcome in the midst of profit taking, economic concerns and portfolio repositioning amidst supportive reforms of the government. There is also the hope for more policy pronouncements and appointments that would offer investment direction.
Also, more Q2 earnings reports are expected to confirm the real state of the company performances and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605