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Bull-trend may continue on funds inflow, corporate numbers, profit-taking

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Nigerian equities extends gain on Tuesday to cross N20trn market value
Market Update for the Week Ended November 6 and Outlook for Nov 9-13

By Investdata Analysts

Mixed Sessions Ahead On NGSE, Amidst Q3 Earnings Inflow, Profit Booking

Transactions on the Nigerian Stock Exchange last week maintained a bullish transition for the seventh successive week, despite the seeming profit taking witnessed within the period, which is part of stock market dynamics.

The continued maturity of investment in OMO bill and other fixed income instruments has supported the wave of funds inflow to the equities, which is the only asset class trending up and wealth creation opportunities for discerning investors and traders. This, and the-better-than-expected corporate earnings have propelled positive sentiments and buying pressure, given that the nation’s stock market remains undervalued and attractive.

This is especially true of sectors that are outperforming the general market, and companies with earnings power strong enough to support dividend payout, while players digest the numbers released so far and reshuffle their portfolios. Specifically, attention is focused on banking stocks yet to file their 2020Q3 scorecards.

Looking at the numbers released so far, it seems that corporate performance remain generally resilient, when considered vis-à-vis the lingering economic downturn and challenges, giving investors an insight into how they should position ahead of year-end and the 2021 corporate actions.

In repositioning your portfolio to take advantage of new opportunities in the market, your investment goals and strategies should guide you as per entry and exit points, helping you to avoid being trapped in any awkward position.

We believe that any stock offering a dividend yield above 7.5% with high margin of safety should be the target of investors at this present market situation. Remember, there is need to buy and sell right, while not losing sight of market timing in equity trading or investing. A stock market is never a straight line graph but goes up and down as human life. This is the psychology behind the price pattern and movement, as market players react to news and information, whether good or bad, which is why you must never invest and go to sleep.

Movement Of NSEASI

The benchmark index recorded a mixed trend with two sessions when the market closed south and three of north, following which it closed the week higher. The index on the first day of the week closed negative, shedding 0.17% on profit taking from the October rally, which was halted on Tuesday when the composite index recorded 0.83% rebound on the rekindled buying interests in manufacturing stocks. This was sustained at the midweek when the market inched 0.03% up, before slowing down on Thursday due to profit booking that weighed on the index as it sustained a marginal 0.02% loss, before rebounding sharply on Friday when it gained 0.90% on inflows into high cap stocks. Cumulatively, the NSE index gained 1.56%, as against the previous week’s 6.39%, even as the world anxiously watched for the outcome of the U.S elections Presidential election, the rising cases of the Coronavirus infections across the globe already causing a second wave of lockdown in some countries.

Specifically, the All Share Index opened the week at 30,530.69 basis points, touched an intra-week high of 31,016.17bps and low of 30,364.15bps, due to the pullback and profit booking witnessed in the period, before closing at 31,016.17bps. During the period also, market capitalization gained N249bn, closing at N16.21 trillion, from the previous weekend’s N15.96tr, representing 1.59% value gain in investors’ portfolios.

During the week, 28 companies published their quarterly scorecards, with Q3 earnings presented by Presco, Okomu Oil, Dangote Cement, Livestock Feeds, and 11 PLC; while Q2 numbers came from the boards of Honeywell Flour and Northern Nigerian Flour Mills. Also, within the period, the directors of Standard Alliance Insurance recommended a dividend of seven kobo per share to shareholders.

Shares of Law Union and Rock Insurance were during the period delisted voluntary from the exchange, just as Lasaco informed the market of its proposed share reconstruction of one new share for every four held. Also SUNU Assurance notified the exchange of its completion of its share reconstruction.

The week’s advancers’ table reflected the bull rampage in the period, just as the positive breadth showed a high demand for stocks, with the number of gainers outpacing decliners in the ratio of 40:24 on a high buying pressure and strong momentum as Money Flow Index remained at 100bps, for the past three weeks.

NSEASI Weekly Chart Movement

The composite index has maintained the V-shape recovery momentum on a high traded volume and positive sentiment, despite the pullbacks as liquidity continued to flow into impressive financials and high dividend paying equities. This trend is likely to persist if the banking numbers beat market expectations. For now, the index has broken various resistance levels as projected, and is now set to breakout the 32,000bps on renewed buying interests and portfolios repositioning, even as more banking financials are expected to hit the market this new week.

The bullish trend of the index remains intact, trading above the 50 and 100-Day Moving Average on a high traded volume. It is another attraction for institutional investors as it reveals strength in the market, just as the index has crossed the Fibonacci retracement line of 100%, which was a strong resistance level.

However, we envisage an uptrend in the midst of profit-taking and more scorecards hitting the market, given that MACD remains in the bullish zone. The buy volume for the period stood at 100%, with total transaction index at 1.45.

Mixed Sectoral Indices

The performance indexes across the sectors were bullish, except for the NSE Insurance and Oil/Gas that closed lower by 1.32% and 0.77% respectively, while the NSE Industrial index’s led the advancers after gaining 2.87%, followed by the NSE Banking and Consumer goods that were up   by 2.17% and 0.57% respectively.

The general market outlook in recent times seems positive and mixed in the short-term; following which investors should take short and medium-term positions while diversifying their portfolio along long-term trades to protect capital. This, they can do, by considering sectors with high upside potentials on the strength of earnings and market value. The rally in consumer goods, insurance and services calls for caution as numbers from these sectors were mixed and what should be expected from such companies, knowing that the covid 19 pandemic and EndSARS will impact their full-year results negatively as revealed by the negative macroeconomic indices.

Activities during the week in volume and value terms were mixed as transacted volume was up  by 8.38%, after investors exchanged 2.07bn shares, as  against the previous week’s 1.91bn units. Transaction value was slightly down by 4.11% at N 22.64bn, from N23.61bn recorded in the preceding week. Volume was driven by trades in financial services, consumer goods and conglomerates sectors, driven by transactions in Access Bank, FBNH, Zenith Bank, Dangote Sugar and Transcorp.

Livestock Feeds and Transcorp were the best performing stocks for the week, after gaining 30.86% and 19.72% respectively, closing at N1.06 and N0.85 each on improving earnings and positive sentiment on earnings. It was a week when Transcorp Plc acquired AFAM Power, boosting the capacity of its power generation business to slightly below 2,000 mega watts. On the other hand, International Breweries and AXA Mansard Insurance lost 11.8% and 9.09% respectively, at N6.50and N2.00 per share on market forces and profit taking.

Market Outlook

On expectation of more banking earnings and the ongoing interpretation of the numbers already released, the current trend in the market are expected to continue on inflow of funds and performance of the companies in the midst of profit taking as normalcy has return after the EndSARS protests in the midst rising covid 19 cases, dwindling oil price and high debt profile of the nation.

Meanwhile, given the persisting bull-run, profit taking is evitable as a regular behaviour of stock markets. Any price correction at this phase of market recovery will support the upside potential, especially with many fundamentally sound stocks remaining underpriced, and the dividend yield of major blue-chips continuing to look attractive, despite the recent weeks’ rally.

Bull-trend may continue on funds inflow, corporate numbers, profit-taking

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

info@investdataonline.com

ambrose.o@investdataonline.com

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