Short-Term Positioning for Q4 Earnings Reports Continue On Low Price Attraction

Market Update for February 19

Table Source: Cardinal Stone Research

Nigerian stock market took a breather on Monday to start off the week on weak note, after an early gap up in the opening session, but pulled back as the investing public reacted apparently to news that many banks will not pay dividend in 2018 due to their exposure to bad loans as the Central Bank of Nigeria (CBN) seeks to enforce its rules. Going by the rule which has been in force since 2014, many discerning investors already know that banks or companies with negative retained earnings will not pay dividend. This, we have drawn attention to in the past as we reveal banks with negative retained earnings, most of which are still struggling, while one or two have shown improvements, moving out of the categories.
Monday’s emotional sell down as reflected in the volume traded, indicated that knowledgeable investors have repositioned in value companies, especially dividend paying stocks as earnings season kicked off. Market volatility continued as the benchmark index hit intraday high of 42,712.65 from the opening figure of 42,638.83, and then came down in 6-wave declines to successfully breakdown the psychological line of 42,000 that had been the recent strong support level. It was a session wherein highly capitalized stocks shed value to close the day lower, after the market had started another motive wave, with the recovery mode as fund managers continued last minutes reshuffling of their portfolio. With the long awaited earnings reporting season finally here, investors and traders should play the market with less emotion to profit from the season.
Market technicals for the day were weak, with high selling pressure on low volume traded and weak buying position of 0%, volume index was 0.32 with money flow index at 25.84 point.
Meanwhile, the All-Share index shed 650.65 points to close at 41,988.18 basis points after opening at 42,638.83, representing a decline of 1.53% on a low traded volume that was lower than the previous day’s. Similarly, market capitalisation fell by N233.49bn to close at N15.07tr, after opening at N15.3tr which also represented 1.53% value loss in investors’ portfolios.
The downturn resulted from losses suffered by medium and high cap stocks like Nestle Nigeria, Dangote Cement, Nigerian Breweries, Zenith Bank, UBA, FBNH, UACN, Dangote Flour, PZ and Guinness Nigeria. Also on Monday, the share price of Vitafoam was adjusted for 15 kobo dividend recommended by its directors. The loss impacted negatively on the NSE’s Year-To-Date returns, which drop to 9.79%, just as market capitalisation gain for the period dropped to N1.46tr, representing a 10.72% YTD growth.
The Composite and all other sectorial indexes were mixed, whereas market breadth was negative as decliners outpaced advancers in the ratio of 32:16. Market activities in volume and value terms were down to 287.18m shares worth N2.29bn from previous day’s 520.74m units valued at N4.32bn.
Transaction volume for the day was considerably boosted by financial services stocks like Skye Bank, Diamond Bank, FCMB, Jaiz Bank and Zenith Bank which witnessed increased trading to top the activity chart as most traded.
Linkage Assurance and Livestock topped the advancers table for the day with 9.09% and 5.00% gain to close at N0.96 and N1.05 respectively, due to their expected full-year earnings, while the decliners log was led by PZ Cussons, which fell 8.00% on news that the company’s 2018 full-year robust second half performance may be hampered by a more than expected challenging operating environment. Also, the shares of Lasaco Assurance dropped by 6.06% to N0.31 each on profit taking and market forces.

Expect short term positioning for Q4 earnings reports and volatility to continue as traders jump into the market on low price attraction ahead of dividend declaration. The relatively low interest rates in the money market and sell-off in the bond market will boost inflow into stock market as fund managers play earnings season for quick returns target high dividend yield stocks,
However, we would like to reiterate that investors should go for equities with intrinsic value, especially during this season that dividend payment is approaching.
We advise investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.
It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. Market is in phases know the cycles in order to manage your trading and investing risk. For stocks that should be on your shopping list to buy in this seasonality changes as the year winds down, sign up to INVESTDATA BUY AND SELL signal setup by calling 08028164085.
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