Sentiments Stay Mixed Amid Portfolio Realignment On Low Valuation, Reactions To Insurers’ Earnings

Market Update for June 3

Trading on the Nigerian Exchange Limited on the first trading day of June closed mixed, starting the week and month on a negative note, after the benchmark NGX All-Share index closed lower on the back of profit taking across some major sectors which weighed on the index in the midst of a low traded volume, but positive market internals. This halted five consecutive sessions of bullish momentum ahead of March year end audited financials, as more insurance companies released their Q1 numbers, offering more insights into what market players should expect from that sector in the current financial year with their impressive results hitting the market. This trend started in 2023 after insurance premium was jerked up by 200% by the industry regulator- the National Insurance Commission (NAICOM).

The latest first quarter earnings reports from Custodian Investment and International Energy Insurance were mixed, with Custodian Investment presenting impressive numbers as top and bottom lines grew by 181.63% and 436% to N16.25bn and N10.71bn respectively. This translated to Earnings Per Share of N1.80, a significant rise from 34 kobo in 2023, while IEI posted negative earnings of N1.76bn, compared to the profit after tax N180.17m in the corresponding period of 2023. In the same vein, Flour Mill Nigeria released mixed audited numbers for the financial year ended March, 31, 2024, after revenue for the period rpse by 49% to N2.29tr, but bottom line fell by 88% to N3.54bn from N29.5bn in 2023, making the need for the board and management to take another look at the group’s operational efficiency urgent. Despite, however, the lower profit, the directors recommended a dividend of N1.80, as against the N2.00 paid in 2023.

Also, on Monday morning, the Central Bank of Nigeria (CBN), announced the withdrawal of the banking license of Heritage Bank Plc, whose shares are not publicly traded, with immediate effect, in what it said in a statement was ”to strengthen public confidence in the banking system and ensure that the soundness of our financial system is not impaired.”

Specifically, the apex bank accused Heritage Bank of breaching Section 12 (1) of the Banks and Other Financial Institutions Act (BOFIA), 2020, as its Board and Management have not been able to improve the “bank’s financial performance, a situation which constitutes a threat to financial stability.

Stock trading  comes with volatility that creates buy opportunities for discerning investors and smart traders, because the positive and negative sentiment are driven by reactions to macroeconomic data, corporate earnings, news, government policies,  regulations, and rules, among others. Every trader who trades for one market condition, knows that the indicator goes up and down, and works until it finally breaks. It always breaks and markets do not always go down-even if you sustain losses on a downtrend. Inevitably, this will breakout or reverse. So, the big secret, for successful investors and traders is timing in any market situation and invest or trade where there is opportunity.

Investing with dates, is another trading strategy in equity trading. As corporate actions that comes with qualification and payment dates help investors and traders to time their positioning. Market players are still repositioning their portfolios on the strength of Q1 numbers and macroeconomic data. Just as dividend incomes had provided some level of liquidity that supported the uptrend witnessed in the last three trading sessions. As dividend payments and AGM meetings continued.

The NGX index’s action is trading above the T-line and set to breakout to 50-Day Moving Average, as the index side trend on profit booking in the face of mixed sentiment and positive momentum. As market players are looking to more corporate actions to position for dividend income. Although, we see fiscal and monetary policies trying to return the nation’s economy to the path of recovery, despite the continued mismatch of policies and implementation style as oscillating oil production output persist.

Annual General Meeting notifications poured into the exchange still, just as other companies presented resolutions from their shareholders meetings. The latest came from Julius Berger, Beta Glass, Eterna and Consolidated Hallmark Holdings among others, while Airtel continued to update the market on its share buyback scheme. Just as Okomu Oil and Trans-nationwide Express provided its earnings forecast to guide investors. In the midst of these, it is safe for investors to target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.

Technically, the market had entered the distribution phase, as revealed by candlestick formation and mixed momentum indicators. As ADX is looking down at 19.07, while RSI and Money Flow Index are down to read 53.45 and 54.35 points against the previous session 54.93 and 54.87 points respectively. Market players should watch this current trend and trade with caution as profit taking is possible after the index had witnessed an uptrend in the face of funds entering the market slowing down. Also, trading volume pattern, suggests buying interest in some sectors in the midst profit taking in others.

