Market Update for February 23
Nigeria’s equity market on Tuesday seemingly slowed down on its bear transition amidst mixed sentiments and positive reactions to the 2020 full year earnings reports released by the board of Zenith Bank in the final minutes of trading.
The bank’s numbers beat expectation, just as its corporate action of N2.70 final dividend that brings total payout to N3.00 per share, from gross earnings and bottom lines growth of 5.2% and 10.4% respectively, maintaining a pattern of consistently growing its earnings on a quarterly and yearly base. Zenith Bank’s numbers translate to Earnings Per Share of 734 kobo and a dividend yield of 10.89%, as at close of trading on Tuesday (READ MORE).
This is expected to arouse buying interests in banking stocks, as early filer among the first-tier banks hit the market with positive dividend news despite the effects of the Coronavirus pandemic that pushed the economy into a second recession, impacting negatively on the non-performing loans of banks according to data from the Central Bank of Nigeria.
The liquidity problem in the market that is due to the seeming improvement in fixed income market yields continues to threaten the stock market even at a time it is entering the peak of earnings season, and ahead of the last month of the Q1. The increasing dividend yields and expected corporate earnings, going by the numbers released so far are giving an insight into what investors should expect. This is likely to redirect funds to the equity space in the short-term.
Meanwhile, Tuesday’s, trading opened slightly on the downside before oscillating throughout the day on continued selloffs, demand for banking stocks and other mispriced equities ahead of more earnings expectation in March. This situation pushed the NSE index to an intraday high of 40,229.25 basis points, from its lows of 40,132.11bps, before closing marginally up above its opening figure of 40,164.86bps. Volume traded remained low, indicating the removal of supply that signals a possible trend reversal, depending on whether bargain hunters take the advantage of correction to position. As such, investors should still wait to confirm market forces on Wednesday and, indeed, the remaining days of the week.
Tuesday’s market technicals were weak and mixed, with volume traded higher than previous day’s in the midst of breadth that favours the bears on mixed sentiments as revealed by Investdata’s Sentiments Report showing 66% sell volume and 34% buy position. Total transaction volume index stood at 0.62 points, just as the momentum behind the day’s performance remained weak, with Money flow index inching to 9.36pts, from the previous day’s 9.07pts, indicating funds trickled into the market as profit taking slowed down.
Index and Market Caps
At the end of Tuesday’s trading, the key performance All-Share index inched up 10.77bps, closing at 40,164.86bps, from its opening level of 40,154.10bps, representing 0.03% marginal rise. Similarly, market capitalization mustered N5.63bn gain, closing at N21.01tr from the N21.01tr it opened, also representing 0.03% value gain.
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The session’s upturn was driven by position taking in stocks like, Guaranty Trust Bank, Zenith Bank, Flour Mills, Guinness, UBA, United Capital, Livestock Feeds and AIICO, among others. This impacted mildly on Year-To-Date negative position, reducing it to 0.26%, while market capitalization red position stood at N16.53bn, or 0.11%.
Mixed Sector Indices
Performance indexes across the sectors were mixed, as NSEBanking closed 1.68% higher, while the NSE Consumer Goods and Insurance fell by 1.61% and 0.92% respectively.
Market breadth remained negative, as decliners outnumbered advancers in the ratio of 24:16; just as activities in volume and value terms were up by 16.8% and 7.84% respectively, with stockbrokers trading 337.96m shares worth N3.85bn, compared to previous day’s 289.34m units valued at N3.57bn. Volume was driven by trades in FBNH, Zenith Bank, Transcorp, United Capital and UBA.
The best performing stocks of the session were AIICO and Livestock Feeds, which gained 7.14% each to close at N1.20 and N2.25 per share respectively, on market forces and dividend expectations.
On the flip side, SUNU Assurances and Lasaco lost 9.88% and 9.87%, closing at N0.73 and N1.37per share, in continued market reactions to both companies’ recent share reconstruction, as they find their levels, while expecting that strong earnings would support the new prices.
Market Outlook
We expect a mixed trend and positive momentum as bargain hunters increase their positions ahead of better dividend yields occasioned by price corrections that had created entry opportunities for discerning investors ahead of earnings expectations.
Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, identifying and staying with mispriced equities, especially given the rising oil prices that have so far supported the Nigerian economy and equity market. This is despite the seeming improvement in fixed income yields which has remained at negative real rate of return due to the subsisting high inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports and exit from recessionary economy until the next CBN Monetary Policy Committee meeting next month.
Technical indicators are mixed and signalling further pullbacks on a low traded volume and sentiments, creating ‘buy’ opportunities at dip, as the economy is expected to remain in this recovery mode, if there are policies to support industrial productivity and national output.
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 new year.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
