Profit Taking Ahead, As Investors Digest Q3 Numbers, Position For Full-Year

Market Update For October 23, 2018

Market indices of the Nigerian Stock Exchange (NSE) on Tuesday remained very volatile, extending to four consecutive sessions of bullish transition driven by increasing buying interest in expected third-quarter interim dividend paying companies and high cap stocks that impacted the indicators positively.

The NSE benchmark index started out the day by gapping up in the morning, a situation that was sustained till midday before pulling back by afternoon, after touching intraday highs of 33,269 basis points, from lows of 32,962.80bps. Also, it broke out the psychological 33,000 line to almost test the 45-Day Moving Average, before retracing down to close at 33,191.45bps on low volume and profit booking.
The increased number of scorecards released during trading session elicited a mixed reaction, as some stocks rallied immediately their numbers hit the market, while others suffered declines, either because their performance in the period came below expectation, or that investors are yet to digest the numbers. In this reporting season, despite the mixed performance as revealed by emerging numbers so far, turnover or gross earnings of many companies declined or were flat, while bottom-line margins also came flat or rose marginally. Only a few of the results made available, so far, showed significant growth in profitability level. Market reactions to these numbers are changing, due to low price perception of most stocks and what it portends for the future.

The two surprising Q3 corporate earnings so far are Conoil and Transcorp to which the market had reacted differently, due to price and earnings performance trend in the current financial year. While shares of Transcrop (READ), a conglomerate, gained 9.6% on earnings release day, accompanied with a high transaction volume in the last three months, Conoil has remained flat since the report hit the market (READ). Other numbers that have come above average so far are Wema Bank and Transnation-wide Express. While investors reacted positively to the result of Wema Bank, there was a seeming nonchalance to that of Trans-nationwide. Performance scorecards have also come from Zenith Bank, UBA, GTBank and Access Bank. While Zenith Bank shares rallying immediately its Q3 result hit the market; shares of UBA and Access Bank recorded gains before their numbers were released, while the price of GTBank has suffered a decline since the Q3 numbers were made available to the market.
Tuesday’s market technicals were positive and mixed amidst low volume traded and negative market breadth, despite a strong buying sentiment as revealed by Investdata’s Daily Sentiment Report, showing a positive ‘buy’ of 75% and sell volume of 25%. The volume index for the day’s total transactions was 0.88.
The momentum behind the day’s market performance was further strengthened regardless of the seeming low liquidity in the market. The money flow index for the session stood at 65.62bps, from previous day’s 60.49bps, an indication that funds are re-entering some stocks as more numbers hit the market.

Index and Market Cap
At the end of the day’s trading the NSE All Share Index gained 228.63bps to close at 33,191.45bps, after opening at 32,962.82bps, representing a 0.69% growth. Similarly, market capitalization gained N83.47bn to close at N12.12tr, from an opening value of N12.03tr, representing a 0.69% appreciation in value.

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The day’s surge was impacted by value gain by low, medium and high cap stocks like: Nestle, Dangote Cement, Oando, Dangote Flour, Fidelity Bank, FBNH and Honeywell, which impacted Year-to-Date returns, reducing the loss to 13.21%, and market capitalization to N1.49tr, representing 11.03% drop, from the opening value.

Mixed Sectors Indices
Sectorial performance indexes were largely bullish, except for the NSE Insurance and Banking that closed red. Market breadth was negative as the number of decliners’ outweighed advancers in the ratio of 19:14, to sustain the up market.
Market activities were down in volume and value by 28.25% and 52.52% respectively at 185.19m shares worth N2.35bn, as against previous day’s 257.92m units valued at N4.95bn, while transactions were boosted by trading in financial services and conglomerates stocks like: FCMB, Transcorp, Guaranty Trust Bank, Access Bank and UBA.

The best performing stocks for the day were Transcorp and Honeywell, gaining 9.6% and 4.2% respectively to close at N1.37 and N1.20 per share, on the impact of positive earnings and low price attractions. On the flip side, First Aluminum and PZ lost 9.09% and 7.66% respectively to close at N0.30 and N11.45 each on poor earnings and profit booking.

Market Outlook
Expect a pullback on profit taking in the midst of more companies present their numbers in the coming days and increased bargain hunting activities, while volatility to continue, if the numbers beat market and analysts forecast.

The much anticipated Q3 earnings reports would assist investors and fund managers rebalance their portfolios, while watching the political space and analysing the actual numbers that will give insights into expectations for Q3 GDP and full year company earnings power. These are likely to drive prices north, or south, while determining market direction before or after Presidential Election.
Investors should review their positions in line with investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.

However, we would like to reiterate our advice that investors should go for equities with intrinsic value,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst mixed company, economic and market fundamental.

https://investdata.com.ng/2018/10/profit-taking-ahead-as-investors-digest-q3-numbers-position-for-full-year/