Profit Taking Ahead, As Investors Await Results Of Interim Dividend Stocks

Market Update for the Week Ended August 7 And Outlook for August 10-14

Trading activities on the Nigerian Stock Exchange last week remained on the recovery path, extending the three consecutive weeks of bull-run and strong buying sentiments propelled by corporate earnings that beat investors’ expectations. This was despite the array of mixed numbers, rising cases of Coronavirus infection in the country, economy uncertainties and policies mismatch by the government. In the past week also, the Federal Government announced a hike in the price of Premium Motor Spirit (or petrol), in line with its decision to remove subsidy on the product, owing to incidences high level corruption, bringing the pump price to between N148.50 and N150 per litre, a factor that would further push up the cost of living and inflation.

The better-than-expected half-year earnings reports submitted by many blue-chip companies and attractive valuation of equity assets in the prevailing low interest and yield environment, amidst the rising inflation rate that continues to threaten returns on investment.

These have triggered flow of fund into undervalued medium and high cap stocks, as smart money realigns portfolios and positions in high interim dividend paying stocks with strong fundamentals. These include the first-tier banks that expected to start submitting their half -year audited financials, just as others with high yields and possibility of paying dividend at the end of 2020 financial year.

The nation’s economy is still searching for direction at a time the government and the Central Bank of Nigeria (CBN) are injecting over N2.3tr into the system to mitigate the effects of COVID-`9 outbreak on businesses and Nigerians. The removal of fuel subsidy, single exchange rate and expansion of the tax net, are yet to reflect on, or boost economic activities due to the lack of focus and coordination needed to chart a new course in this economic reset. But then, how will the government curtail inflation, the soaring unemployment, poverty and insecurity, when there is a lack of synergy among the policy makers? 

The global stock markets, in the period under review were equally bullish on the positive earnings season, news of the discovery of a vaccine for the deadly virus, relative stability in oil price and other factors. It was also despite the resurgence of the cold war between the US and China in the midst of fear of a second wave of the Coronavirus, while tech funds, impressive earnings performance of tech companies and others continue to drive sector price performance and the markets to pre-COVID level.

Movement Of NSEASI

The bullish sentiment was an extension of the previous week’s uptrend as the composite NSE All-Share index recorded five straight sessions of gains, with trading for the period opening on a positive note at 0.29%. This was sustained for the rest of the week, with the index gaining 0.31%, 0.16%, 0.19% and 0.41% respectively on Tuesday, Wednesday, Thursday and Friday, bringing the week’s total gain to 1.41%, which surpassed previous week’s 0.99% rise.

The exchange’s key performance index gained a total of 348.16 basis points, opening at 24,693.73bps, touching an intra-week high of 25,041.89bps, from its low of 24,427.73bps on a strong buying sentiments driven by the impressive earnings from some companies. It was the result of institutional investors repositioning their portfolios on the strength of recent numbers released as revealed by the week’s traded volume. The index closed above at the intra-week high of 25,041.89ps, just as market capitalization climbed N181.62bn during the period, closing at N13.1tr, from the previous weekend’s N12.86tr, also representing 1.41% appreciation in value.

During the week under consideration, over 30 companies released their half-year scorecards and March year-end accounts from Flour Mills and Honeywell whose directors recommended a dividend of N1.40 and 0.04 kobo respectively. Also, others like Custodian Investment, Consolidated Hallmark Insurance and Cornerstone Insurance declared interim dividends of 10 kobo; bonus of one new share for every 15 held by shareholders; and seven shares for every 30 held respectively.

The advancers’ table was dominated by low, medium and high priced stocks, as gainers were more in the ratio of 41:18, while the momentum behind the week’s performance was relatively strong, as Money Flow Index read 67.24bps from 66.95ps in the previous week. This is a reflection of the improved buying interests, regardless of the seeming profit-taking and selloffs on portfolio repositioning.

The NSE’s index continues to trade above the 20-Day Moving Average on the weekly chart, heading to breakout the 50% line of Fibonacci retracement and 50 DMA on less than average traded volume that indicates the wait-and-see attitude of market players for interim dividend paying score-cards. The double top chart pattern formation on both timeframes signals reversal. However, the expected positive momentum from the earnings and inflow of funds to stock market, the possibility of a breakout is high depending on market forces in the new week.   Also we envisage profit taking a head.

On a daily and weekly time frame MACD remain bullish, supporting an uptrend and changing momentum in the market on the increasing numbers of earnings reports that are above expectation. The buy volume for the period stood at 79%, and money flow index flat at 68.33 points.

The Relative Strength Index for the period is looking up, reading 45.68, just as the momentum behind the market attempting rebound was flat in the midst of the improving buying interests in some stock. This was the despite the mixed sentiments and earnings reports that are yet to give market direction.

The energy behind the NSE’s index movement on a daily and weekly chart stayed mixed with the ADX reading 17.78 points from last week’s 18.48 points, on positive sentiments as revealed by Investdata’s Sentiment Report for the week showing 100% ‘buy’ volume, with the transaction volume index at 0.75.

Bullish Sectoral Indices

The performance index across the sectors were up, except for the NSE Insurance which closed 0.28% lower, while the NSE Banking index led advancers after gaining 4.94%, followed by the NSE Oil/Gas, Consumer and Industrial goods thatclosed 4.81%, 0.72% and 0.10% higher respectively. 

Activities during the week, in terms of volume and value, were up by 154.76% and 102.25% respectively as investors traded 1.07bn shares worth N10.80bn from the previous week’s 421.98m units valued at N5.34bn. The week’s volume was boosted by trades in financial services, conglomerates and industrial goods stocks, especially FBN Holdings, UACN, Access Bank, Transcorp and Lafarge Africa.

Neimeth Pharm and UACN Property were the best performing stocks after gaining 21.38% and 18.52% respectively, closing at N1.82 and N0.96 per unit on positive Q3 earnings ahead of full-year results and market forces. On the flip side, UACN and Total Nigeria lost 11.43% and 9.91% respectively, closing at N6.20 and N79.19 per share on weak earnings, the inconsistent statement and selloffs on negative numbers respectively.

Market Outlook

We expect positive momentum and volatility to continue on dividend qualification date of MTNN, Flour Mills and Cornerstone Insurance, with audited half-year earnings reports expected from Guaranty Trust Bank, Stanbic IBTC, Zenith Bank, Access Bank and UBA with interim dividend yield of 1.23%, 3.03%, 1.77%, 3.84% and 3.05% respectively. This is coming amidst reactions to good and bad earnings with the earnings season providing buying opportunities for short-term trading, using the value area called resistance and support level in your trading decision.

We cannot also rule out investors pricing in government’s inconsistent policies and weak macroeconomic data as the June Inflation report helps investors determine by how much it has thrown returns in most investment classes into negative yields. Already, inflation has risen above the Central Bank of Nigeria’s benchmark Monetary Policy Rate (MPR) at 12.5%, even as the declining industrial productivity points to the reality of a recession.

The sectoral rotational wave will help investors cash in on low cap stocks and sectors that have suffered huge losses before now. Already investors are looking the way of healthcare, airline service providers, oil marketing stocks, banking among sectors likely to be impacted positively in the much anticipated global and domestic economic reset.

Also, the possibility of continued funds inflow to low priced stocks is high, due to the higher yields and upside potentials, considering the low rates on offer in the money and bond markets. In the meantime, investors should also look out for developments around the implementation of the CBN’s funding plan for small and medium scale businesses. 

Already, we notice that investors are taking position in healthcare and other defensive stocks likely to survive this meltdown, as seen in the increased trading in them, even as the global markets continue on the recovery path, with the gradual easing of the lockdown.

While discerning investors should prepare to take advantage of stocks revaluation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.

Expect a pullback that will support the upside potential, especially with many fundamentally sound stocks remaining underpriced, and the dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.

To position for the short to long-term, investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

Meanwhile, the home study packs, videos on Strategies and How to Invest Profitably in This Changing Market Dynamics and Recession.  Mastering Earnings Season for Profitable Trading and Investing in any market situation/Cycleare available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467