NGX Capitalization Gains N320bn In July On Better-Than-Expected Half-Year Earnings
Market Roundup for July 2021
The second half of 2021 started on a positive note as equity prices on the Nigerian Exchange closed higher in the first trading month of the Q3, reversing the loss recorded in June on better than expected half-year corporate earnings and mixed macroeconomic data submitted during the review period. The month was characterized by mixed trends, pullbacks, positive sentiments, momentum, and improved liquidity, due to the rekindled buying interests in blue chips and dividend-paying stocks ahead.
With the Q2 numbers beating expectations, investors remain upbeat, as investors now have an insight into what the nation’s Q2 GDP number would look like. As such, we expect the market to continue its oscillation and volatility as investors and analysts study and digest the actual numbers released by these companies to realign their portfolios for profitable trading in the new month, due to the changing price patterns and trading environment.
These notwithstanding, as discerning investors and traders you should take advantage of the sectorial performance as revealed by the recent scorecards to adjust your position to selloff and buyback depending on how demand and supply dynamics play out.
Despite, the mixed trend so far in 2021, July remained a solid month as the bull transition maintained an uptrend, making value and growth stocks sustain strength, especially some of those that posted impressive half-year numbers. As mentioned earlier, half-year corporate scorecards have been surprising and impressive, but investors are looking into the future to ascertain the possibility of continuity amidst the weak national economic recovery.
We note that a good number of listed companies on the NGX beat market and analysts’ projections, but guidance for the current quarter and the rest of the year remain weak with many company managements not providing forecasts or estimates. This, understandably, is due to the mixed economic outlook for the second half in the face of rising insecurity, soaring inflation, and unstable economic policies. Top and bottom-line growth has been surprising, so investors want to know if this will continue in subsequent quarters.
Technically, the just concluded earnings reporting season has come to an end, except for interim dividend-paying stocks that have till mid-August to make available their numbers, since they will be audited.
The most outstanding sectors in terms of half-year earnings performance are as follows: Agribusiness, Industrial Goods, Healthcare, Energy, Consumer good, Banking, and Insurance. This is a function of demand and supply, sentiments, and earnings which are the engine that drives prices in the short to long-run.
Despite the sustained market oscillation, some stocks have recorded huge gains year-to-date, and most of those on the Investdata “buy & sell” signal setup, and those who attended the Q3 master class have benefited from the July recovery. For them, the month was really a solid month. In any equity market across the globe, superior fundamentals define leading stocks and earnings rebound has a sharp influence on the share prices of a company, especially when a positive uptrend in earnings is sustained or established. Also, technically, the best stocks distinguish themselves by their sound base chart patterns.
Profit-taking is inevitable in stock trading, following which taking profit at 12% to 15%, rather than the normal 20% to 25% may be a useful strategy in the second half of this year to avoid being trapped in any position for too long. In the next six months, the small and medium cap stocks are set to outperform the high and large-cap equities, especially given that most of the high-priced stocks are overpriced and overweighed already.
As every investment or trade is against expectations, let your investment objectives guild your entry and exit decisions, since the beginning of the year 2021 the equity market has been oscillating due to factors ranging from rising inflation. This is regardless of the fact that it has been slowing down over the last two months, in addition to other factors such as rising yields in the fixed income space, recovering oil price in the international market as it now trades above $73 per barrel.
During the month, the NGX recorded 20 trading sessions, within which the market closed positive in 11, and negative in nine, following which the NGX All-Share index closed the month higher on a mixed trend. The benchmark index gained 639.80 basis points during the period, closing at 38,547.08bp after breaking out the psychological line of38,000 to touch the month’s high of 38,882.79bps, from its lows of 37,805.95bp, after it had opened at 37,907.28bp which represented 1.69% growth for the month.
