Undervalued State Of Nigerian Stocks Offers Positioning Opportunities For Short, Long-term

Market Update for December 24

Tuesday trading activities on the Nigerian Stock Exchange was highly volatile, closing marginally lower in extension of the previous sessions bear-run on the back of changing trade pattern of day traders and continued selloffs as the downgrade of the nation’s economic outlook deflated investor confidence, ahead of Christmas, even as the global markets closed ahead of the holidays.
The oscillating trend of the composite NSE All-Share index (NSEASI) signals strong recovery ahead, as the market’s average dividend yield at 6.54% and price to earnings ratio of 6.74x led its global counterparts looking attractive as an investment destination, judging by the Dividend Yields of 22 largest economies in the world.
It may come as a surprise to hear that the United States currently has the second-lowest yield at just 1.83%, better than India’s 1.19%, a market currently trading at 29.63x earnings, while Russia currently has the highest dividend yield of 6.23% and the lowest valuation with a P/E ratio of just 6.68. This was despite being the second best-performing equity market in 2019, with its benchmark index rising by over 43% year-to-date. There are nine other countries with a dividend yield below the global average of 3.23%.
Given that interest rates remain historically low around the globe, and holding constant the varying levels of risk between a country’s stocks and bonds, equities generally continue to offer investors a higher return.

Meanwhile, Tuesday’s trading started slightly on the upside before oscillating between the mid-morning and afternoon on selloffs in medium and high cap stocks like MTNN which dragged the NSE index to an intraday low of 26,018.13 basis points, its new lows, after breaking down the October 25 strong support level of 26,113.88bps from its high of 26,124.73bps. It later retraced up marginally and closed the day at 26,090.88bps on a high traded volume.

Market technicals for the session were negative and mixed, with volume traded higher than the previous session, even while breadth favoured the bears, amidst positive sentiment as revealed by Investdata’s Sentiment Report of 68% ‘buy’ volume and 32% sell position. Also, the day’s total transaction volume index stood at 1.22, just as the energy behind the day’s performance was down. Money Flow Index read 31.07 points, from the previous 37.09bps, which is an indication that funds left some stocks and the market at large.

Index and Market Caps
At the end of the day’s trading, the benchmark index shed 24.92bps, closing at 26,090.88bps from the previous 26,115.86bps close, which represented a 0.09% dip, just as market capitalization lost N11.09bn to close at N12.6tr, from an opening value of N12.61tr, which also represented a 0.09% value loss.
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Tuesday’s downturn was driven by the selloffs in Guaranty Trust Bank, Zenith Bank, FBNH, UACN, Dangote Sugar, FCMB, and Transcorp Plc, all of which impacted on the NSE’s Year-to-Date loss, raising it to 16.99%. Market capitalization YTD also fell slightly to N821.12bn, representing an 8.29% growth over the year’s opening value of N11.72tr.

Bullish Sector Indices
All sectoral performance indexes closed higher, except for the NSE Insurance index that fell by 0.71%, while the NSE Oil/Gas index led the advancers, after gaining 0.31%; followed by the Consumer Goods Index’s 0.13%, and the NSE Banking, which was up by 0.04%, while the NSE Industrial Goods index closed flat.
Market breadth was negative as decliners outnumbered advancers in the ratio of 12:9, while market activities were mixed, as volume traded increased by 71.88% to 324.4m shares from the previous day’s 188.79m units, whereas value decline to N1.66bn from the previous day’s N2.43bn. Volume was driven by Law Union, Access Bank, Zenith Bank, Transcorp Plc and FBNH.
Unilever Nigeria and Sterling Bank were the best-performing stocks for the day, after gaining 9.65% and 7.89% to close at N22.15 and N2.05 respectively, on low price attractions and market sentiments. On the flip side, Law Union Insurance and Wapic Insurance lost 9.09% and 8.33% respectively, closing at N0.59 and N0.33 on profit-taking.

Market Outlook
We expect a mixed performance as the year winds down amidst profit-taking, as investors take advantage of low prices, ahead of the year-end rally as capital flow and repositioning in value stocks continue. There are, also, the changing sentiments in the hope of improved liquidity and positive economic indices.
We expect that Investors would focus on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.
Again, the current undervalued state of the market offers investors opportunities to position for short and medium-to-long-term. That is why investors should target fundamentally sound and dividend-paying stocks for possible capital appreciation as the year winds down, giving way to 2020, just as was noted in the 10 golden stocks and trading ideas for 2020 discussed last weekend during the Investdata 2020 Traders & Investors Summit.
Also, traders and investors need to change their strategies owing to NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.

Meanwhile, we appreciate all that made Invest 2020 Traders and Investors Summit a success. The home study packs are available. To grab your pack, Send Yes or Stock to 08028164085, 08032055467, 08111811223 now.

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