Profit Taking Ahead, As Investors React To Q3 Data, Fund Managers Rebalance Portfolios

Market Update For October 25, 2018

The composite All-Share index of the Nigerian Stock Exchange on Thursday reversed up on price appreciation of expected third quarter interim dividend paying stocks, to halt the pullback experienced in previous session. Directors of petroleum products marketing major- Total Nigeria, for example, on Tuesday, recommended N3.00 interim dividend, to which the market immediately reacted positively.
There were also other corporate earnings from Unilever (READ), Julius Berger, FBNH, Custodian Investment Plc and MRS Oil, made available during the trading session.
Volatility persisted as trading for the day started on a slight downside movement in the morning, but retraced up by the mid-morning to afternoon after hitting intra-day highs of 32,570.86 basis points, from lows of 32, 97.42 points, before pulling back in the last few minutes to close the session at 32,545.06 on a high buying pressure.
The earnings reported so far have come with mixed performance among the majority scorecards as top lines remain weak in most cases, reflecting low sales and lack of penetration into new markets. This is an indication of saturation in the existing markets or weak purchasing power among Nigerians that are probably consuming less or foregoing most these consumer items, due to low disposable income. That notwithstanding, a few companies have posted outstanding top and bottom-lines, while others are disappointing. This is especially the case of Lafarge Africa, MRS Oil, Law Union and Guinea Insurance.
As we have stated repeatedly, Q3 numbers are very important, as they give insights to what investors and traders should expect, especially in terms of dividend income ahead of full-year earnings season. Recall that the full=year score-card usually attracts more attention from institutional, foreign, fund managers and other players to enable them take advantage of available and emerging positioning opportunities.
Thursday’s market technicals were positive but mixed as volume traded was high amidst flat market breadth and strong buying sentiment as revealed by Investdata’s Daily Sentiment Report, showing a buy volume of 85% and sell position of 15%. The volume index for the day’s total transactions was 1.58.
Energy behind the day’s market performance was further weakened, despite the increasing number of earnings released and renewed buying interest. The money flow index for the session dropped to 57.79bps, from previous day’s 61.01bps, an indication that funds are leaving some stocks and market at the peak of earnings season.

Index and Market Cap
At the end of trading, the NSEASI gained 141.46bps to close at 32,545.06bps, after opening at 32,403.60bps, representing a 0.44% growth. Similarly, market capitalization recovered N38.78bn to close at N11.87tr, from an opening value of N11.83tr, representing a 0.44% value gain.

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The downturn was impacted by profit booking in low, medium and high cap stocks like: Nestle, Dangote Cement, Unilever, Flour Mills, Oando, FBNH and Wema Bank. This impacted heavily on the Year-to-Date negative returns, which increased to 15.27%, and market capitalization to N1.81tr, representing 13.43% drop, from the opening value.

Mixed Sectors Indices
Sectorial performance indexes were largely bullish, except for the NSE banking and Industrial Goods that closed lower due to profit taking. Market breadth was at par as advancers equaled decliners in the ratio of 19:19, to halt the down market.
Market activities were mixed as volume fell 8.27% to 349.46m shares, from the previous day’s 360.97m units, while value rose to N3.67bn, from previous day’s N2.33bn, with transactions boosted by trading in financial services and conglomerates stocks like: FCMB, Zenith Bank, GTBank, Access Bank and Diamond Bank.
Jaiz Bank and Royal Exchange were the best performing stocks, as they gained 10% each, closing at N0.55 and N0.22 per share, on low price attractions, while AG Leventis and Beta Glass lost 10% each to close at N0.36 and N62.10 apiece on market forces and profit booking.

Market Outlook
Friday being the last trading of the week, expect short-term profit taking as more companies present their numbers, at a time those already presented have come mixed in their performance, while volatility could continue, if the numbers beat market and analysts forecast.
The ongoing Q3 earnings reports would assist investors and fund managers rebalance their portfolios, while watching the political space and analysing the actual numbers that will give insights into expectations for Q3 GDP and full year company earnings power. These are likely to drive prices north, or south, while determining market direction before or after Presidential Election.
Investors should review their positions in line with investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.
However, we would like to reiterate our advice that investors should go for equities with intrinsic value,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst mixed company, economic and market fundamental.

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