Position Taking Ahead, As Investors Digest Earnings Inflow, Dividends, Position On Low Valuation

Market Update for April 2

The first trading session of April and second quarter of the year ended on the Nigerian Exchange slightly on a negative note, as investors and traders resumed from the long Easter holidays. Also on Tuesday, the Nigerian Exchange witnessed an influx of full-year audited corporate earnings showing mixed in performance and payout as revealed by corporate actions, with the market reacting positively as , expected to the numbers that beat expectation while at the same time growing their dividend payouts to reflect their impressive scorecards. These companies included NAHCO, Okomu Oil. Computer Warehouse  Group, Chams, Unilever Nigeria, Berger Paints, and Julius Berger, offering N2.54, N14.00, 16kobo, 75 kobo, 80 kobo and N3.00 dividend per share respectively.

The mixed corporate and macroeconomic numbers emanating from the listed companies and the economy reveal the state of the economy and impact of the ongoing government policies which pushed prices of goods and services to their all-time high. Today also, inflation in Nigeria is at its 28-year high, while interest rate reached its historic peak in the country, pointing to the possibility of an economic contraction. However, relative stability has returned to the foreign exchange market in the aftermath of the latest intervention by the Central Bank of Nigeria by clearing FX backlogs. This had led to the recent appreciation in the value of the Naira against the US Dollar.

The latest Purchasing Manager Index for the month of March came in unchanged at 51.0 points, same as in February to record the lowest in four months, due to the high selling prices of goods and services over the period that slowed down private sector business and economic activities. This is a pure reflection of the weak Naira and runaway inflation.

Consequently, the benchmark NGX All-Share index closed lower on a very high traded volume and positive market breadth in the face of mixed numbers from quoted companies and the economy. Also, portfolio rebalancing and sector rotation continued on the strength of numbers and policy direction of government, just as market players digest the corporate earnings released so far ahead of TB primary market auction, March CPI and first quarter 2024 earnings reports. These are expected to give investors an insight into what would come from the companies for the rest of the year in search of higher returns to hedge against the rising inflation.

The NGX index action continues to range, remaining in its distribution phase and a top reversal chart pattern that signal correction and pullback which needs confirmation as trading opens today. Although, we see government and its economic team trying to return the nation’s economy to the path of recovery, even with the continued mismatch of policies and implementation style that reflects a disconnection between the fiscal and monetary perspectives. It does seem that the MPC has sacrificed the economy on the altar of attracting foreign inflows with the increasing interest rate for improved foreign exchange supply that will help address FX challenges and checkmate inflation. Already, the CBN says it has cleared all genuine FX backlogs, which is why the Naira has started appreciating, just as external reserves is looking up after many months of decline. We can only hope that this will support productivity and attract foreign investors.

More companies on the Exchange continue to announce their closed period and board meetings to approve their unaudited Q1 2024 reports. The latest are Geregu Power, Ucap, and Livestock Feeds among others, while Airtel Africa updates the market on the ongoing share buyback. Therefore, investors should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.

Technically, the NGX is still relatively strong as mixed sentiment resurfaced as revealed by candlesticks formation, as momentum indicators revealed change in strength to signal weakness in the market, as ADX is looking flat at 35.86, while RSI and Money Flow Index are mixed to read 63.13 and 70.49 points against the previous session 63.46 and 69.81 points respectively.  These indicates change in trend, market players should watch out and trade with caution after the index had formed a top pattern and momentum is becoming weak. Also, trading volume pattern remained mixed, to suggests wait and see in some sectors and position taking in the face of others investment windows returns remain below inflation as Naira continues to look up in recent days.

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Oil price was up on Tuesday to continue its oscillation, as it trades at $88.85 per barrel in the midst of OPEC production cuts and geopolitical tensions in the Middle East and Ukrainian refinery strikes in Russia ahead US crude inventories. The rising geopolitical tension across the globe remained a major threat to many economies and the commodity market and other factors that impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement that drive volatility. As middle East conflict and war in Ukraine last.

Meanwhile, Tuesday’s trading opened slightly in the green but pulled back by early afternoon and oscillated, on buying interest in financial stocks, companies that posted impressive numbers and profit booking in others. This situation pushed the NGX’s index to an intraday low of 104,379.30bps from its highs of 104,791.50bps, before closing below its opening figure at 104,518.10bps.

Market technicals for the session were positive and mixed, as volume was lower compared to the previous session in the midst of breadth favoring the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 34% buy position and 66% sell volume. The total transaction volume index stood at 1.46 points, just as momentum behind the day’s performance was relatively strong as Money Flow Index was slightly up at 70.49pts, from the previous day’s 69.81pts, indicating that funds entered  the market, despite closing lower.

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Index and Market Caps

At the end of Tuesday’s trading, the key performance  NGX All-Share Index slide by  43.92bps, closing at 104,518.14bps after opening at 104,562.06bps, representing a 0.04% drop, just as market capitalization fell by N24.84bn, closing at N59.10tr from the previous day’s N59.12tr, which also represented a 0.04%  value loss.

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Tuesday’s downturn was driven by selloffs and profit taking in the shares of UACN, Julius Berger, FBNH, Transcorp, NB, Wapco, Stanbic IBTC and UPDC among others, which impacted mildly on Year-To-Date gain which reduced to 39.78%. Market capitalization YTD gain stood at N14.14trillion, representing 41.12% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes were down, save for NGX Insurance closed higher with 1.37%, while NGX Industrial goods led the decliners after losing  0.12%, followed by Banking and Consumer goods with 0.07% and 0.01% respectively. Just as NGX Energy finished flat.

Market breadth was positive as gainer’s outnumbered losers in the ratio of 23:16, while activities in volume and value were down after investors exchanged 545.49m shares worth N14.61bn. Volume was driven by trades in GTCO, Accesscorp, UBA, Zenith Bank and Transcorp.

May & Baker and Ikeja Hotel were the best performing stocks, gaining 10% and 9.95% closing at N6.05 and N7.07per share respectively on market forces and sentiment. On the flip side, UACN and Julius Berger   lost 9.82% and 9.17% respectively, closing at N12.40 and N59.95 per share, purely on selloffs and  profit taking.

Market Outlook

We expect a mixed sentiment and position taking to continue as players digest the corporate earnings inflow with dividend announcements, while taking advantage of low valuation to position and rebalancing portfolio.

This is amid the volatility and pullbacks that add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd