Q1 Earnings Season May Point NGX Index Direction, As Mixed Sentiments Persist

Market Update for the Week Ended April 8 and Outlook for April 11-15

Stocks closed lower last week on the NGX, as volatility continued in the midst of selloffs and positive market breadth, extending the negative outing for the fourth consecutive week on a less than average traded volume. Also, market players continued to digest the 2021 corporate earnings performance ahead of the Q1 earnings expectations, while bargain hunters cash in on the recent pullbacks to position in undervalued stocks with high upside potentials.

The first earnings season under the rising cost of production and inflation condition gets underway in the new week and will demonstrate just how well or poorly companies have been able to deal with the negative effects of cost-push inflation on their performances in this new financial year. History has shown us that for the most part, equities are actually a pretty good hedge against inflation, as companies push up prices in response to rising input costs.

The early stage of an inflationary cycle is where equities tend to do best. After that time, consumer sentiments sour, demand falls as prices rise, and so company revenues and margins suffer. But we are now at the early stage of this inflationary cycle, so we expect earnings to hold up. The new week kicks off with other financials and banking stocks that would usually benefit from rising yields anyway as this increases their net interest margin. The energy sector also should report huge numbers on the back of surging energy prices. So for now, we remain in the moderately bearish camp, albeit with some expected triggers along the way.

The bouquet of sanctions imposed on the aggressor in the Russia-Ukraine by the west continues, as Russia tries to reduce the impact, while gravitating toward allies like China and India, even as the US struck a gas deal with the European Union to help wean the continent off Russian energy dependence. Also, central banks across the world continue to hike rates to checkmate effects of the rising inflation rate, which in mature economies is already hitting new highs. This is already changing the global economic direction and expectations for 2022, even while COVID-19 remains potent.  If this war in Ukraine is not put to an end soon, it may lead to another round of global economic depression or recession. Already, the World Bank Group in its latest Economic Update released on Sunday predicted that the raging war and sanctions on Russia is already negatively impacting economies around the globe, with emerging market and developing countries in the Europe and Central Asia region hardest hit. The war, the group said, has added to mounting concerns of a sharp global slowdown, surging inflation and debt, and a spike in poverty levels, resulting in economic impacts that have reverberated through multiple channels, including commodity and financial markets, trade and migration links and adverse impact on confidence (READ MORE).

Meanwhile, the trading environment and conditions in the Nigerian market have changed on a low traded volume and mixed sentiments, suggesting that some investors are still taking profit in blue-chips stocks at a time of price adjustment for dividends recommended by the boards of these companies. This is amidst reactions to the 2021 corporate actions and impressive earnings released so far, despite the high payout ratios of most quoted companies that submitted their financials lately. This continued volatility may not be unexpected given the high-level of uncertainty and risks associated with a pre-election year.

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Despite, the pullbacks witnessed during the week, the share prices of Fidelity Bank, NAHCO, Conoil, and Meyer, among others, hit new 52-week highs, as investors reacted to their strong numbers and corporate actions announced.

Movement Of NGXASI

It was yet another week of mixed trend as the index action recorded three trading sessions of down market and two up days, resisting further decline, notwithstanding the fact that the market is still in its declining phrase, extending the bear run to four consecutive weeks, after opening on a negative note. It lost 0.26%, being an extension of the previous Friday’s loss, but was halted the following day, when the index recovered 0.20%. This trend was, however, short-lived by the midweek and Thursday when the market lost 0.01% and 0.46% respectively, before rebounding on Friday with the NGX All-Share index gaining 0.20%. This brought week’s total loss to 0.45%, compared to the previous week’s decline of 0.26%.

Consequently, the NGX All-Share index shed 211 basis points or 0.45%, closing the week at 46,631.46bps, after touching an intra-week low of 46,524.68bps, and a high of 46,844.13bps. Recall that the week opened with the index at 46,842.86bps, just as market capitalisation fell by N118bn, closing at N25.14tr, from the previous week’s N25.25tr, which also represented a 0.45% value loss.

Despite the pullback during the week, medium and low cap stocks dominated the top advancers table, amid portfolio reshuffling and reactions to corporate action dates that drove demand for some stocks, with players taking advantage of the ongoing pullbacks to buy-in.

We note that price adjustments during the week impacted the NGX index, despite the mixed sentiment as sellers and buyers battled for control, a situation that was reflected in major sectoral indexes that closed mixed. This followed the rekindled buying interest in banking stocks including the recently markdown  Zenith Bank, GTCO, and UBA that made payment for the dividend during the period under review. As MTNN price adjustment for dividend of N8.57, dragged the market down on a low traded volume.

Market breadth for the week turned marginally positive as gainers outnumbered losers in the ratio of 33:31 on mixed sentiments, as revealed by the investor sentiment report showing 33% ‘buy’ volume and 67% sell position. Money Flow Index, however, declined to 53.98bps from the previous week’s 58.52 points, an indication that funds left the market.   

From the chart, NGX’s index action, technically, remains relatively strong on a weekly time frame, as pullbacks persist for the fourth successive trading week on a mixed sentiments, trading below the seven-day moving average, but above the 20DMA. The candlestick formation, at the end of the week showed that the market is resisting further decline, as market players digest the 2021 audited financials already released to reposition their portfolios for Q2 and point market direction. The candlestick pattern indicates a possible reversal of trend or continuation, depending on market forces in the new week. Meanwhile, long-term market recovery is still strong. Also, all eyes are on the fixed income market yields and oil prices to further support market fundamentals and attract liquidity to the equity space. The NGX at this point is creating new buying opportunities for dividend income investors.

Mixed Sectoral Indices

The sectorial performance indexes for the week were mixed, as the NGX Energy and Banking closed 3.14% and 1.51% higher respectively, while NGX Industrial goods led the decliners after losing 0.42%, followed by Consumer Goods and Insurance with 0.35%, and 0.21% respectively.

Transactions in volume and value terms were down as market players exchanged 1.14bn shares worth N10.81bn, compared to the previous week’s 1.29bn units valued at N13.55bn. Volume was driven by Financial Services, Conglomerates, and Consumer goods industry stocks- Fidelity Bank, Transcorp, Zenith Bank, Accesscorp and GTCO

Meyer and Regency Assurance were the best-performing stocks for the week, gaining 56.941% and 19.35% respectively, closing at N1.13 and N0.37 per per share on market sentiment and forces. On the flip side, NPF Microfinance and UACN lost 16.06% and 13.68% respectively, at N2.09 and N0.37 per share, purely on profit taking.

Outlook for the week

We expect improved sentiments in the new week, as players analyse 2021 audited accounts, in the midst of dividend announcements and portfolio repositioning for Q2, ahead of the release of Q1 accounts. Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue while investors await the Q1 2022 numbers. We note that income investors have sustained buying into dividend-paying stocks,

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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