Mixed Trend Ahead On Profit-Taking, Renewed Buying Interests, H1 Earnings, MPC Meeting
Market Update for July 22
Equity prices on the Nigerian Exchange rallied on Thursday after the Salah holidays to sustain the positive outing on earnings optimism for the third successive session on a relatively low traded volume, but positive market breadth.
The earnings-induced buying interests continued as scorecards from Total Nigeria and BOC GAS beat market and analysts’ expectations as the two surprised investors with the interim dividends of N4 and 50 kobo respectively. Also, the numbers were impressive enough to attract immediate positive responses leading to price appreciation during the trading session.
Thursday bullish momentum and sentiment resulted from the demand for rising earnings and prices in a recovery market in the midst of more companies making their half-year earnings reports available to the market. We noted that financials released so far to the market have given insights into what investors should expect in the different sectors of the market and economy.
Despite, the monetary policy meeting holding next Monday and Tuesday, market players who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market are already positioned in some sectors and stocks for medium and short-term gains. These sectors and industries include the banking, energy, telecom, industrial, agribusiness, real estate, construction, and consumer goods sectors, after a careful study of economic recovery and sectors that had supported the weak recovery which is likely to influence the performance of the companies in that industry and the market.
Technically, NGX index action has formed a double top on a low traded volume as wave 5 extensions in continuation of its zigzag chart patterns that support an uptrend in the face of weak economic recovery and expectation of more corporate earnings that boosted liquidity, sentiment, and momentum. This is as Investors on the sideline jump back to the market after the MPC meeting.
Many analysts have typically increased estimates for Q2 numbers, while companies are forecasting higher earnings in Q3, even as higher-than-expected earnings will make stocks cheaper. At the moment, the market’s Price-to-Earnings ratio, just as in many companies, is trading below 18 times of earnings. In an environment of relatively low interest and high inflation, stocks historically, tend to move higher on earnings performance.
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Meanwhile, Thursday’s trading started in the green and was sustained throughout the session on buying interests in Industrial goods, Oil/Gas, Banking, and consumer goods stocks that pushed the composite index to an intraday high of 38,597.88 basis points from its lows of 37,933.38bps, and thereafter closed above its opening figure at 38,585.52bps.
Market technicals were positive and mixed, as volume traded was lower than the previous day in the midst of breadth favouring the bulls on positive sentiment as revealed by Investdata’s Sentiments Report showing 98% ‘buy’ volume and 2% sell position. The total transaction volume index stood at 0.89 points, just as momentum behind the day’s performance was relatively strong, as seen in the 69.14pts Money Flow Index, compared to the previous day’s 69.21pts, indicating that funds entered the market.
Index and Market Caps
The key performance NGX All-Share Index, at the end of Thursday’s trading session, gained 632.87 basis points, closing at 38,585.52bps, from an opening level of 37,953.65bps, representing a 1.67% growth, market capitalization rose by N329.74bn, closing at N20.1tr, from N19.77tr, representing a 1.67% appreciation in value.
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The day’s upturn was driven by buying interests in stocks like Dangote Cement, Total Nigeria, Zenith Bank, GTCO, United Capital, Vitafoam, Oando, Julius Berger, Dangote Sugar, Unilever, UACN, Cutix, and UPDC, among others. This impacted positively on Year-To-Date loss, reducing it to 4.18%, while the drop in market capitalization YTD dropped to N897.46bn, representing a 4.76% drop from its opening value for the year.
Bullish Sector Indices
Performance indexes across sectors were bullish, except for the NGX Insurance that was down by 1.88%, while the NGX Industrial goods index led the advancers, after gaining 4.01%, followed by Energy, Banking and Consumer goods with 3.11%, 0.31%, and 0.07% higher respectively.
Market breadth remained positive with gainers outnumbering losers in the ratio of 22:12, while transactions in volume and value terms were down after investors had exchanged 203.11m shares worth N1.72bn with volume driven by trades in Sterling Bank, UCap, Fidelity Bank, Wema Bank, and GTCO.
Total Nigeria and Cutix were the best-performing stocks, gaining 10% and 9.77%, closing at N184.80 and N4.38 per share respectively on impressive earnings and dividends. On the flipside, AIICO and Sovereign Trust Insurance lost 8.70% and 6.45% respectively, closing at N1.05 and N0.29per share, on profit-taking.
We expect a mixed trend and performance on profit-taking and accumulation in the midst of rekindled buying interests ahead of more half-year earnings and MPC meeting amid the oscillating volume that suggest that an end is in sight, while smart money takes advantage of market corrections to reposition. It is noteworthy that oil price continues its oscillation at the international market, even as corporate actions and interim dividend possibilities are around the corner.
We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $69pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support a global and domestic economic recovery that will enhance the market and give direction.
The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer a negative real rate of return due to the galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in the coming week.
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