NGX Investors Upbeat On Full-Year Earnings Season Expectations, Await MPC Outcome

Market Update for January 18

The bull resurfaced powerfully during Tuesday’s session on the Nigerian Exchange, reversing the previous day’s negative outing on a rekindled buying interest in dividend paying and highly capitalized stocks which pushed the composite NGX All-Share Index higher on a low traded volume and positive market breadth. These signaled a change in trend and characteristics that halted the recent profit booking in many equites.

The positive sentiment recorded during the session was attributed to position taking across sectors, especially in banking, ahead of the earnings reporting season, as transaction volume and price action revealed the presences of buyers in the market.

Also, the prevailing low volume of transactions on the exchange indicates the absence of institutional players, despite the positive fundamentals and technical patterns that reveal the undervalued state of many stocks and buy opportunities available in the market.

Tuesday’s retracement signaled a new trend that is set to breakout the recent resistance level of 44,768.94 basis points tested on the previous day as the price appreciation in BUA Foods and BUA Cement boosted market performance, in the face of rising oil prices at $87.22 per barrel, to further boost Nigeria’s foreign reserves and market fundamentals.

This is especially true of the energy sector players like Seplat and Oando that are in the crude oil related business. We, however, note that higher oil price increases the loading cost of fuel and subsidy payable, if there is any and removal of this subsidy by the government as planned will have positive impacts on petroleum marketing companies like Oando, Eterna, Conoil, Total and Ardova.

Already, the market is looking forward to Dangote Cement’s share buyback that may commence on Wednesday, or the day after, creating the desired liquidity for the market and value for its shareholders as the exercise supports its fair value and higher earnings per share due to the planned reduction in its outstanding numbers shares.

Meanwhile, all eyes are on the year’s CBN’s Monetary Policy Committee meeting holding next week, as well as corporate earnings that would shape decisions and flow of funds, at a time some experts are calling for a hike in the benchmark Monetary Policy Rate. This, to us, in Investdata is too early for an economy that is still weak and struggling to recover, considering the high rate of unemployment, inflation, low purchasing power, high cost of living and distortions arising from Covid 19 that is ongoing.

So its left for our economic managers and policy makers to formulate economic models that work for our environment, rather than copying the mature economies.

Technically, the NGX index’s action rebounded on a low traded volume to continue its recovery, as discerning investors took advantage of the pullback to reposition their portfolios.

Trade metrics and candlestick at the end Tuesday’s session revealed positive sentiments that supports an uptrend, as the NGX index traded above the 20 and 50-Day Moving Average. Momentum indicators for the day were positive, just as the ADX read 36.25, RSI closed above 50 at 73.67 and Money Flow Index inched up to read 75.70 points on the daily chart.

The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as the fixed income market yields direction remains unclear, with inflation looking up at 15.62%.

Tuesday’s trading started in the green, and was sustained throughout the session on buying interests in BUA Foods, and BUA Cement, among other, pushing the overall index to an intraday high of 44,663.47 basis points, from its lows of 44,401.63bps. Thereafter, the index closed above its opening figure at 44,655.89bps.

Market technicals were positive and strong as volume traded was higher than the previous day’s in the midst of breadth favoring the bulls on a buying pressure as revealed by Investdata’s Sentiment Report showing 97% buy volume and 3% sell position.

The total transaction volume index stood at 0.69 points, just as the energy behind the day’s performance remained strong. Money Flow Index was up at 75.70points, from the previous day’s 75.05points.  

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Index and Mkt Cap Movement 
At the end of Tuesday trading, the key performance index gained 256.23 basis points, at 44,655.89bps, after opening at 44,399.66bps, representing a 0.58% growth. Market capitalization rose by N138.05bn, closing at N24.06tr, from the opening value of N23.92tr, also representing 0.58% appreciation in value.

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The day’s upturn was driven by position taking in BUA Cement, BUA Foods, FBNH, Access Bank, Ecobank Transnational Incorporated, Fidson, Conoil, Dangote Sugar, and Eterna, among others. This impacted mildly on Year-To-Date gain which rose to 4.54%. Market capitalization growth stood at N1.88tr YTD, representing a 6.25% from the opening level for the year.

Bullish Sector Indices 
Performance indexes across the sectors were up, except for the NGX Insurance that closed 1.61%lower, while the NGX Banking index led the advancers, gaining 0.98%, followed by Industrial, Consumer and Energy with 0.78%, 0.69% and 0.25% respectively.

Market breadth turned positive as gainers overtook losers in the ratio of 22:13, while activities in volume and value terms were mixed after stockbrokers traded 235.23m shares worth N1.91bn, compared to previous day’s 214,31 m units valued at N2.69bn.

Volume was boosted by trades in Transcorp, GTCO, Jaiz Bank, ETI and FBNH.
Skyway Aviation and Courtville Business Solution were the best performing stocks for the day after gaining 10% and 8.57% respectively, closing at N5.83 and N0.38 per share respectively, on market forces. On the flip side, NEM Insurance and SUNU Assurance lost 8.33% and 5.88% respectively, closing at N3.63 and N0.32 per share, purely on selloffs and profit taking.

Market Outlook
We expect the positive sentiments to continue on Dangote Cement’s buyback and other dividend paying stocks as market players reposition portfolio ahead of 2021 Q4 and full-year audited earnings reports that may start hitting the market any moment from now. With all eyes on MPC meeting outcome, as inflation reversed up to 15.62% and other economic data.

Also noteworthy is the oil price that remains above $74 projection of IMF at $87.22, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira.
Already, two companies made their corporate actions available to the market, announcing a growth in their dividend payout to reflect the numbers posted.  Also, inflow into equity space is looking up slowly on changing investment decision to keep this trend ahead of new year holiday. 

As market players digest economic data 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