Capital Market
Profit Taking, Portfolio Realignments Ahead, As Investors React To UBA’s Interim Div Cut
By Investdata Analysts
Tuesday trading session on the Nigerian Stock Exchange (NSE), the first for September, maintained a positive outlook, to start the final month of Q3 higher, thereby extending its bull transition for the third consecutive day on improved gaining momentum and huge traded volume that is driven by buying position in UACN Property Development Company Plc.
The positive sentiment and demand for highly capitalized stocks during the session helped the benchmark index to close higher, regardless of the fact that dividend paying banks on Monday informed investors of further delay in the release of their half-year earnings owing to delays by the Central Bank of Nigeria (CBN).
That notwithstanding, United Bank for Africa, on Tuesday night, became the first of the pack to publish its half-year numbers showing mixed performance, as top-line rose from N294.03bn in 2019 to N301.11bn. Profit however declined to N44.43bn, from N56.74bn in 2019, resulting in a 15% cut in interim dividend to 17 kobo, from the previous 20 kobo.
The interim dividend cut is indicative of what to expect from its peers, both at half and full-year, even as the recent decision by the CBN to crash interest rate on savings accounts to 1.25%, from about 3.6%, is expected to boost their performances and reduce cost of borrowing from the banking public.
Tuesday’s trading opened slightly on the upside in the morning, and was sustain throughout the session amid repositioning in banking and industrial Goods stocks, which pushed the NSE index to an intraday high of 25,417.61 basis points, from its low of 25,327.13bps. Thereafter, the market closed higher above it opening figure at 25,413.76bps.
Market technicals for the day were positive and strong, as volume traded was higher than the previous session in the midst of breadth that favoured the bulls on a strong buying pressure, as revealed by Investdata’s Sentiment Report showing 96% ‘buy’ volume and 4% sell position. Total transaction volume index stood at 0.58points, just as the impetus behind the day’s performance remained relatively strong, with Money Flow Index reading 67.70points, from the previous day’s 68.45points, an indication that funds exited some stocks, despite closing up.
Index and Market Caps
The All Share index at the end of Tuesday’s trading, gained 86.63bps, closing at 25,413.76bps, having opened at 25,327.13bps, representing 0.34% rise, just as market capitalization rose by N45.2bn to close at N13.26tr, after opening at N13.21tr, also representing a 0.34% appreciation in value.
Tuesday upturn was due to buying interests in low, medium and high cap stocks, which impacted positively on the index’s reducing Year-To-Date loss to 5.32%, just as it lifted market capitalization YTD gain to N354.61bn, or 2.32% above the year’s opening value.
Mixed Sector Indices
Performance indexes across sectors were mixed, except for the NSE Industrial Goods that closed 0.12% lower, while the NSE Banking index gained 1.07%, followed by NSE Consumer goods and Insurance which were up by 0.88% and 0.80% respectively, while NSE Oil/Gas was flat.
Market breadth was positive as advancers outnumbered decliners in the ratio of 27:9, while investors traded 1.07bn shares worth N2.1bn, driven by trades in UACN Property, Access Bank, Guaranty Trust Bank, Fidelity Bank and Lasaco Assurance.
The best performing stocks during the session were Livestock Feeds and Eterna as they gained 10% and 9.47% respectively to close at N0.66 and N2.10 per share on market forces and low price attraction. On the flip side, Wapic Insurance and UBN lost 5.71% and 5.66% respectively, closing at N0.33 and N5.10 respectively purely on profit taking.
Market Outlook
We expect the current trend to continue on profit taking and portfolio adjustment as the market react to the 17 kobo interim dividend from UBA, and ahead of dividend expectation from Stanbic IBTC, GTB, Zenith Bank and Access Bank. Recall that the banks have kept the market above its 50-day moving average on a daily time frame. The mixed intraday movement is likely to persist as the month of September progresses in the midst of window dressing, profit booking and investors repositioning their portfolios ahead of Q3 numbers. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for 2020 as government and its economic managers are going front and back with mismatch polices and action.
Also, investors and traders are positioning in anticipation of interim dividend paying companies earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
We see investors focusing on portfolio adjustment and rebalancing by targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.
Again, the current undervalue state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation for the rest of the year.
Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited
