Profit Taking Looms, Amid Cautious Trading On Expected H1 Earnings, Economic Data

Market Update for August 12

It was a bullish trading session on the Nigerian Stock Exchange (NSE) at the midweek as the benchmark All=Share index closed higher on rekindled buying interests in high priced stocks and positive sentiment for rising crude oil prices at the international market. Interestingly also, hope for interim dividend from Zenith Bank, Guaranty Trust Bank, Stanbic IBTC, Access Bank, UBA, as well as the March financial year-end accounts have added momentum to the market, wiping out losses suffered in the two preceding trading sessions, on an above average traded volume.

The prevailing low price attraction of blue chip companies with high upside potentials, and the sectoral rotation on the strength of half -year numbers already released, just as the anticipated future performance of these sectors, with government interventions expected to boost business activities and impact positively on their earnings power.

There was a rebound of interest in telecom and healthcare stocks during the session after the market had witnessed a slowdown for some days, just as market players continue to move funds to traditional sectors like agribusiness, banking, Consumer Goods, and oil/gas, among others.

Wednesday’s positive moves impacted major market sub-indices except banking and Industrial Goods. As revealed by market data and reiterated in our previous reports, half-year earnings will lead the market fundamentals and give direction, just that traders have to play the market now with caution with the NSE index trending within the double top chart pattern. This is in expectation of interim dividends which have been factored in already to support pullback when the banks finally present their audited earnings to the market.

Meanwhile, midweek trading started red and oscillated until midday on mixed sentiments of position and profit taking among high cap stocks, which pushed the NSE’s index to an intraday high of 25,141.48 basis points, from its low of 24,883.70bps. Thereafter, the session closed higher at 25,141.48bps on a high traded volume.

Market technicals were positive and mixed as  volume traded was  slightly lower than that of the previous session in the midst of  breadth favouring bulls, and strong buying sentiments as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ volume. The total transaction volume index stood at 1.07 points, just as the momentum behind the day’s performance remained strong with Money Flow Index reading 81.17 points, from the previous day’s 71.493points, an indication that funds entered some stocks.

Index and Market Caps

The key performance index at the end of trading gained 257.78bps, closing at 25,141.48bps, from the 24,883.70bps it opened, representing a 1.04% growth, just as market capitalization rose by N134.47bn at N13.12tr, from the N12.98bn opening value, which also represented 1.04% value gain in investors’ portfolios.

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Midweek’s upturn was driven by price appreciation in medium and high cap stocks like  Airtell Africa,  Seplat, Guinness Nigeria, Presco, Flourmills, Total, Cadbury and Neimeth Pharma. This impacted positively on the NSE’s Year-To-Date loss which fell to 6.34%, while market capitalization YTD positive position increased to N156.9bn, representing 1.21% above the year’s opening value.

Mixed Sector Indices

Performance indices across sectors were  largely bullish, except for the NSE Banking and  Industrial Goods  that closed marginally lower by 0.36% and 0.26% respectively, while the NSE Oil/Gas  led the advancers, gaining  5.24%, followed by the NSE Insurance and Consumer goods  with 0.64% and 0.19% up respectively.

Market breadth was positive as advancers outnumbered decliners in the ratio of 18:11, while activity  in volume and value terms were mixed as volume sliding by 0.84% as investors exchanged 204.88m shares, as against the previous 206.61m units. Value was however up by 54.75% at N3.83bn, compared to Tuesday’s N2.48bn. Volume was boosted by trades in Guaranty Trust Bank, Access Bank,  Zenith Bank  FBNH and Sterling Bank.

The best performing stocks for the session were Seplat and Cadbury, which led the advancers’ table with 10% and 9.93% respectively, closing at N385 and N7.75 per share on market forces. On the flip side, Champion Breweries and Consolidated Hallmark Insurance  lost 9.3% and 8.11% respectively, closing at N0.78 and N0.34 respectively on selloffs and profit taking.

Market Outlook

Despite the rebound,  we  expect a mixed performance on profit taking and buying interest  as corporate earnings and economic data are expected in the market especially the big banks results and inflation report for July This is just as low stock prices and high dividend yields attract buying interests to equities as MTNN and Flourmills  dividend qualification date is August 14. The mixed intradaymovement is likely to persist in the midst of profit booking and investors repositioning their portfolios ahead of Q3 numbers and last quarter of the year. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020 as government and its economic managers are going front and back with mismatch polices.

Also, investors and traders are positioning in anticipation of interim dividend pay companies earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.

We see investors focusing on portfolio adjustment and rebalancing by  targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.

Again, the current undervalue state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation for the rest of the year.

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Ambrose Omordionm

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467