Short-term Profit Taking On NGSE, As Investors Crunch Q3 Numbers

Market Update For October 24, 2018

Volatile trading on the Nigerian Stock Exchange continued at the midweek, amidst profit booking, as the benchmark All-Share Index closed negative after four consecutive sessions of bull-run. This was as traders cashed out their profit from the recent rally, driven by Q3 numbers released so far.
Investors are taking advantage of the corporate earnings to reposition and reshuffle their portfolios as they study and interpret the numbers ahead of full-year expectations and changing market dynamics in the midst of increasing political risks and uncertainties ahead of the 2019 general elections which is less than four months away.
The All Share index opened Wednesday on a little upside in the morning before pulling back sharply by mid-morning and into the afternoon, touching intraday lows of 32,403.60 basis points, from a high of 33,201.34bps. It therefore broke down the 33,000 mark and the shortest Moving Average of seven and 21, after touching the 45DMA. The downward retracement was largely driven by selloffs in bellwether stock- Dangote Cement, as well as Nestle, which remains the highest priced on the NSE, and Unilever to close the session lower at 32,403.60bps on a high traded volume.
During the session, more earnings were made available, including those of Caverton Offshore (READ) and Sterling Bank (READ), showing surprising performance with their top and bottom lines rising above the international standard of measuring good score-cards. Those of Cadbury and Ecobank Transnational Incorporated (READ) were mixed, with turnover/gross earnings flat, while profit level growth was significant.
Market technicals were negative and mixed as volume traded was high amidst positive market breadth and strong selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a selloff position of 100% and buy volume of 0%. The volume index for the day’s total transactions was 1.75.
The force behind the day’s market performance was weak, due to massive profit taking by traders. The money flow index for the session dropped to 61.01bps, from previous day’s 65.62bps, an indication that funds are entering some stocks and leaving others ahead of end of the month and earnings season.

Index and Market Cap
The composite NSE index shed significant 787.86bps to close at 32,403.60bps, after opening at 33,191.45bps, representing a huge 2.37% decline. Similarly, market capitalization lost N287.62bn to close at N11.83tr, from an opening value of N12.12tr, representing a 2.37% value loss, losing almost all of its Month-to-Date gains.

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The downturn was impacted by profit booking in low, medium and high cap stocks like: Nestle, Dangote Cement, Unilever, Flour Mills, Oando, FBNH and Wema Bank. This impacted heavily on the Year-to-Date negative returns, which increased to 15.27%, and market capitalization to N1.81tr, representing 13.43% drop, from the opening value.

Mixed Sectors Indices
Sectorial performance indexes were largely bearish, except for the NSE Insurance and banking that closed higher. Market breadth was positive as advancers’ outnumbered advancers in the ratio of 17:16, thereby cuttings short the bull transition.
Market activities were mixed as volume rose 105.71% to 360.97m shares, from Tuesday’s 185.19m units, while value fell to N2.33bn, from previous day’s N2.35bn, with transactions boosted by trading in financial services and conglomerates stocks like: FCMB, Access Bank, Transcorp, Regence Insurance and Sterling Bank.
Diamond Bank and Law Union were the best performing stocks, as their prices climbed 9.45% and 7.69% up respectively, closing at N1.39 and N0.56 per share, on expected earningsreports and low price attractions. On the flip side, Mcnichols and Trans-nationwide lost 10% and 8.45% respectively to close at N0.45 and N0.65 each on market forces and profit booking.

Market Outlook
Expect a mixed performance in midst of short term profit taking as more companies present their numbers and increased bargain hunting activities, while volatility to continue, if the numbers beat market and analysts forecast.
The ongoing Q3 earnings reports would assist investors and fund managers rebalance their portfolios, while watching the political space and analysing the actual numbers that will give insights into expectations for Q3 GDP and full year company earnings power. These are likely to drive prices north, or south, while determining market direction before or after Presidential Election.
Investors should review their positions in line with investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.
However, we would like to reiterate our advice that investors should go for equities with intrinsic value,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst mixed company, economic and market fundamental.

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