The sentiment report for the month revealed buying position of 69% and selling volume of 31%, as the total transactions volume index stood at 0.75 to halt the previous month’s losing position, while market capitalization rose by N320bn, closing at N20.08tr, from an opening value of N19.76tr, representing 1.69% value gain. The market had a combination of mixed sentiments, buying interest, and profit-taking as corporate earnings released rekindled investor confidence. The month’s traded volume was up by 11.26% at 5.04bn shares, up from 4.53bnunits in the previous month.
The key performance index’s year-to-date loss position reduced to 4.28%, just as market capitalization decline stood at N924bn, also representing 4.62% loss YTD from the opening value.
Market breadth in the month of July was positive as gainers outpaced losers in the ratio of 60:33, short-living the bearish trend seen in the month of June, and reflecting the increased demand for blue-chip stocks and medium cap equities, as profit-taking hit low priced equities.
Performance indexes across the various sectors and market were up as shown in the charts below, except for the NGX Insurance and Consumer Goods that were down for the month by 2.98% and 0.54% respectively, whereas the NGX Oil/Gas, Premium index, Industrial Goods, Banking, Pension and NGX 30 outperformed the key performance index as more stocks recorded gain for the period, while losses suffered by mid-cap stocks dragged the NGX Insurance and others down for the period under review.
The recovery and uptrend in July were attributed to price appreciation in highly-priced stocks like Dangote Cement, Total Nigeria, Okomu Oil Palm, Zenith Bank, Access Bank, and Oando, among others. Discerning investors and institutional players are continuing their portfolio repositioning in the new month, on the strength of half-year earnings reports, amidst the relatively low Price-To-Earnings which remain attractive as numbers were above expectation. See the table below for more.
Best Performing Stocks for July
More companies featured on the advancers table during the month under review, just as medium and low-priced stocks topped the table. They are: Cutix, Oando, FTN Cocoa, Tripple Gee, and Total Nigeria, signaling a recovery in the sector, on improved earnings emanating from these companies with the capacity to support their share prices. Recall that the sector had suffered setbacks before now, while the market still looks forward to better quarterly numbers from these companies. The stocks closed the month higher as indicated in the table below.
Worst Performing Stocks for July
The top losers for the month were high-priced stocks and small-cap companies, led by Linkage Assurance, which shed 28.57%, on the back of price adjustments and profit-taking, followed by Pharma-Deko after its half-year earnings came below market expectations. University Press and Mutual Benefits witnessed selloffs as investors reacted to poor earnings and low dividend payout. That of FCMB is purely profit-taking as its Q2 numbers suffered a decline, while investors may also be reacting to the disappointing numbers posted by Redstar Express. Regency Insurance declined by 8.70%; Airtel Africa, 7.89%; and Conoil, 7.50% on the back of price adjustments and profit booking.
Technical View on Monthly Time Frame
The NGX index action has formed a descending triangle on a monthly chart, which suggests a breakout or down from now, as candlestick formation is not giving clear direction after it had retraced up to halt two consecutive months of losses, on positive financial news in form of earnings. The state of the expected numbers may trigger buying interests and positive sentiments as portfolio repositioning on Q2 numbers continue. The inflow of funds to equity assets on a monthly time frame as revealed by the money flow index may support the seeming reversal on smart money reposition their portfolios.
NGX Index action On A Weekly Time Frame
The NGX index action on a weekly chart has broken down the 50-day moving average, even as it formed a rectangle pattern that signals consolidation, as index action oscillates within the channel of resistance and support level of a trendy market. But the double bottom formed within the channel supported the reversal which these positive numbers are also likely to support. A reversal at this point will add more momentum to the recovery moves, only that the month of August is very dicey,
NGX Index Action On Daily Chart
NGX Index action on a daily time frame had confirmed a new uptrend with the strong rebound recorded at the last trading session of July, putting the short-term support level at 38,356.43bps. This rebound is very important as index action resisted further decline and continued the zigzag chart pattern with corrective wave given the way that supports uptrend, just as discussed in our Q & A session over the weekend. As momentum indicators are looking up especially the money inflow index that revealed the entrance of funds into the equity space on daily, weekly, and monthly time frames.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08179547605
