Equities

NGSE: Trend Reversal Ahead, As Bargain Hunters Position On Market Correction

Market Update for February 22, 2021

Nigeria’s equity market on Monday witnessed another marginal pullback in continuation of price correction in the midst of early filers releasing corporate numbers and actions, as more companies notified the exchange of their board meetings to approve the 2020 full-year audited financials.

The prevailing lull in the market also persisted on the liquidity crisis following the seeming improvement in fixed income yields, after rates in Treasury Bills and government bonds inched up. This has turned out a potent threat to the stock market even at a time it is entering the peak of earnings season, and ahead of the last month of Q1.

The reaction to the mixed performance of companies that have released their earnings and corporate actions have being a source of concern to many investors, with the market remaining in a sell mood and reflecting the wait-and-see attitude among investors due to the changing patterns and sentiment in the market.

We expect that with the improving dividend yields and rising inflation due to a mismatch of government policies, as seen in the continued hike in pump price of fuel, and electricity tariff hike, as well as the insecurity leading to low farm yields, among others, inflation will continue to spiral. Given this trend, the stock market remains the best window to hedge and stay afloat, even as the falling prices have resulted in better dividend yields.

United Capital presented its full-year numbers showing top and bottom lines growth of 50% and 57% respectively, translating to earnings per share of 130 kobo, up from the previous year’s 83 kobo. Dividend yield stood at 11.67% based on Monday’s closing price at the Nigerian Stock Exchange ((NSE).

The company’s pay-out also grew by 40%, but market reaction remained negative as the share price continues to decline despite the positive numbers due to the liquidity challenges in the market and sentiments.

Monday’s trading flat then oscillated for the rest the session on a mixed sentiment and selloffs ahead of the earnings season, a situation that pushed the benchmark index to an intraday low of 40,146.76 basis points, from its highs of 40,235.62bps. Thereafter, the market closed marginally below its opening figure at 40,154.10bps on a low traded volume that indicates the removal of supply, signalling the possibility of a trend reversal, if bargain hunters take advantage of correction to position. So, let us wait to confirm market situation today and rest of the week.

Market technicals were negative and mixed, with volume traded lower than previous day’s in the midst of negative breadth and selling pressure as revealed by Investdata’s Sentiments Report showing 91% sell volume and 9% buy position. Total transaction volume index stood at 0.50 points, just as momentum behind the day’s performance remained weak, with Money flow index inching to 9.07pts, from the previous day’s 8.65pts, indicating funds trickle to the market as profit taking continued.

Index and Market Caps

The composite NSE All-Share index shed 32.60bps, closing at 40,154.10bps from its opening level, representing 0.08% dip, just as market capitalization lost N17.06bn, closing at N21.01tr, also representing 0.08%  value loss. 

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The session’s downturn was impacted by selloffs in Lafarge Africa, United Capital, UACN, and Access Bank, among others, raising Year-To-Date negative position mildly to 0.29%, while market capitalization decline stood at N22.16bn, or 0.14%.

Mixed Sector Indices

All the sectorial performance indexes were down, except for the NSE Banking and Energy that closed 0.18% and 0.08% higher respectively, while the NSE Industrial Goods led the decliners after shedding 0.55%, followed by Insurance and Consumer goods with 0.13% and 0.08% respectively

Market breadth remained negative, as decliners outnumbered advancers in the ratio of 25:20; just as transactions in volume and value terms were mixed, as volume traded fell by 38.42%, after investors exchanged 289.34m shares as against Friday’s 307.79m units, while value of transaction improved by 23.01%  to N3.57bn, from N2.91 bn.  Volume was driven by trades in FBNH, Ucap, Guaranty Trust Bank, UBA and Zenith Bank.

Consolidated Hallmark Insurance and Academy Press were the best performing, gaining 9.09% and 8.34% to close at N0.36 and N0.38 per share respectively, on market forces. On the flip side, Africa Prudential and Lasaco lost 9.39% and 9.52%, closing at N6.60 and N1.52per share respectively, on negative reaction to 50kobo dividend and market forces. The loss by Lasaco Assurance, coming after its share reconstruction, the stock is seemingly finding it level as earnings to support the new price may not be there for now.

Market Outlook

We expect a mixed trend and reduced loss momentum as bargain hunters increase their positions ahead of improvement in dividend yield occasioned by the lingering 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, looking the way of mispriced equities. This is especially given the rising oil prices that have so far supported the Nigerian economy and equity market, despite the seeming improvement in the fixed income yield which had 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 MPC meeting in March.

The NSE’s index action and indicators are in divergence on a low 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 new 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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