Positive Sentiment Ahead, Amid Oil Price Rally, Positioning For Dividend

Market Update for January 27
The bears resurfaced again on the Nigerian Exchange Thursday as the composite All-Share index closed lower due to selloffs in Dangote Cement and profit taking in the medium and low cap stocks that rallied recently. These happened on a less than average traded volume in the midst of a positive market breadth and selling sentiment.

Despite the pullback witnessed at the end of Thursday, many listed companies submitted their unaudited quarterly and 2021 full-year results. Most of the numbers released are impressive, while some came mixed, giving investors an insight to what to expect by way of dividend, or payout when the audited accounts of these companies are finally released before March 31, 2022 deadline.

The following companies Vitafoam, Unilever, Guinness Nigeria, Chemical Allied Products, Trans-Nationwide Express, Industrial Medical Gases, NEM Insurance and others. Zenith Bank, Access Bank and BUA Cement notified the exchange and investing public of the outcome of their board meetings. Zenith and Access banks announced the submission of their audited accounts and now await approval of the Central Bank of Nigeria to make their audited 2021 financials available to the investing community.

Technically, there is a change in trend, and characteristic of the market as a result of the correction or pullback, which need to be confirmed at Friday’s session by market forces. The NGX index action had a pullback to trade above the psychological line of 46,000 on a low volume that halted previous session’s positive outing. Also, the trade metrics and candlestick at the end of trading revealed a bear situation, as the key performance index still trades above the 20, 50 and 200-Day Moving Averages, while momentum indicators were mixed and weak as the ADX read 49.33, RSI closed above 50 at 72.80 and Money Flow Index fell to 69.93 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 rates declined at the end of the week event and rising inflation at 15.63%.

Thursday’s trading started strongly on the upside before oscillating to pullback during the session in the industrial, insurance and energy sectors that dragged the index to intraday low of 46,000.72bps, from its highs of 46,769.16 bps. Thereafter, the index closed sharply below its opening points at 46,009.23bps.

Market technicals were negative and mixed as volume traded was lower than the previous day’s in the midst of breadth favouring the bulls on a selling pressure as revealed by Investdata’s Sentiment Report showing 1% buy volume and 99% sell position. The total transaction volume index stood at 0.92 points, just as impetus behind the day’s performance remained relatively strong. Money Flow Index is looking down at 69.93 points, from the previous day’s 77.50 points, indicating that funds left the market.  

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Index and Mkt Cap Movement 
At the end of Thursday’s trading, the benchmark NGXASI shed 520.76 basis points, at 46,009.23bps, after opening at 46,529.99bps, representing a 1.12% decline, while market capitalization fell by N282.12bn, closing at N24.797tr, from the opening value of N25.07tr, also representing a 1.12% depreciation in value.

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The day’s downturn resulted from selloffs and profit booking in Dangote Cement, Flour Mills, Ardova, UACN, Oando, FBNH, and Ucap, among others. This impacted negatively on Year-To-Date gain which dropped to 7.21%. Market capitalization growth stood at N2.34tr YTD, representing a 9.17% rise over the opening level for the year.

Mixed Sector Indices 
Performance indexes across the sectors were mixed, as NGX Consumer Goods and Banking indexes closed higher by 1.77% and 1.08% respectively, while the NGX Industrial Goods index led the decliners, after shedding 3.25%, followed by Insurance and Oil/Gas with 1.79% and 0.48% respectively.

Market breadth turned positive as gainers outnumbered losers in the ratio of 26:18, while activities in volume and value terms were down after stockbrokers crossed 279.44m shares worth N2.76bn, compared to previous day’s 328.98m units valued at N4.82bn. Volume was boosted by trades in UPDCREIT, Courteville Business Solution, Transcorp, GTCO and Multiverse.

The best performing stocks for the session were brewers- Guinness Nigeria and International Breweries which gained 10% each, closing at N46.75 and N5.50 per share on the back of their impressive Q2 earnings and expectation of Q4 numbers respectively. On the flip side, NEM Insurance and Dangote Cement lost 8.57% and 8.53% respectively, closing at N3.20 and N260.60 per share, purely due to the unimpressive earnings report and profit taking.

Market Outlook
We expect positive sentiment to return on positioning in fundamentally sound and dividend paying stocks in expectation of more corporate earnings, as oil price oscillates to trade at $89.88, 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.

Also, MOC outcome and NTB primary market auction rates that decline on short and long tenor should be a plus for the equity market. Just as inflation remain high at 15.63%. 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.

As market players digest the outcome of the two events during the week and happenings in fixed income market after the NGX index action pullback to trade above its 50-Day Moving Average on a low buy volume in the face of assets rebalancing and January Effect rally pattern which has influenced stock prices ahead of audited 2021 earnings 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