Profit-taking Ahead, As NGXASI Hit New 15-Year High, Amid Hope For 2022Q1 Earnings Expectation

Market Update for April 20

Bull sentiments on the Nigerian Exchange at midweek strengthened as equity prices and performance indexes that measure trading activities closed higher, erasing the previous session’s loss position on increased buying interest in highly capitalized stocks and others by investors. This pushed the NGX All-Share index to its 15-year high and near to the March 5, 2008 market peak, breaking out a major resistance level of 47,613.72 points on a high traded volume.

However, the market extended its markup phase as index action broke out its strong resistance and psychological line of 48,000 basis points, as it touched 48,138.71bps on demand for the shares of Airtel Africa, Seplat and Dangote Cement by bargain hunters. This is happening in the midst of the expectation of more Q1 numbers in the market ahead of April 30, 2022, the statutory deadline for submission of December, March, June, and September year-end corporate earnings reports.

The real yields remaining in the negative territory in the midst of rising inflation and yields inching up in the fixed income market had supported the flow of funds into the equity space. The high volume traded and positive market breadth during the session also indicates an increase in buying momentum and position-taking ahead of more quarterly and unaudited accounts for March year-end hitting the market before the end of the month.  

The NGX All-Share index’s action had a positive outing, continuing the uptrend after the previous day’s slowdown, as buying sentiments remain very high, suggesting that funds are entering value stocks with the prospect of sustaining their earnings growth. Such will support price and payout, as players move to hedge against the country’s soaring inflation.

Midweek’s trading pattern and candlestick formation confirmed that buyers are in control, a trend that may lead to reversal, depending on market forces as all eyes are on companies’ Q1 results. The NGX index’s action is trading above its 20-day moving average, as volatility persists and the rally towards the next resistance level is spotted around 48.465.17bps. Should the index break this point, the next visible level is 48,685,27bps, despite the uncertainty that comes with the pre-election year.

Investdata Research’s mixed outlook for the month of April and the quarter remains, as the filing of first-quarter earnings reports kicked off in the midst of corporate actions, qualification, price adjustment, AGM, and payment of dividends by listed companies. However, there is a need to watch the current trends, especially with bargain hunters still in the market cherry-picking fundamentally sound stocks. There are also the expected market reactions to the dividend markdown and payment dates of the companies on the exchange. We note that Access Bank’s share price was adjusted for the 70 dividend recommended by its board, while Thursday is qualification date for Okomu Oil, Fidelity Bank, Total Nigeria and GSK.  

Meanwhile, market players continue to watch the nation’s economic developments, after the World Bank projected that Nigeria’s economy could grow by as much as 3.4% this year, as well as developments in the fixed income market regarding yields and rates, even as all eyes are already on plans announced by the CBN during the last Monetary Policy Committee (MPC) meeting to intervene in the distribution of premium motor spirit and diesel. The aim is to ease the pains of the scarcity among manufacturers, SMEs, and households across the country, in the face of the epileptic power supply.

Despite, midweek’s powerful market rebound, investors and traders should keenly watch their stop-loss and profit targets to adjust positions and take profit as their target is met. Tentatively, the uptick in inflation and oscillating oil prices may support the flow of funds into stocks depending on the state of this Q1 scorecards.

The Eastern European crisis and subsiding cases of COVID-19 in China, resulting in gradual reopening after the lockdown in some provinces have continued to influence commodities prices, especially crude oil which rebounded in the international market to trade above $105 per barrel, after touching $120.27 in the previous days. This has continued to push production costs up, worsening inflationary pressure across the globe and weakening economic outlooks for 2022 and 2023, thereby influencing the monetary policy of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession.

However, we warn that market corrections are not over yet because profit-taking is part of the market dynamics, hence the need to rely on your stop-loss effectively. This is because the uptrend signals that profit-taking is underway, especially when it gets to the level where profit booking or price correction will set in.   

Technically, the NGX index is making a higher high, as the session witnessed strong positive sentiment that could be linked to the repositioning of portfolios ahead of Q1 numbers and reaction to corporate action dates. The possibility of the market sustaining this trend is a function of the state of Q1 numbers and improved economic condition during this Q2, following which we advise investors to play defensive with sectors having strong demand and dividend stocks to reduce investment risks around the market.

Meanwhile, midweek trading opened on the upside and was sustained throughout  the session, despite oscillating on buying interests and profit-taking, a situation that pushed the NGX’s index to an intraday high of 48,138.71 basis points from its lows of 47,503.00bps, before closing sharply above its opening point at 48,138.71bps.

Market technicals were positive and mixed as volume traded was lower than the previous day, in the midst of breadth favoring the bulls on buying pressure as revealed by Investdata’s Sentiments Report showing 100% ‘buy’ volume. The total transaction volume index stood at 1.00 points, just as the momentum behind the day’s performance remained strong with Money Flow Index looking up at 74.97pts, from the previous day’s 70.55pts, indicating that funds entered the market.  

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Index and Market Caps

At the end of trading, the benchmark NGXASI gained 592.85bps to close at 48,138.71bps, after opening at 47,545.86bps, representing a robust 1.25% growth. Similarly, market capitalisation rose by N320bn, closing at N25.95tr, from the previous day’s N25.63tr, which also represented a 1.25% appreciation in value.

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The session’s upturn was driven by demand and position taking in stocks like Airtel, Seplat, Dangote Cement, Okomu Oil, Flour Mill, UBN, NB, Ecobank Transnational Incorporated, Guinness, NASCON and Eterna, among others. This impacted positively on Year-To-Date gain, which increased to 12.69%. Market capitalization growth stood at N3.07tr YTD, representing a 16.26% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were in mixed, after the NGX Oil/Gas, Consumer and industrial goods closed 2.98%, 2.06% and 0.98% higher respectively, while NGX Banking led the decliners after losing 2.45%, followed by Insurance with 0.26% .

Market breadth turned positive from the previous day, as gainers outnumbered losers in the ratio of 28:21; just as activities in volume and value terms were down, as players traded 349.56m shares worth N3.70bn. Volume was driven by trades in Universal Insurance, Zenith Bank, Fidelity Bank, UBA and Mutual Benefits Assurance.

Eterna and Japaul Gold were the best performing stocks after gaining 10% each, closing at N5.50 and N0.33 per share respectively on mandatory takeover news and market forces. On the flip side, Union Dicon and Computer Warehouse Group lost 9.60% and 9.28% respectively, closing at N8.95 and N0.88 per share, on selloffs.

Market Outlook

We expect buyers to remain in charge and support uptrend, on expectation of more Q1 2022 earnings reports. This is expected to support positive momentum during this earnings season, amidst oscillating oil prices, just as the market continues to interpret economic data in relationship with the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements, while the International Monetary Fund forecast the nation economy to grow by 3.4%.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605