Equities

NGX Resists Decline Amidst Expectation Of Earnings From Interim Div Stocks

Market Update for August 2

Nigerian equities inched up on a mixed and volatile session to start the month of August on a positive outing and solid note as the last resistance of the Nigerian Exchange (NGX) All-Share index finally became a support level as NGX index action amidst continued uptrend for the second consecutive trading day on a less than average traded volume and negative breadth.

Even so, investors and analysts continue to study and digest the recent corporate earnings to reposition their portfolios along sectors and stocks that have posted impressive and surprising numbers. Also, these are stocks with the most upside potential on the strength of their earnings power and technical position of price action and chart pattern, a situation expected to trigger buying interests, positive sentiment, momentum, and liquidity. There are also expectations for the half-year earnings reports of interim dividend-paying banking stocks before the end of this month.

Monday’s Money Flow index on a daily chart had reversed up from 51.49p on Friday to 58.39 points to indicate that funds are still entering the market, just as other indicators have revealed a bullish session.  In addition to the expectation of more interim dividends this month, there will be the inflow of economic data such as the July Purchasing Managers’ Index, Inflation report for July, and Q2 GDP from the National Bureau of Statistics that would reveal the true state of the economy.

Technically, the NGX Index and some individual stock price actions are resisting decline at different time-frames, while some sectors have broken out their resistance level on positive sentiments and impressive earnings.  But due to the dicey outlook and performance of August as revealed by the 10-year historical trend of the NGX with eight years of down market and two up. This is a month to watch and trade with a reduced profit target to manage our trades and positions.

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Meanwhile, Monday’s trading opened on the upside which was sustained throughout, despite oscillating on bargain hunters taking advantage of low prices in banking stocks ahead of first-tier bank results. Whereas profit-taking continued in other stocks and sectors, a situation that pushed the benchmark index to an intraday high of 38,658.71 basis points from its lows of 38,532.78bps, before closing above its opening level at 38,604.72bps.

Market technicals were mixed and weak, while volume traded was lower than the previous day’s, in the midst of breadth favouring the bears and mixed sentiment as revealed by Investdata’s Sentiments Report showing 43% ‘sell’ volume and 56% buy positions. The total transaction volume index stood at 1.03 points, just as the impetus behind the day’s performance was relatively strong, as seen in the 58.39pts Money Flow Index, compared to the previous day’s 51.49pts, indicating inflow of funds into the market as corporate earnings beat expectation.

Index and Market Caps

At the end of Monday’s trading, the composite NGXASI gained 57.64 basis points, closing at 38,604.72bps, from an opening level of 38,547.08bps, representing a 0.16% up, just as market capitalization rose by N50.03bn, closing at N20.05tr, from its opening value of N20.13tr, also representing a 0.16% value gain.  

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Monday’s uptrend was attributed to position taking in banking equities and high cap stocks like MTNN, Julius Berger, Zenith Bank, Access Bank, FBNH, Unilever Nigeria, Econbank Transnational Incorporated, NASCON Allied, and Regency Insurance, among others. This impacted mildly on Year-To-Date loss, reducing it to 4.14%, while the loss in market capitalization YTD dropped to N898.34bn, representing a 4.36% drop from its opening value for the year.

Bearish Sector Indices

Performance indexes across sectors were bearish, except for the NGX Banking that was up by 0.02%, while NGX Oil/Gas index led the decliners, after losing 0.63%, followed by Consumer goods, Industrial goods, and Insurance with 0.43%. 0.30% and 0.25% lower respectively.

Market breadth remained negative as losers outnumbered gainers in the ratio of 26:17, while activities in volume and value terms dropped as traders exchanged 244.29m shares worth N1.91bn, compared to the previous day’s 387.13m units, valued at N2.14bn. Volume was boosted by trades in Transcorp, C & I Leasing, FCMB, Oando, and Sovereign Trust Insurance.

Julius Berger and NPF Microfinance were the best-performing stocks, gaining 8.89% and 8%, while closing at N24.50 and N1.89 per share respectively on brighter prospects for construction and building business and earnings expectations. On the flip side, Eterna and Neimeth Pharm lost 10% and 9.71% respectively, closing at N6.39 and N1.58per share, on profit-taking.

Market Outlook

We expect a mixed trend while portfolio reshuffling continued as market players study and digest the corporate earnings ahead of major banks results in the face of recent developments in the FX market following the Central Bank of Nigeria’s stopping sale of US$ to Bureaux De Change operators access.  The mixed volume suggests that smart money is taking advantage of the oscillating trend and relatively low prices to reposition. It is noteworthy that oil price continues its oscillating in the international market, even as corporate actions and interim dividend possibilities are around the corner. 

We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $70pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.

The banking sector and others remain attractive on the back of the prevailing low prices, despite the mixed half year earnings.

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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer a negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in the coming week.

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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, 08179547605

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