Equities

Mixed Trend Ahead On Interests In Undervalued, Div Stocks Ahead Of Earnings Season

Market Update for January 13

It was yet another very volatile and mixed session on the Nigerian Stock Exchange (NSE) at the midweek, with increased buying interests in medium and low priced stocks, following which low cap equities, especially insurers, led the advancers table. This pushed the benchmark index higher on an above-average traded volume and positive breadth.

During the day, the NSE’s key performance index resisted further decline and maintained its divergent position with some technical indicators while investors await the December inflation reports from the National Bureau of Statistics (NBS), as well as the oscillating crude oil price. More quoted companies have continued to notify the exchange of closed periods and scheduled board meetings to approve their 2020 full-year financial reports, a situation that has triggered investors positioning in high Dividend Yield stocks ahead of the earnings reporting season.

Also noteworthy is the fact that the relative market stability has been supported by the new trading pattern and holding structure since the major institutional investors playing the market now are dividend income and long-term investors. So this trend may likely continue depending on the policy direction of the Central Bank of Nigeria (CBN) and the outcome of its first Monetary Policy Committee meeting for the year.  

Investors should target December year-end companies, dividend-paying stocks with high payout with prospects of making strong sales or revenue growth in 2021, which is expected to support increased Earnings Per Share, that should ultimately become the main driver of returns, as we project 15% EPS growth in 2021 and 25% in 2022.

The reasons for this wide rotation to value are due to positive sentiments, improvements in liquidity, faster vaccine approvals/ distribution, anticipated GDP rebound, and restoration of consumption will oil the economic wheel. Others include higher oil prices, sustained intervention by the CBN and resultant low rates, supportive fiscal policies (intervention in critical sectors, coronavirus packages, and others), as well as mixed earnings expectations.

Meanwhile, midweek’s trading started in the upside and was sustained till midday, before oscillating between the midday and late afternoon, on positioning and profit booking which pushed the composite NSE All-Share index to an intraday high of 40,552.56 basis points, from its low of 40,295.95bps, before closing above its opening level at 40,341.05bps.

Market technicals during the session were positive and mixed, with a lower volume traded than the previous day’s in the midst of positive breadth and selling sentiment as revealed by Investdata’s Sentiments Report showing 82% ‘sell’ volume and 18% buy position. The total transaction volume index was 1.10 points, just as the impetus behind the day’s performance remained relatively strong. Specifically, the Money flow index rose to 60.60pts from the previous day’s 60.16pts, indicating that funds entered the market, despite the selling sentiments. 

Index and Market Caps

At the close of midweek’s trading, the NSEASI gained a marginal 45.10 basis points, closing at 40, 341,05bps after opening at 40,295.95bps, representing a 0.11% up, just as market capitalization rose by N23.53bn, closing at N21.09tr, from its N21.07tr opening value, also representing a 0.11% value gain.

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Wednesday’s uptrend was driven by the buying interests in 11 Plc, Flour Mills, Lafarge Africa, Access Bank, Mansard, Mutual Benefits and Sovereign Trust Insurance, amongothers. This impacted mildly on Year-To-Date gain, which stood at 0.17%, just as YTD gain in market capitalization, represented a 1.01% growth.

Bullish Sector Indices

All the sectorial performance indexes were in green, although marginal in some sectors, the NSE Insurance led the advancers, gaining 4.12%; followed by Oil/Gas, Consumer Goods, Banking and Industrial with 1.74%, 0.11%, 0.08% and 0.08% respectively. 

Market breadth remained positive, as advancers outweighed decliners in the ratio of 32.15; just as transactions in volume and value terms fell by 59.86% and 12.63% with stockbrokers crossing 468.15m shares worth N6.96bn, compared to previous day’s 1.17bn units’ value at N7.97bn. The day’s volume was driven by Zenith Bank, Lasaco, UBA, Japaul Gold and Sovereign Trust Insurance.

Academy Press and Sovereign Trust Insurance were the best performing stocks, after gaining 10% each, closing at N0.33 and N0.22 per share, on earnings market sentiments and forces. On the flip side, Chellaram and Livestock Feeds lost 9.96% and 9.74% respectively, at N2.28 and N1.74 per share, on market forces and profit taking.

Market Outlook

We expect the mixed trend and bullish transition to continue as revealed by candlestick, just as   profit booking and buying interests in undervalued and dividend-paying stocks persist ahead of the market’s major earnings reporting season, especially as low interest rates and oil price have so far supported the Nigerian economy and equity market. There is also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks in the New Year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, the current undervalued state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation in the rest of the year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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