NGX Earnings Season Kick Off Amidst Profit Taking, As Investors Await Ministerial List, MPC Outcome

Market Update for the Week Ended July 14 and Outlook for July 17-21

Nigeria’s equity market witnessed yet another mixed performance, closing negative, the first week of pullback since the new administration came on board, after seven successive weeks of gains. Within that period, the NGX All-Share index tested an all-time high of 66,000 basis points before retracing down on profit taking and selloffs across sectors and different class of stocks including low, medium and large cap companies.
Amid the profit booking and price correction, volume traded in the period dropped, as many stocks suffered loses, pulling back from their 52-week highs, while in the process creating opportunities for new entrants. This happened despite the onset of the half-year unaudited financials, while macroeconomic data such as the consumer price index report for the month of June is expected from the National Bureau of Statistics (NBS), just as all eyes are on the outcome of next week’s meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee. Already, we note that the apex bank has taken a lot of monetary policy decisions that align with fiscal authority in what may be the desire to attract more foreign exchange inflow and boost liquidity in the economy.
These moves are expected to attract foreign portfolio and direct investment into the economy, even if at the expense of the local manufacturers amidst the high exchange rates regime, poor business environment resulting from poor infrastructure, policy mismatch, the hyperinflationary environment, insecurity, low and purchasing power, among others.
The half-year earnings reporting season kicked-off with impressive and mixed numbers from United Capital, Infinity Trust Mortgage Bank and Geregu Power, in addition to other factors that supports market reversal, even as there is high hopes that more policy statements would be unveiled by the President Bola Tinubu government in the coming weeks. This is aside the high hope that the unveiling of the much awaited ministerial list by the new government would add momentum to the market drive new position taking and buying interest.
After testing the peak of 66,000 basis points which was recent resistance level, the NGX index’s action has formed an inverse hammer on a weekly chart and a decline phase on the daily time frame, a situation that supports a downtrend. However, this still needs confirmation in the new week, based on the market momentum currently which signals a continuation of trend or reversal on bargain hunting and re-valuation on expected Q2 corporate earnings.
Market correction at this point will add more strength to the recovery and create opportunities for new entrants, as more half year corporate earnings are expected to beat expectations, especially from the banking, insurance, energy, telecoms, service providers and others. This is as foreign portfolio investors gradually return to the market on the back of exchange rate unification that makes the stocks on the Nigerian Exchange cheaper and more attractive.
Also, in light of the changing investment environment that definitely calls for new investing and trading strategies, there may be intermittent challenges particularly as the recent fuel subsidy removal and Naira devaluation come with fresh economic risk and some sectors in the short-term. Investors have to navigate the terrain cautiously while ensuring that they protect their portfolios and still make profits. Discerning investors and traders should continue to reposition their portfolios, buy into defensive stocks to protect their trades, as sectorial rotation persists in a policy changing environment and profit taking. We expect mixed trading and position taking in the days ahead of MPC meeting and its outcome at the end of the day.
During the week the news of merger among sister companies and members of the Dangote Group- National Allied industry, Dangote Sugar and Dangote Rice Limited, a move likely to produce a new Dangote Foods and create value for investors was announced. We note that the companies, especially those listed on the NGX Limited, are doing well with products that have inelastic demand in nature. Some other companies also notified investors of insiders’ dealings in their shares, especially FBNH and others. This should be interpreted as a vote of confidence by these board members and top management staff who see inherent value in their companies, hence their repositioning therein. This should guide investors and traders as they watch the market and take investment decisions.
Last week also, Accesscorp informed the exchange of its proposed acquisition of Standard Chartered banking businesses and major stake in FINIBANCO S.A, asides portfolio rebalancing and positive sentiments that reflected on market breadth during the period, with more stocks closing green. Also noteworthy is the fact that the NGX’s Price-to-Earnings ratio remains relatively low and attractive for investments, following which we foresee a mixed trend in Q3 and beyond on profit booking and buying interests.
To navigate Q3 market volatility and the rest of the year mixed outlook profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent market correction. As volume of transaction witnessed within the week remain above the average traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.
Oil price during the week continued its oscillation, extending its three weeks’ gains, trading at $79.87 per barrel after touching $81.49 in the midst of cooling US inflation data and China’s stimulus to boost economic recovery. We note the rising geopolitical tensions and supply disruptions due to the Russia-Ukraine war that has lingered for over a year now, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI
The NGX had a mixed trend and performance, recording the first weekly decline in this second half of the year, after the market experiencing two trading sessions of up market and three days of pullbacks on profit-taking in the midst of very high traded volume and negative market breadth.
The week’s trading started on a positive note on Monday, extending the previous gains as the benchmark NGXASI gained 2.46%, a situation that was cut short on Tuesday when the index inched up by 1.56%, before midweek’s 2.56% pullback on selloffs and profit taking across low, medium and high cap stocks. This trend continued on Thursday and Friday when the market shed 2.03% and 0.29% respectively, bringing the week’s total loss to 0.7%, against the previous week’s 3.40% gain.
In the light of all these, the benchmark NGX All-Share index shed 471.14bps, closing at 62,567.73bps from the previous week’s 63,040.87 points level, touching an intra-week low of 62,441.30bps, from its highs of 66,000bps. Similarly, market capitalisation fell by N1.11tr, also representing a 0.70% value loss at N34.1tr.
In the week under view, low and medium cap stocks dominated the top gainers’ table amidst selloffs and profit taking, just as volatility and portfolio repositioning continued. Also notable was the selling sentiments on daily basis, as traders cash out profit, while investors reassess impacts of the new government’s policies on the economy and industries. So far, the pullback sectors and individual stocks are revealing inherent value in some companies with strong earnings power and volume patterns ahead of more half year earing reports. So, buying into value, strong earnings and high dividend payout companies remain the way to go, despite the new prices impacting negatively on yields.
Market breadth for the week turned negative as decliners outpaced advancers in the ratio of 76:28 on a selling sentiment as revealed by investdata sentiment report showing 4% ‘buy’ volume and 96% sell position. Money Flow Index is looking up to read 79.85bps, from the previous week’s 75.49points, an indication that funds entered the market on a weekly chart, despite the profit taking in blue chip stocks and others, just as buying interest in highly priced stocks like Dangote Cement, BUA Cement, MRS Oil and Conoil support inflow into the market, in the face of mixed outlook for fixed income market yields and economic reform of the new government.
The NGX index’s action remained within the bullish channel despite pulling back to trade above the upper trend line of the channel and 62,000 mark on selling sentiment in the midst of selloffs and bearish divergence on a daily chart, while trading above the 100 DMA and 200 DMA on a high traded volume to sustain the uptrend on a weekly time frame that supports reversal and continuation of trend, which need to be confirm in the new week as more fundamental in terms of earnings are expected in the market. Also, the candlestick formation indicates that sellers are in charge in the midst of earnings expectations and MPC meeting that is around the corner.

Mixed Sectoral Indices
The week’s sectorial performance indexes were mixed, as NGX Industrial Goods and Energy closed higher by 9% and 1.4% respectively, while the NGX Banking led the decliners after shedding 14.3%, followed by Insurance and Consumer goods with 11.5% and 2.3% respectively.
Activities in volume and value fell as market players traded 5.25bn shares worth N12.7bn, compared to the previous week’s 9.83bn units valued at N145.41bn, driven by financial services, Conglomerates and Consumer goods stocks. Specifically, volume was boosted by trading in the shares of UBA, Transcorp, FCMB, Dangote Sugar and Nasacon.
Daar Communication and John Holt were the best-performing stocks last week, gaining 50% and 44.8% respectively, closing at N0.30 and N1.81 per share on market sentiment and forces. On the flip side, the share prices of Champion Breweries and Academy Press lost 31.5% and 26.8% respectively, at N3.15 and N1.83 per share, purely on profit taking and selloffs,

Outlook for the week
We expect a mixed sentiment and recovery as bargain hunters take advantage price correction in the midst of more expectation of earnings and June CPI, ahead of MPC meeting. These are coming in the midst of expected policy guideline and implementation, corporate actions price adjustment and payment dates. However, retracement to the 60,578.12 level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605