Investors Expect Reduced Profit Taking On Expected Payout, Q1 Earnings Surprises

Nigeria equity market in the past week had a mixed performance to close marginally higher, while trying to resist further decline that had beclouded it in recent months on the strength of expected Q1 earnings and positive economic data. There is also the effect of the geopolitical uncertainties surrounding the coming 2019 general elections that had been of great concerns in a market dominated by foreign investors.
The 2018 Q1 earnings reporting season kicked off with during the week, with Forte Oil making available its Q1 result to the market after trading had closed last Friday. More scorecards are expected between now and month-end as listed companies keep to their post-listing requirement that gives listed companies 30 days after the end of quarter to release their Q1 earnings reports or face sanction.

The positive news of a sharp decline in March inflation rate to 13.34% from the February’s 14.33%, which is below the Nigeria’s benchmark Monetary Policy Rate (MPR) has supported the recovery recorded in this period. The market recorded its first back-to-back gains in April to close higher on low volume traded and increasing demand for stocks within the week. The continued decline in consumer price index since April 2017, has resulted in inflation hitting a 23-month low, to reveal the impact of monetary stimulus on the economy as the Central Bank of Nigeria (CBN) intervention continues to support liquidity in the foreign exchange market, ensure a relatively stable exchange rate that keeps sustain inflows into the system.

Election Uncertainties
Despite, the uncertainties around the coming 2019 general elections when there is expected to be huge political spending that will boost company numbers and support share prices, the prospects look very good for positive surprises, as earnings reports pick up. Investdata however conservatively estimates 10% Q1 earnings, but factoring in the propensity for positive surprises in historical earnings reports, some analysts expect 13% Q1 earnings growth, which is seemingly ambitious. It is expected to continue through the year, with the 15% estimated earnings growth for Q2, 17% for Q3 and 20% growth for Q4.
Given that improving purchasing power and recovery economy are the fundamental drivers of impressive numbers, we have seen so far and the expected future results, if all things remain equal.

The declining inflation and money market rates in a low yield fixed income environment is likely to trigger more inflow into the equities market as average dividend yields are looking up and many of the stocks are trading below their intrinsic value. This situation is therefore offering traders and investors a high margin of safety.

Week High, Low
Meanwhile, the NSE’s All-Share index retraced up after touching the week low of 40,206.10 basis points and a high of 40,961.20bps, resisting the 40,000-psychological line that recently became another strong support level before closing the week at 40,928.7bps from an opening level of 40,841.14bps, on a lower traded volume and positive market sentiments.

The upbeat performance witnessed around developed markets of the world over the period were due to rebound of oil price as it hit a three-year high at $71.96 per barrel, despite the geopolitical tension and security challenges arising from Syrian war and chemical attack. The reducing possibility of trade war between the world’s largest economies, had boosted positive sentiments for equities around the world as European and Asian market indices increased, a situation that also spread to emerging and frontier markets.
Back home, the week’s market technicals was strong but mixed, with the low traded volume on negative market breadth and strong buying pressure of 96%. Selling volume was 4% of the week’s total transaction, to halt the bear run, as money flow index continues to point downward at 42.07bps.

The All Share Index for the period gained 87.56 bps to close at 40,928.70 bps, representing 0.21% growth from the opening point of 40,841.14. Similarly, market capitalisation s increased by N30.72bn to close at N14.78tr from its opening value of N14.75tr, also representing a 0.21% value gain.
The up market during the period was attributed to rekindled interest in low, medium high cap stocks that had suffered losses before now, just as those that were adjusted for dividend. Consequently, the market has become attractive, when the strong earnings powers of listed companies is considered. Buying positions were with particular attention on Cement Company of Northern Nigeria (CCNN), Double One, Learn Africa and Oando, as well as second tier banking stocks, among others.
The NSE’s year-to-date returns therefore inched to 7.02%, even as market capitalisation growth for the period stood at N1.14tr, representing 8.40% gain from the year’s opening value.

During the week, low and high cap stocks were dominant on the advancers table, particularly those with high dividend payouts and low-price attractions. Transactions were driven by activities in the financial services, consumer goods and oil/gas sectors, even as market breadth was negative with decliners outnumbering advancers in the ratio of 38:37 on a low volume of trades.

The composite NSE index opened the week on a bearish note, a trend that was extended from the previous week, but reversed on Tuesday when it gained 0.17%, a situation that was sustained at the midweek with another gain of 0.90%. This could not be sustained on Thursday as it shed 0.10% and rebounded on the last trading of the week with a gain of 0.28%, bringing the week’s total gain to 0.21% as the market expects impressive Q1 numbers.

Sector indexes for the week had a mixed performance as the NSE Industrial and NSE Oil/Gas were in the green, while others closed in the red except for NSE AseM that was flat.
Market activities in volume and value were down by 19.77% and 26.05% to 1.42bn shares worth N19.64bn, from previous week’s 1.77bn units valued at N26.56bn.

The best performing stocks for the period were Learn Africa and Double One, which topped the advancers table with 18.89% and 17.65% gains respectively to close at N1.15 and N200 per share, on the back of their high Dividend Yields and expected Q1 earnings results. The worst performing were C & I Leasing and Consolidated Hallmark Insurance that fell 18.02% and 14.71% to close at N1.43 and N0.29 respectively to profit taking.
During the week also, the share prices of Access Bank, FCMB, UBA and Custodian Allied Insurance were adjusted for dividend recommended by their directors.

Market Outlook
We expect sustained upturn in the market on the strength of low price attractions of fundamentally sound stocks, ahead of first quarter economic data and Q1 earnings that will further reveal the true state of the economy and listed companies so far in 2018, helped also by the sustained rise in oil prices
Meanwhile, dividend income players are take position ahead of more economic data, even amidst the expected sustained volatility and repositioning.

However, we would like to reiterate that investors should not panic but go for equities with intrinsic value, especially during this season when dividend payment is approaching.
We advise investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.

Fundamental, Technical Tools
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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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