Investors Crunch Earnings Reports, Reposition Ahead Of Economic Data

Trading for the last full week of April ended on Friday. During the four weeks, the Nigerian Stock Exchange (NSE) experienced a new trend of oscillation that reflected the changing strategies of traders and sentiments in the market amidst the influx of Q1 earnings reports. This was particularly true since the onset of the correction mode in February, as the indicators tried to form strong support levels by resisting further decline, especially as seen in the last few sessions of the month. Keen followers of the market’s trend would have noticed that the Nigerian equities’ market suffers loss this week and gains in the next one.

The composite NSE All-Share Index moved higher over the past week, reversing the previous week’s down market on a low traded volume and improved sentiment for impressive Q1 scorecards as more corporate earnings hit the market during the period under consideration after the market had side-trended, searching for direction.

Despite the mixed performance in the score-cards within the period under review, helped by the influx of quarterly corporate earnings and few audited results which had reflected the improving economic activities. There is also the impact of the monetary stimulus of the Central Bank of Nigeria (CBN) that shows the economy is still on a strong recovery and growth path, a situation that many expect the coming Q1 GDP data to confirm.

The Q1 earnings reports have been so far positive and mixed in performance, with good margins and positive revenue surprises, which means that demand has remained in the upward direction, supporting company numbers. This is expected to drive prices on the long run, regardless of the continue price correction on the exchange, as earnings are already in growth direction waiting for GDP to confirm.
One positive side of the development is the expectation that the sustained rise in oil prices will drive activities and support Nigeria’s external reserve which equally will help support the relative stable exchange rate and the Naira.

With more numbers expected to roll in on the last trading days of April and usher in the new month on May on Tuesday, which is a public holiday as declared by the Federal Government. Market players are likely to reposition their portfolios. Already, investors and traders are interpretating and digesting of these reports will guide their investment decisions, realising the political risks associated with the 2019 general elections. The coming elections, the foretaste of which are the governorship elections in Osun and Ekiti States, is reason foreign investors are cutting short their outlook, despite the rise in the number of domestic players in the market.

It must be noted here that some of the earnings reports beat market expectations, while others came flat and even below forecast which made the week’s trading highly volatile, besides the high number of companies whose share prices were adjusted for dividend payment within the period, contributing to the up and down movement of the market despite the low volume traded but high buying pressure of 100% for the week.

Meanwhile, the All-Share Index gained 430 basis points to close the period at 41,244.89 from an opening figure of 40,814.89 points, representing a 1.05% growth on a low volume of trade, compared to the previous week’s level. The volume index of total transactions for the week was 0.65, buying pressure of 100%, while selling volume was 0% to reverse the previous week’s loss and moved above the psychological line of 41,000 mark. In the same vain, market capitalisation for the period gained N105.45bn to close at N14.94tr from an opening value of N14.74tr, representing a 1.34% gain which was boosted by listing of Flourmills right issue within the week.

Weekly Time Frame
The top performing stocks for the week (which dominated the advancers table) were low and high cap stocks as investors reacted to the released Q1 earnings reports in expectation of more results as the Q1 earnings reporting season officially comes to a close on Monday April 30, 2018. The numbers reported so far reveal stronger economic fundamentals despite the low liquidity in the equities’ market as a result of fear in the political environment as we move closer to end of first half. In the second half of the year, serious governance will be consigned to the background, as political parties and electioneering campaigns take centre stage, until the elections kicks-off in February 2019.

The value appreciation in Nestle Nigeria shares (which hit a new 52-week high), Forte Oil, International Breweries and others during the period further boosted the NSEASI’s year to date return to 7.85%, just as the gain in market captalistion stood at N1.5tr, representing a 9.51% growth from the year’s opening value.

Market breadth for the week was negative as the number of decliners outweighed advancers in the ratio of 33:41 on low volume of trades that were on a strong demand for stocks as the scorecards are being analyzed.
The index opened the week on a bearish note to extend the previous day’s loss position by 0.12%, which was however halted on Tuesday when it recovered 0.10%, a situation that was short-lived at the midweek with another pullback of 0.11%. This could not be sustained on Thursday as it reversed up again by 0.12%, which was extended on the last trading of the week recording a significant gain of 1.15%, bringing the week’s total gain to 1.05%.

Sectorial performance for the period were mixed and bullish as the NSE Industrial and Insurance sectors were down, whereas the NSE Consumer, Banking and Oil/Gas closed north, as gains by Nestle, International Brewery, Forte Oil, Seplat, ETI, and Zenith Bank impacted the sectors positively for the period.
Market activities in volume and value were down by 64.48% and 18.65% to 1.83bn shares worth N24.65bn, from previous week’s 3.01bn units valued at N30.3bn.

Forte Oil and Nestle were the best performing stocks for the week to top the advancers table with 20.69% and 13.53% gains respectively to close at N45.20 and N1,613 per share, on the back of positive market sentiments. The worst performing were Unity Bank and GSK that fell 21.26% and 20.79% to close at N0.55 and N172.00 respectively on profit taking and price adjustment for N7.50 dividend.

During the week also, the share prices of Dangote Flour, Lafarge Africa, GSK, AXA Mansard Insurance, Law Union, Caverton, May and Baker were adjusted for dividend recommended by their directors. Sterling Bank and Regency Insurance will be mark down on Monday.

Market Outlook
We expect a mixed performance for the week as investors digest the numbers to reposition their portfolios in the midst of low valuations, ahead of first quarter economic data and corporate earnings that is coming to an end, especially the Q1 GDP, Purchasing Managers Index (PMI) and April inflation to reveal the true state of the economy.
Meanwhile, dividend income players are taking 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.

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.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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https://investdata.com.ng/2018/04/investors-crunch-earnings-reports-reposition-ahead-economic-data/