Selloffs Continue On NGSE, Despite Attractive 7.28% P/E Ratio, Q2 Earnings Season

Market Update for July 24
It was yet another negative midweek, as the Nigerian Stock Exchange (NSE) reversed the positive close of the previous session ahead of Thursday’s reintroduction of Value Added Tax (VAT) to all capital market transactions, which remains a source of serious concern to investors, given that it increases cost borne by investors.
This, investors note, has further weakened buying interest and confidence, among other factors militating against the market, one of which is the mixed feelings over the list of proposed cabinet members submitted by President Muhammadu Buhari for clearance to the Senate on Tuesday. It is noted that the list is dominated by “ex-this and ex-that” politicians who have been recycled since 1999 in so many cases, at a time the nation’s economy is begging for attention and seriously deteriorating daily due to ineffective economic policies, insecurity, a lack of infrastructure and multiple taxations.
The composite NSE All-Share index is currently indicating a tentative breakout or down of its recent consolidation pattern as we have noted a few days ago. Any further follow-through from here to the up or downside would be a function of the expected corporate earnings and market liquidity, given that the market is now seeing new lows across the sectors and individual stocks. When a market behaves like this, momentum and fearful bearish investor sentiment often continue to fuel a downtrend. Sadly, market players, daily find more reasons to sell and not many reasons to buy as events unfold at all level of governance, despite the low valuation and prevailing low prices of equity.
At the end of midweek’s trading, NASCON Allied, Total Nigeria, and Unity Bank made new 52- week low, while Boc Gases made a new 52-week high.
Wednesday’s trading was a very volatile and mixed session as the index started slightly on the downside and reversed up between mid-morning to early afternoon, taking off the previous high and touching intraday high of 28,292.44 basis points from the low of 28,070.65bps. It then pulled back to finish the day at 28,088.74 basis point on less than average traded volume.
Market technicals for the session were negative and mixed, even as volume traded was higher than previous day’s, amidst a flat breadth and high selling pressure as revealed by Investdata’s Daily Sentiment Report, with the day’s ‘sell’ volume at 92% and buy position at 8% of total daily transaction volume index of 0.38.
The energy behind the day’s performance remained weak, despite looking up, as Money Flow Index read 25.79 points, higher than previous day’s 20.31bps, indicating that funds enter some stocks and the market irrespective of resume selloff among the high cap stocks.

Index and Market Cap
At the end of midweek’s trading, the All-Share Index shed 56.13bps to close at 28,088.74bps, after opening at 28,144.87bps, representing 0.20% drop, just as market capitalization lost N27.36bn to close at N13.69tr, from an opening value of N13.72tr, also representing 0.20% depreciation in value.
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The day’s downturn was driven by selloffs in high cap stocks like Dangote Cement, Nestle Nigeria, Guaranty Trust Bank, Total Nigeria, WAPCO, Dangote Sugar, UBA and FBN Holdings. This negatively impacted the NSE’s Year-to-Date loss, which inched up to 10.63%, just as YTD market capitalization gain fell to N1.94 trillion, or 16.63%, above the year’s opening level of N11.72tr.

Sector Indices
The sectoral performance indexes were largely bullish, except for the NSE Industrial goods and banking that closed in red by 1.20% and 0.20% respectively, while the Oil/Gas index led the advancers after gaining 4.51%, followed by Consumer Goods with 0.34% and next was insurance with 0.12%.
Market breadth was balanced, as advancers equaled decliners in the ratio of 16:16; market activities were up in volume and value traded by 16.72% and 20.55% respectively to 157.79m shares worth N2.52bn from previous day’s 135.18m units valued at N2.09bn. The day’s volume was boosted by trading in financial services and conglomerates stocks such as Guaranty Trust Bank, UBA, Zenith Bank, Sterling Bank, and Transcorp.
The best-performing stocks during the session were Japaul Oil and Boc Gas which topped the advancers’ table with 10% and 9.96% gains respectively, closing at N0.22 and N5.07 per share, on market forces. On the flip side, Unity Bank and Prestige Assurance lost 9.30% and 6.25% respectively to close at N0.58 and N0.48 on selloffs and market forces.

Market Outlook
We expect a mixed performance depending on market forces and more earnings as bargain hunters take advantage of the prolonged bearish market, just as the half-year earnings reporting season enters peak period. Discerning investors should target value stocks considering the current low valuation to position for dividend income and capital gain, especially as the market’s Price to Earnings ratio is 7.28x, which is well below the 11.1x average of its peers and a five-year average of 13.2x. This revealed value and high upside potentials for a rally.
They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as Central Bank of Nigeria (CBN) had rollout it plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.
There is also the likely impact of portfolio repositioning for the second half of the year in the midst of expected Q2 numbers, especially banking stocks.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467