To navigate the rest of the quarter and beyond profitably using fundamental and technical analysis to run, join investdata live sessions at noon every Monday, Wednesday and Friday trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the oscillating volume of transaction witnessed in recent time, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.

Oil prices suffered huge losses on Monday, as it continues its oscillation to trade below $80 at $78.49 per barrel in the midst of uptick in output and weak global demand as US and China manufacturing activities remain relatively weak as revealed by recent data from the largest economies. As geopolitical tension across the globe remained a major threat to many economies and the commodity market and other factors that impact oil price as it continued to rally. This trend may likely continue in 2024, this up and down movement that drive volatility. As middle East conflict and war in Ukraine last.

Meanwhile, Monday’s trading opened slightly in the upside before pulling back at the midday on profit booking in banking and consumer goods stocks in apparent reactions to the revocation of the operating license of Heritage Bank. This pushed the NGX’s index to an intra-day low of 99,063.09bps from its highs of 99,341.30bps, before closing below its opening level at 99,118.86bps.

Market technicals for the session were weak and mixed, as volume was lower when compared to the previous session in the midst of breadth favoring the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 40% buy position and 60% sell volume. The total transaction volume index stood at 0.89 points, just as impetus behind the day’s performance was relatively weak as Money Flow Index slides  to read  54.35pts, from the previous day’s 54.87pts, indicating that   funds left the market.

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Index and Market Caps

At the end of Monday, the benchmark NGX All-Share Index dropped 126.51bps, closing at 99,118.86bps after opening at 99,300.38bps, representing a 0.18% drop, just as market capitalization fell by N102.55bn, closing at N56.07tr from the previous day’s N56.17tr, which also represented a 0.18% value loss.

Attention: If you have not signed up for INVESTDATA’s buy and sell signal setup, don’t delay, because the number of stocks entering their oversold range has increased as market correction and pullbacks call for caution and positive chart patterns to be on our watchlist. These stocks have potentials to retrace, considering their earnings prospects and the oscillating moves in an upmarket and weak economy.

To become a member, send ‘YES’ or ‘STOCKS’ to the phone numbers below. Take advantage of this service to buy right and sell right at the current oscillating market in the midst of earnings season, portfolio reshuffling, and repositioning as we await an economic reform policy that can stimulate and re-track the economy to the path of growth and development.

The downturn was driven by profit taking in the shares of Seplat, FBNH, Julius Berger, NB, Nascon, Wapco, UBA, Transcorp, Etranzact,Unity Bank and Jaiz Bank among others. This impacted mildly on Year-To-Date gain which slide to 32.56%. Market capitalization YTD gain stood at N11.12tr, representing 36.38% above its opening level for the year.

Mixed Sector Indices

Sectoral performance indexes were mixed,  as NGX Banking and Consumer goods index  closed lower by 0.84% and 0.06% respectively, while the NGX Insurance  index closed higher by  2.79%. Just as Industrial goods and Energy finished flat.

Market breadth was positive as gainers outnumbered loser in the ratio of 22:16, while transactions in volume and value were down after players exchanged 349.59m shares worth N5.24bn. Volume was driven by trades in Veritas Kapital Insurance, GTCO, Accesscorp, Aiico and Regency Insurance.

Cornerstone Insurance and Deap Capital were the best performing stocks, gaining 105 each, closing at N2.09 and N0.44 per share respectively on market forces and sentiment. On the flip side, Etranzact and Unity Bank lost 9.82% and 9.80% respectively, closing at N5.05 and N1.38 per share, purely on selloffs and profit taking.

Market Outlook

We expect mixed sentiments to continue as players rebalance their portfolios in the midst of low valuation, dividend investing and reactions to Insurance corporate earnings that are  hitting NGX with dividend announcements, while taking advantage of pullbacks to position and rebalancing portfolio.

This is amid the volatility and pullbacks that add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd