The Nigerian Stock Exchange (NSE), continued trading below its 20-day moving average on a weekly time frame for the fourth consecutive week, with investors continuing to discount the robust economic prospect reflecting in stock valuations, while pricing in the political risks arising from the 2019 general elections. Such investors, most foreign are now interpreting and digesting the recently released Q1 earnings reports, which has formed the basis for reshuffling portfolios on the strength of company performances. They are also keeping in view, the expected half year earnings season when some companies traditionally offer interim dividend, amid the persistent volatility, correction and political risks relating to the next February’s general elections that have been of great concern to market players.
Those who would ordinarily believe such political risks are exaggerated may be having a rethink by now, judging by the outcome of ward congresses organized by the ruling All Progressive Congress (APC) across the country which were less than peaceful in many states, resulting in some deaths. There are those who are still watching to see the outcome of the governorship elections in Osun and Ekiti in the next few months as a foretaste of what the 2019 general elections would be.
Despite, the seeming trading range in the market, the just concluded earnings season has revealed the soundness of the Nigerian equity market fundamentals and general economic recovery. It has also given an insight into what the future earnings of various companies will be, regardless of the uncertainties surrounding next year’s general elections. This is because many of the Q1 numbers released beat expectations.
From the over 124 companies filing Q1 2018 earnings so far, most of them have forecast earnings and profit for the third consecutive quarter to reveal the great wealth creating opportunities in Nigerian stock market in 2018 and 2019. With the election year political risks weighing in on the market amidst the growing fear reflecting in the market through mixed sentiment and volatility resulting in sustained price corrections, there is need for stakeholders, particularly government and the regulators to douse tension and renew assurances by word and action.
The prevailing fundamentals of the companies are far better than what they are in 2007 and 2008 the market rallied to 65,000 mark, now we have stronger and better companies with robust earnings power and business models that will drive higher price post-election. Such will however depend on sustenance of the Economic Recovery and Growth Plan (ERGP) to support the upbeat economic indices making Nigeria an investment destination for foreign investors, without leaving out the domestic leg. Also, the rate at which companies beat expectations in the last full year and Q1 earnings reporting seasons was high, compared to that of 2016 and the preceding years. So far, Investdata’s research shows that 48% of companies have beaten analyst estimates, while 54% others surpassed top line revenue estimates. With this level of performance ushering us into May, it could be the strongest reading since 2005.
Equity Indicators Last Week.
Meanwhile, the composite NSE All-Share Index last week shed 26.17 basis points to close at 41,218.72 basis points from 41,244.89bps, representing a 0.06% decline on a low volume of transactions, compared to the previous week’s. The volume index of total transactions for the week was 0.54, with buying pressure at 61% and selling volume, 39% to halt the previous week’s gain, while remaining above the 41,000 psychological line. Similarly, market capitalisation for the period lost N9.5bn, closing at N14.93tr from an opening value of N14.94tr, representing a 0.06% loss resulting from sell-offs in Nestle, Nigerian Breweries and Seplat within the week.
Low and medium cap stocks dominated the advancers’ table for the period under review, as investors realigned their portfolios in the light of stronger numbers, even as the actual Q1 earnings give continue to give direction.
Last week’s profit booking by traders in highly capitalized stocks during the period impacted negatively on the NSEASI’s year-to-date returns, as it contracted at 7.78%, just as growth in market captalistion dropped N1.41tr, representing 9.51% rise from the year’s opening value.
Market Breadth
Market breadth for the week was positive as advancers outnumbered decliners in the ratio of 37:32 on low volume of trades and weak demand for stocks, with Q1 company scorecards still being probed to enable better informed investment decision. Buying pressure dropped from 100% in the previous week to 61%.
NSE index opened the week on a bullish note to extend the previous Friday’s gain by 0.06%, which was sustained in the midweek by 0.09%, a situation that was halted on Thursday as the index pulled back on profit taking to close lower at 0.48%. This gave way on Friday as the index reversed up by 0.27%, to close the week on a marginal loss of 0.06%.
Performance across sectors were largely bearish except the NSE Banking and Industrial goods which were up as a result of price appreciation in Guaranty Trust Bank, UBA and Dangote Cement. Other sectors like Insurance, Consumer Goods, as well as Oil/Gas were down, due to sell-offs seen in NEM, Aiico, Nestle, Nigerian Breweries and Seplat, which dragged the market into negative zone.
Market activities in volume and value were down by 27.32% and 15.46% to 1.33bn shares worth N20.84bn, from previous week’s 1.83bn units valued at N24.65bn.
The best performing stocks for the week were C& I Leasing and Unity Bank that topped the advancers table with 29.50% and 20% gains respectively, closing at N1.80 and N1. 20 per share, on the back of positive market sentiments. The worst performing were Dangote Flour and Eterna Plc which gave up 18.57% and 13.03% to close at N11.40 and N5.74 respectively on profit taking and unimpressive Q1 numbers released recently.
During the week also, the share prices of Regency Assurance and Sterling Bank were adjusted for dividend recommended by their directors. Also, more than 20 companies released their quarterly results to the market.
Market Outlook
We expect, in this full week a mixed performance as investors study corporate earnings and the upbeat economic data to reposition their portfolios in the midst of low valuations in medium and high cap stocks, ahead of Q1 GDP and half year interim dividend on the strength of numbers. Also, we expect the impact of the unconventional monetary policy stimulus to complement measures by the Central Bank of Nigeria (CBN) which recently signed a currency swap deal with its counterpart- the People’s Bank of China (PBoC). The move is expected to reduce cost of importation, forex volatility arising from exchange rate pressure on the Naira, while helping to conserve Nigeria’s external reserve as oil price remains up, supporting economic fundamentals.
Meanwhile, dividend income players are taking position ahead of more economic data, even amidst the expected sustained volatility and repositioning.
However, we would like to reiterate that investors should not panic but go for equities with intrinsic value, especially during this season when dividend payment is approaching.
We advise investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.
It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. A stock market is in cycles. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
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