Investors Position For Possible Earning Surprises By Interim Div Stocks

Market Update for Week Ended August 3 and Outlook for Aug 6-10

As we mentioned in our previous market updates, training sessions, radio proramme and live webinar, the lingering economic slowdown has prevailed since first quarter of 2018, which has not helped by the seeming lack of economic direction and fiscal stimulus reforms to drive the government’s Economic Recovery & Growth Plan (ERGP) in the period. This reflected on the Q1 GDP report made available by NBS which revealed a slowdown in the recovery tempo when compared to Q4 GDP in 2017, with politics taking the front seat in government’s agenda. This came after the seemingly strong economic recovery recorded in 2017 which reflected on the corporate earnings of listed companies for full year ended December 31, 2017, supporting good dividend payout and ratio for the period.

Last week also, market reaction to the Q2 earnings performance was mixed as the regulatory period for presentation of the score-cards officially ended within the week, resulting in sell off and bargain hunting as market players interpreted the numbers.

Except by a miracle, the weak corporate earnings for the half year is already pointing to a likely further slowdown in the Q2 GDP figure scheduled for release by the National Bureau of Statistics (NBS) any moment from now.

Already, the nation’s purchasing managers’ Index for the month of July, showed a slowdown to indicate decrease in economic activities to 56.8 point for the period, from 57.0 point. This is interpreted to mean that there was a relatively slower expansion pace in the economy, compared to previous month. Production levels for the month under review also dropped, but at a relatively slower pace from 59.2 in June to 59 in July. Input prices in the month of June expanded to 60.7 in the month of June, thereby expanding at the slowest pace since the indicator began to beam green light. At the same time output prices expanded to 50.3 for the month of July from 53.8 in June, thus underlining the deceleration in the pace of the expansion in output price.

Back to the NSE, last week, a total of 25 companies released their quarterly scorecards and the general market sentiment for the numbers were mixed with selling position at 96%, while buying volume stood at 4%. This was due to investors and traders repositioning their portfolio on the strength of earnings and economic reports released and considering the prevailing low-price regime and the risk associated with the oncoming general elections.

The negative market breadth dropped, but the energy behind the week’s trades was weak as reflected in the money flow index which slipped to 29.76 points from the previous week’s 31.34 points, a signal that funds continue to exit the market.

Equity Indicators Last Week
The benchmark index for the week had a mixed performance to close the period lower and reverse the previous week marginal gain by shedding 137.30 basis points to close at 36,499.67 basis points, after opening at 37,636.97bps, representing a 0.37% decline on a low traded volume, compared to the previous week’s. 

The volume index of total transactions for the period was 0.56, as market capitalisation for the week was up by 0.38%, closing at N13.32tr from the N13.27tr. This resulted from the listing of Notore Chemical Industries Plc, a fertilizer and agro-allied company with market capitalisation of N100.8bn, classified under Agro-Allied and Chemicals subsector.
During the period under review, low cap stocks again dominated the top advancers table as investors and traders took advantage of prevailing low prices and few impressive Q2 numbers to position. The recent earnings season revealed the existence of intrinsic value in some companies, especially small cap equities.

However, the market is becoming dicey on daily bases ahead of next year’s 2019 presidential election, especially given events in the National Assembly and some states, with defection and political rallies become the order of the day, even as it further fuels uncertainty.

The seeming selloff after analyzing the numbers and positioning had further worsen the NSEASI’s year to date negative returns to 4.56%, just as market capitalisation remains negative at N217.4bn, or 1.32% below the year’s opening value.

Mixed Market Breadth
The negative market breadth, as the number of decliners outpaced advancers in the ratio of 48:34 as selloff and profit taking continued in the midst of weak earnings and uncertainties surrounding 2019 election as trade war tension threatens global economic growth and expected hiking of rate to further induces capital flight.

The NSE All-Share Index opened the week on a strong performance to close Monday and Tuesday positive, before mid-week’s reversal and a rebound on Thursday, followed by yet another pullback on Friday. All of these culminated in a loss position of 0.37% for the week, as against the previous week’s 0.27% gain.

Sectoral indexes were largely bearish for the week except for NSE Banking and Oil/Gas that closed higher.

Market activities were mixed as volume traded was down by 2.11% to 1.38bn shares, compared to previous week’s 1.42bn units, while value was up 23.89% to N20.32bn, from previous week’s N16.74bn
Union Diagnostic and Nemeith were the best performing stocks that topped the advancers’ table with 50% and 47% gains respectively, closing at N0.33 and N0.60 each as a result of market forces . The worst performing equities Smart Products and International Breweries, which shed 18.52% and 17.57%, closing at N0.44 and N1.55 respectively on impact of market forces.

Market Outlook
We expect another mixed performance of the market this week, while volatility continues as actual earnings data is being analyzed, ahead of interim dividend companies scheduled to publish their results even as market analysts, investors and traders digest those earnings reports already published. 

There would be repositioning on the strength of earning surprises and disappointing numbers that come below market expectations in the midst of events unfolding in the political environment. Investors should review their position in line with their investment goals and take action as events unfolds in the global and domestic environment.

However, we would like to reiterate our advice that investors should go for equities with intrinsic value, especially during this season were more quarterly earnings are expected to hit the market, ahead of Q2 interim dividend paying equities in August due to the auditing process of their financials for half year.

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.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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https://investdata.com.ng/2018/08/investors-position-for-possible-earning-surprises-by-interim-div-stocks/