Q2 Season Enters Final Days, As Bargain Hunters Reposition, Await Improved Liquidity

Market Update for the week ended July 26 and Outlook for July 29-August 2
Nigeria’s equity market during the past week had a flat performance, just as the economy witnessed a lot of activities, ranging from the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting which left all of its monetary instruments unchanged; and release of the ministerial list by President Muhammadu Buhari. Also last week, the Senate immediately commenced screening, even when portfolios were not assigned to the nominees, even as investors and commentators have expressed disappointment over the recycling of the same old politicians.
Within the week also, over 30 companies released their quarterly earnings reports to investors, most of which came mixed and weak, except for a few that posted impressive numbers, thereby further reducing confidence and expectations among investors and citizens. The situation has not been helped by the process of screening the cabinet ministers, with the legislators making a joke of the Ministerial exercise by asking the bulk of nominees to take a bow, at a time Nigeria’s economy urgently needs reforms to turnaround the situation.
The mixed sentiment and low traded volume in the period is a sign of the confusion and indecision existing among traders and investors, despite the superlative entry opportunities presented by the current state of the market, given its low valuation.
Also, at the end of last week, Okomu Oil Palm, Livestocks Feeds, International Brewery, NASCON Allied, Total Nigeria, and Unity Bank made new 52-week lows, while Boc Gases touched its new year-high.
However, looking at the various half-year numbers of companies so far released, especially those in the consumer goods sector, there are signs of rekindling confidence. This will, however, materialise if managers of the economy do the needful, not minding the fact that the sector has suffered a year-to-date loss of 22.76%, worse than the 11.17% decline of the benchmark NSE All-Share index, as emerging earnings continue to miss expectations across sectors.
The situation is not altogether new, given what we saw early in the Q1 and Q2 earnings seasons from companies in the petroleum marketing, conglomerates, and consumer and industrial goods sectors.
During the week also, Caverton and Cement Company of Northern Nigeria set a new barometer for the services sector recording above 20% year-over-year earnings growth; and 30% sales revenue growth respectively over the same period of last year. Recall that earnings reports of stocks in the consumer goods sector have been in this bad and mixed state since 2018, due to the prevailing low purchasing power and weak economic fundamentals, in the face of the confidence crises in the country.

Movement Of NSEASI
Meanwhile, trading closed on the first day of last week on a negative note, reversing the previous gain with the NSEASI losing 0.40% on selloffs and mixed sentiments, a trend that was short-lived when the index gained a spectacular 1.21% Tuesday on positive sentiment. The day’s transaction volume was however low on a day the MPC voted to keep rates unchanged and the long awaited minister list was announced in the green chamber (the Senate). This gain was however short-lived as it was reversed on Wednesday, Thursday, as well as Friday, when the NSE composite ASI shed 0.20%, 0.35%, and 0.26% respectively. These, however, dragged the index flat, compared to the previous week’s 2.27% decline.
The market resisted further decline on the strength of indecision among traders and investors during the period as the NSE’s year-to-date loss climbed to 11.17%; while market breadth turned positive, as selling pressure subsided as investors continued to interpret the impact of the MPC decision. We note that some companies like Ikeja Hotel and MTNN have joined the interim dividend stocks with half-year payout of 3 kobo and N2.95 respectively.
Once again, low cap stocks dominated the week’s advancers gainers’ table, while highly capitalized and blue-chip stocks fell in the midst of a low traded volume and the prevailing low liquidity.
The energy behind the week’s performance was weak, as shown by Money Flow Index at 12.98 basis points, compared to 17.50bps in the previous week, indicating that funds left some stocks and the market, despite the indecision among market players. Also, sentiments remained negative and mixed, with a sell position at 75% and ‘buy’ volume, 25% on a transaction volume index of 0.64.

NSEASI Weekly Time Frame
The negative sentiment and selling pressure seem to however slowed down marginally as many stocks maintained flat position with few touching their new 52 weeks low at the peak of half-year earnings reporting season. Despite the cautious trading and seeming accumulation in some stocks, the mixed numbers currently being released to the market are likely to impact positively considering the prevailing low prices of equity, if right policies are put place. The positive market breadth and candlestick pattern for the week is a sign that bargain hunters are repositioning, a situation that supports reversal, especially as more companies release their numbers in this week. However, the expected reversal will be a function of liquidity and analyses of half-year earnings position.
The current chart pattern on the NSEASI supports a reversal, as it trades below its 20-Day Moving Average and on top of the lower Bollinger band, line, while RSI is reading ‘oversold’ at 32.68. But then, Money flow at 12.98 points remains weak.

Mixed Sectoral Indices
The sectoral performance indexes for the week were largely bearish, except for the NSE Industrial and Consumer Goods that closed higher by 1.79% and 0.71% respectively, while the NSE Insurance led the decliners after losing 0.94%, followed by the NSE Banking with 0.39% and next was NSE Oil/Gas with 0.19%.
The slowdown in selling pressure was across all sectors at the peak of earnings reporting season and a positive market breadth with advancers outnumbering decliners in the ratio of 31:29, to halt the three-down market.
Market activities were down in volume and value by 1.83% and 14.94% respectively to 1.07bn shares worth N11.39bn, from prior week’s 1.09bn units valued at N13.39bn.
NPF Microfinance and BOC Gas were the best-performing stocks for the week, as they topped the advancers’ chart with 14.16% and 11.67% gains respectively to close at N1.29 and N5.07 per share on improved Q2 numbers and market forces. On the flip side, Linkage Assurance and International Brewery lost 20.31% and 18.36% respectively, closing at N0.51 and N12.50, on profit-taking and selloff.

Market Outlook
We expect the market to maintain the same trend, while portfolio reshuffling and repositioning will be on the half-year earnings strength and fundamentals, as discerning investors take advantage of low valuation to buy into interim dividend stocks and undervalued equities.
They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as plans by the CBN to reduce banks’ participation in government securities is expected to boost private-sector lending to drive economic activities and investment.
Profit-taking may persist in highly capitalized stocks due to portfolio restructuring. Hence, overall market performance to remain mixed amidst positive sentiments and negative breadth.
Market players should maintain a cautious outlook due to low confidence, liquidity and the wait for major economic triggers. Hence, we advise investors to trade cautiously in the short-term, with their gaze fixed on blue-chip stocks that are selling more than 40% below their 52 weeks high. As we look out for a positive catalyst to drive market recovery.
That notwithstanding, we would not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With the prices of major blue chips continuing to drop in recent weeks, we expect speculative trading to shape the market’s direction this week, despite the seeming negative outlook.

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Ambrose Omordion
CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467