More Earnings Surprises Reveal Stronger Companies, Hope For Impressive Q1 GDP Data

Market volatility continued on the Nigerian Stock Exchange Tuesday, halting the two trading sessions of red market, as more companies released impressive Q1 scorecards to the investing public, further revealing the stronger state of quoted companies, while giving insights into what investors should expect going into the future.

NSE Index opened the day on a little gap up in the early hours of the session, which was sustained in the mid-morning before rallying in the midday until mid-afternoon when it finally reached intraday highs of 40,970.31 basis points, testing the recent resistance level from the 40,757.19 lows, before pulling back to close the day at 40,80278bps.

The ability of the market to break through this resistance level will be a function of long term positioning on the strength of better company numbers as they are being posted. Due to political risk and investors would play short for safety.

Right now, the index is side-trending at a KEY short-term support as revealed by the chart below, and if it can’t hold, the level may easily see lower lows. After this big earnings week when players analyse the numbers and the impact of the political risk environment, where majorly foreign and institutional funds are the ones running the market.

For this reason, oftentimes, it is their interpretation of the days ahead of the 2019 general elections in Nigeria that will give direction to equity pricing, despite the impressive numbers. In any case, these stronger numbers, if they continue as expected, will become more meaningful and useful after the election in 2019.

Setting The Stage

It is true, that market correction, sell-offs, continued profit taking and political risks have shaken sentiments as days come by, but as we have discussed in our home study packs, seminars, radio programmes and other platforms that earnings will continue to roll in with big positive surprises (Dangote Cement, Zenith Bank, Transcorp, NEM and others), as far as the Nigeria economy continues on the path of recovery and growth trajectory, there is no doubt that electioneering spending. This is just as related activities will boost demand and support company earnings, making them stronger after the election to attract funds back into the market and indeed the economy, especially as we are expecting positive surprises in Q1 GDP which would hit the market any moment from now.

This combination should set the stage for a sustained recovery and fundamentals to drive stock prices and ultimately lead to a very good year for the stock market. The robust growth that would have otherwise been unleashed on the market would be hampered by the political risk associated with coming election, depending on how it plays out.

Market technicals on Tuesday were positive and mixed as volume traded was low amidst the weak buying pressure and positive market breadth. The buying position was 21%, while selling volume was 79% on a volume index of 0.59 of the day’s total transaction. The reversal for the day was helped by the improved money flow as can be seen through the index that is looking up at 49.54 points, compared to previous day’s 44.26 points, this is an indication that funds are gradually entering the market.

Benchmark Indicators

The benchmark NSE All-Share Index gained a marginal 38.85 basis points to close at 40.802.78bps after opening at 40,763.93bps, representing a 0.10% growth on a low volume that was lower than the previous day’s. Similarly, market capitalisation was up by N14.04bn to close at N14.75tr from an opening value of N14.72tr, also representing 0.10% value gained, reducing the losing position of investors.

The upturn recorded during the day resulted in price appreciation in medium and high cap stocks like Nestle, Forte Oil, Dangote Flour, Flourmills, Zenith Bank, Dangote Sugar, ETI, UBA and Access Bank. This impacted positively on the NSE’s Year-to-Date returns, which rose to 6.69%. Market capitalisation gains for the period stood at N1.12tr, representing 8.29% above the year’s opening value.

Bullish Sectoral Indices

Sectoral performances were bullish except for the NSE Industrial and Insurance that were down as a result of selloffs in Lafarge Africa that continued its string of bad numbers in Q1; as well as Continental Reinsurance and AXA Mansard. The NSE Oil/Gas, Banking and Consumer goods were up, due to value gain in Forte Oil, Eterna, Nestle, Dangote sugar, Zenith Bank, Access Bank and UBA.

Market breadth for the day was positive as advancers outweighed decliners in the ratio of 26:25 to short-live the two day bear market.

Market activities were down in volume and value by 53.5% and 58.55% respectively to 246.58m shares worth N3.22bn from the previous day’s 530.22m units valued at N7.77bn.

Transaction volume was boosted by financial services, oil service and conglomerates stocks like Transcorp, Zenith Bank, Caverton, FBNH, NB and Transcorp which witnessed increased trading to top the activity chart.

Forte Oil and Honeywell were best performers for the day to top the advancers’ table with gain of 10.18% and 5.99% respectively to close at N43.30 and N2.83 each. This was due to positive market sentiment.

On the flip side, Fidson Healthcare and Julius Berger were the worst performing, after losing 9.60% and 5% respectively to close at N5.46 and N25.65 on profit taking and market forces

Market Outlook

We expect a sustained uptrend as more earnings surprises hit the market in the midst of profit taking and expected Q1 GDP that is likely to be supported by monetary stimulus and extraneous factors like upswing in oil price, among other global events now closely under watch.

Even so, value investors continue to position for the short and long-term on the strength of company fundamentals.

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 ongoing and Q1 results are expected in the market arena.

We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.

It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. A stock market is in cycles. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.

Get your home study pack of the INVEST 2018 Traders & Investors Summit and ride with the current recovery on Nigeria’s stock market and economy, thereby ensuring that you invest and trade with knowledge. You can also access stocks analysed in the home study pack of the Chart Summit held on February 24, 2018, including the 15 stock-picks for 2018 are available now to guide your positioning as trading for the year.

Comprehensive training materials on stock Trading and Investing for Financial Independence series are Available, you can play and watch on your mobile phone, laptop, desktop and TV set. Kindly call or send yes to 08032055467, 08028164086 or 08111811223.

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

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Tel: 08028164085, 08032055467

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