NGX Index Rebounds, As Investors Position On Earnings Bet, Oil Price Rise

Market Update for January 26
Nigeria equities and the benchmark index extended its rally at the midweek after the Monetary Policy Committee members voted unanimously to leave all monetary policy instruments unchanged at the end of Tuesday on strong buying interests in telecoms and banking stocks. These pushed the market to close higher on improved traded volume, as market breadth was at equilibrium.

The volatility and mixed sentiment recorded on Wednesday were as result of demand for dividend paying stocks by investors, whereas traders were cashing out profits in positions that soared on January effects rally so far, as more companies notified the exchange of their board meetings and closed periods during the session. Also, the first set of unaudited full-year earnings report from a commercial bank and transport service provider hit market with positive numbers.

FCMB released its earnings report that was flat, with gross earrings of N208.53bn, up by 4.56% from N199.44bn, and profit after tax of N20.89billion, compared to the previous N19.61bn, which translates to N1.06 earnings per share. On the other hand, Skyway Aviation Company posted impressive numbers with revenue at N8.71bn, up from N6.98bn in 2020, while profit rose to N584.25m from N482.38m reported in 2020, leading to EPS of 43 kobo, against 36 kobo in the corresponding period in 2020.

Technically, the NGX index action broke out another psychological line of 46,000 on a high traded volume with the help of Airtel Africa’s price appreciation to remain strong and bullish. Trade metrics and candlestick at the end of trading revealed strength in the uptrend, as the benchmark NGX All-Share index trades above the 20, 50 and 200-Day Moving Averages.

Momentum indicators were positive and strong as the ADX read 47.40, RSI closed above 50 at 83.94 and Money Flow Index rose to 77.50 points on the daily time frame. The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as direction of the fixed income market yields remains unclear, in the midst of NTB primary market auction and rising inflation at 15.63%.

Meanwhile, Midweek’s trading opened strongly in the green and oscillated throughout the session, on buying interest in dividend paying stocks that pushed the index to new highs after testing 46,905.63bps, from its lows of 45,939.51bps. Thereafter, the index closed sharply above its opening level at 46,529.99bps.

Market technicals were positive and mixed as volume traded was higher than the previous day’s in the midst of a flat breadth and mixed sentiments as revealed by Investdata’s Sentiment Report showing 61% buy volume and 39% sell position. The total transaction volume index stood at 1.08 points, just as the momentum behind the day’s performance remained strong.

Money Flow Index was up at 77.50points, from the previous day’s 76.54 points.  
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Index and Mkt Cap Movement 
The NGX All-Share Index, at the end of the day trading gained 590.48basis points, at 46,529.99bps, after opening at 45,939.51bps, representing a 1.29% growth. Equity market capitalization rose by N318.19bn, closing at N25.07tr, from the opening value of N24.76tr, also representing a 1.29% value gain.

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Wednesday’s upturn was driven by position taking in Airtel Africa, Ecobank TransnationaI, Seplat, Julius Berger, UBA, UBN, Access Bank, and NPF Microfinance, among others. This impacted positively on Year-To-Date gain as it increased to 8.93%. Market capitalization growth stood at N2.56tr YTD, representing a 10.29% rise over the opening level for the year.

Bearish Sector Indices 
Performance indexes across the sectors were down, except for NGX Banking that closed 1.32% higher, while the NGX Industrial Goods index led the decliners, after losing 1.89%, followed by Insurance , Energy and consumer goods with 0.63%, 0.59% and 0.39% respectively.

Market breadth was at par, after the number of gainers equaled losers in the ratio of 19:19, while transactions in volume and value terms were up after investors exchanged 328.98m shares worth N4.82bn, compared to previous day’s 247.69m units valued at N3.58bn. Volume was boosted by trades in Multiverse, Mutual Benefits Assurance , GTCO, Chams and Nigerian Breweries.

Airtel Africa and ETI were the best performing stocks after gaining 10% and 9.55% respectively, closing at N1,271 and N10.90 per share on earnings expectations. It is not known whether the gain by ETI is related to the improved rating of its biggest subsidiary- Ecobank Nigeria by Fitch. On the flip side, Cadbury and Prestige Assurance lost 9.47% and 8.70% respectively, closing at N8.60 and N0.42 per share, purely on unimpressive earnings report and selloffs.

Market Outlook
We expect the market to sustain the trend on renewed positioning in fundamentally sound and dividend paying stocks, as oil price rebounds to touch $90, which is one factor that also continues to support economic and market fundamentals. Also, investors are targeting dividend paying stocks as they reposition portfolios ahead of 2021 Q4 and full-year audited earnings reports that may start hitting the market any moment from now.

Also, all eye are on NTB primary market auction rates, as inflation remain high at 15.62%. Also noteworthy is the oil price that remains above $74 projection of IMF at $90, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira.

Inflow into equity space is looking up slowly on changing investment decision to keep this trend ahead of the new year holiday.  As market players digest MPC meeting outcome and happenings in fixed income market after the NGX index action retraced up to trade above its 50-Day Moving Average on a low buy volume in the face of assets rebalancing and the new January Effect pattern likely to influence stock prices ahead of 2021 earnings reporting season.

The relatively low volume traded in the midst of uptrend and recovery moves are creating new buy opportunities on the strength of the Q3 numbers. Also, candlestick formation and volume traded during the session revealed that institutional players are not buying yet. 

It is equally noteworthy that during a ranging market many players seat on the fence waiting for a breakout or down before jumping into any position.  Even as many stocks are trading within their buy ranges, a situation expected to attract more funds into the stock market, given the Dividend Yield capable of serving as a hedge against inflation.

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