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NGSE Volume: Uncertainty As Dividend Stocks Delay Half-Years Earnings Reports

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NGX full year market index review
Market Update for the Week Ended August 28 and Outlook for August 31- Sept 4

By Investdata Analysts

Trading on the Nigerian Stock Exchange (NSE) for the last full trading week of August closed positively on Friday, extending the sixth consecutive week of bull-run, which was however on a less than average traded volume, mixed sentiments and negative breadth for the period.  These occurred in the midst of interim dividend expectations and negative macroeconomic data published by the National Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN).

Technically, the market’s gaining momentum has been on decline since it entered within the short-term overbought region, notwithstanding the improved buying interests manufacturing stocks which had earlier suffered huge losses. This is also the case with insurance stocks, given the ongoing recapitalization exercise in the industry, as well as the better than expected numbers released by the companies and the low price attraction that had supported the high volatility in the sector.

The NSE composite All-Share index and price action of few medium and high cap stocks in recent weeks and days suggests that investors are becoming more cautious about the much awaited half-year earnings reports of the dividend paying banks. It is noteworthy that the key performance index has formed a double top pattern that signals that pullback or breakout is in the offing, depending on market forces.

However, sentiments still remain positive, signaling that buyers are entering some stocks, though there are warning signs of price correction and profit taking. This is not unexpected, given that the market has gained 2.49% and 3.39% month and quarter to date respectively, reducing year-to-date loss to 5.71%.

Movement Of NSEASI

The week recorded four sessions of up market and one with a loss, supporting the previous week’s uptrend, with the NSE All-Share index opening on a slight positive note at 0.03%, which was extended to Tuesday and Wednesday when it closed higher at 0.25% and 0.15% respectively on strong demand for Consumer Goods and insurance stocks. There was however a pullback on Thursday when the index lost 0.10% on the back of profit taking, which was halted on Friday with the composite index rising 0.02% up. The week’s cumulative gain stood at 0.33%, as against the previous week’s 0.63%,

Specifically, the benchmark index gained 87.50 basis points, after opening at 25,221.879bps, touching an intra-week high of 25,332.51bps from its low of 25,136.48bps on a positive buying sentiments and profit taking, amidst portfolio rebalancing and sector rotation. The All-Share-index closed the week up at 25,309.57bps, just as market capitalization rose by N45.65bn, closing at N13.2tr, from the previous weekend’s N13.15tr, which also representing 0.35% value gain.

Within the period under review, over nine companies released full-year and quarterly earnings reports. They include: Guinness Nigeria, University Press, Academic Press, Royal Exchange Assurance, and Union Diagnostic, which presented full-year scorecards devoid of dividends.  Also, during week, the share prices of Custodian Investment and Northern Nigerian Flour Mills were adjusted for dividend of 10 kobo and 15 kobo respectively.

Low priced stocks dominated the top advancers table, although there were more decliners than advancers in the ratio of 36:29, even as impetus behind the week’s performance was relatively strong, as Money Flow Index read 64.77bps from 66.88bps in the previous week. This is a reflection of mixed sentiments as profit taking and buying interests persist on portfolio adjustment ahead of the new month.

The index action forming a double top and ascending triangle chart pattern on a weekly time frame, signals a possible pullback or fake-out, depending market forces, as the index continues to trade above the 20-Day Moving Average. At the same time, it is heading to breakout the black line 50 DMA and 50% line of Fibonacci retracement on less than average traded volume that indicates cautious trading amid hope that results of interim dividend stocks would be published in the new week.

However, we envisage profits booking ahead as interim dividend yield of some companies are thinning off on their relatively high prices.

On a daily and weekly time frame MACD remain bullish, supporting an uptrend and changing momentum in the market on expectations and prevailing trend. The buy volume for the period stood at 88%, and money flow index at 64.77 points.

Bullish Sectoral Indices

The sectorial performance indexes for the week were largely bullish, except for NSE Banking index that closed lower by 0.23%, while the NSE Insurance indexled advancers after gaining 2.80%, followed by the Consumer and Industrial Goods indexes that closed 1.12% and 0.64% higher respectively, while the NSE Oil/Gas closed flat. The general market outlook in recent time remained mixed and bullish in the short term, following which investors should diversify their long-term trades, especially towards sectors such as agribusiness, healthcare, industrial goods, insurance and telecoms, which have shown the most strength.

Activities for the week, in terms of volume and value, were mixed as volume rose by 12.63% to 1.07bn shares, as against the previous week’s 950.41m units, while value fell by 27.08% to N7.38bn, from the previous week’s N10.12bn. The week’s volume was driven by trades in financial services, conglomerates and consumer goods stocks, especially Transacorp, UACN, UBA, Zenith Bank and Guaranty Trust Bank.

University Press and FTN Cocoa were the best performing stocks for the week after gaining 31.45% and 20% respectively, closing at N1.63 and N0.24 per unit on dividend expectation and   market forces respectively.  On the flip side, Beta Glass and Arbico lost 9.97% and 9.52% respectively, closing at N55.40 and N1.14 per share on market forces and selloffs.

Market Outlook

We expect mixed sentiment and trend to continue as profit taking and repositioning of portfolio on the strength of recent Q2 negative GDP of 6.1% and PMI figure at below 50 points at 48.5 to further confirm the contraction in the economy. This is coming amidst reactions to many impressive half year numbers that beat market expectation spurring retail and institutional investors confidence in future numbers.

We cannot also rule out investors pricing in government’s policy inconsistencies and weak macroeconomic data, including the latest labour report. Already, inflation has risen above the Central Bank of Nigeria’s benchmark Monetary Policy Rate (MPR) at 12.5%, even as the declining industrial productivity points to the reality of a recession.

The sectoral rotational wave will help investors cash in on low cap stocks and sectors that have suffered huge losses before now. Already investors are looking the way of healthcare, airline service providers, oil marketing stocks, banking among sectors likely to be impacted positively in the much anticipated global and domestic economic recovery.

Also, the possibility of continued funds inflow to low priced stocks is high, due to the higher yields and upside potentials, considering the low rates on offer in the money and bond markets. In the meantime, investors should also look out for developments around the implementation of the CBN’s funding plan for small and medium scale businesses.

Already, we notice that investors are taking position in healthcare and other defensive stocks likely to survive this meltdown, as seen in the increased trading in them, even as the global markets continue on the recovery path, with the gradual easing of the lockdown.

While discerning investors should prepare to take advantage of stocks revaluation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.

Expect a pullback that 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 in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.

To position for the short to long-term, investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

 

Stocks, Stock, Ambrose Omordion

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

info@investdataonline.com

 

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