Feb Outlook: All Eyes On Elections, Economy, Earnings Season For NGSE Direction

January market Roundup and Outlook for February
The bear ascendency on the Nigerian stock market in 2018 extended into the first month of 2019 with mixed sentiments on the back of weak economic indices, the political risk ahead of the general elections which begins this month with the Presidential and National Assembly vote. There was also no denying the impact of the January effects on the market’s performance, all of which forced the NSE’s benchmark All-Share index for the period to close lower for the month.

It is obvious that election seasons are characterized with uncertainties which affect domestic and international investor confidence in the market and the economy; especially with recent drama that continues to unfold between the judiciary and executive. The drama had triggered the pullback witnessed till the last trading of the month, just after the market had recorded had rallied for six consecutive days.

The mixed market in January was driven by the low price attractions, just as the seeming improvement in economic activities were influenced by year-end festivities as reflected in the Purchasing Managers’ Index, which soared to 61.1 points in December 2018, just as inflation rate climbed to 11.44% in the midst of heightening political tension ahead of the elections.
The Central Bank of Nigerian continued to intervene in the Investor & Exporter window of the foreign exchange market, a situation that has supported the relative stability in exchange rate, which helped manufacturers. However, weak purchasing power among Nigerians affected sales, as is being reflected in the corporate earnings of consumer goods companies released in so far to the market.
The market in the 22 trading sessions of January had mixed performance, with 11 sessions each of up and down market, after which the index closed negative at 30,557.20 points on Thursday, January 31, after touching the month high of 31,457.07 basis points and low of 29,329.62bps.

The index opened for the month at 31,430.50bps, representing 2.78% decline over the period, with buying volume of total transactions for the month at 58%, while selling position was 42% to reverse the previous month’s bull market. Also, market capitalisation for the month lost a total of N325.79bn to close at N11.39tr, from its opening value of N11.72tr, representing 2.78% depreciation in value, following the mixed market expectation of the 2018 full year earnings reporting season due to weak economic fundamentals. At the moment, many stocks continue to trade below their Book Value and at new 52-week lows.

Market breadth for the month was negative and mixed as decliners outnumbered advancers in the ratio of 53:18 to halt the bull transition of December Santa Claus as well as the OPEC supply cut induced rally.
Sectorial Performance for the month was largely bearish, except for the NSE Industrial goods that closed green for the period on the strength of gains by Dangote Cement, Beta Glass, CCNN and Lafarge Africa. Others were in red as showed in the bar chart below:

Best Performing Stock
The month’s biggest advancers were the kobo and medium cap stocks, which were grossly impacted by low price attraction and sentiment. The best performing stock for the month was Royal Exchange Assurance, which gained 31.82% of its opening price, despite its mixed quarterly financials released to the market. It is safe to warn that investors avoid being trapped with this uptrend, instead, we advice that you study the company’s fundamentals before jumping in. Julius Berger was next, as its share price rose 29.35% on improving earnings and low valuations; followed by Sterling Bank’s 25.29%; and 23.71% by Cement Company of Northern Nigerian.

Worst Performing Stocks
The worst performing stocks table was led by McNichols, which lost 29.79%; Flour Mills, 19.70%; and GSK, 19.66%.


Volume and Value
The month’s transaction volume was down by 13.01% to 6.22bn shares, from 7.15bn in December.
During the month, quarterly and some full-year earnings reports were published by an array of companies, with numbers coming below expectation except for Redstar and University that were above average.

Also, in the month January, Lafarge Africa and Sahco concluded their primary activities while May & Baker listed additional shares as a results of right issue or bonus shares. The good news here is that the companies above had ushered in the earnings season with mixed and unimpressive numbers from the consumer goods to give insight what the market should expect from December year end accounts. As traders and investors position for earnings season amidst political tension, decision on whether to HOLD, BUY or SELL would depend on whether earnings beat market expectation and shareholders are rewarded adequately in the expected full year results.

Also, it is expected that up movement in crude oil price will support faithful implementation of Nigeria’s 2019 budget and economic recovery. Considering these factors and election season around the market now, investors who understand the operations of the stock market should take this pullback wave opportunity to enter good stocks as more than 100 quoted companies with December 31, 2018 as their financial year end are due to release their audited report to the market before March 31. It is obvious that investment is against expectation, therefore, when such expectation is not met there is need to cut losses quickly to protect your capital.

As investors, it is expected that you relate the current selling price of target stock on the floor of the exchange with its third quarter earnings; as well as previous full-year Earnings Per Share; and the last dividend paid. This comparison will help you to project whether the company would likely maintain; cut or increase its payout or not before buying in.

Note that earnings have always been a function of equity price movements, in addition to corporate actions of these companies, which are expected to attract more market players, dividend investors and possibly foreign bargain hunters to the market.

What to expect in February and March
• Continued volatility due to the lingering political tension, profit taking and disappointments with some corporate results released. Also the source of funds flow to the market may cause fluctuations as foreign and institutional investors return to the market. The up and down movement will continue to create entry and exit opportunities.
• More audited earnings would be released into the market this period. Earnings from blue chip companies may strengthen market fundamentals. Especially from United Capital, Forte Oil, Nigerian Breweries and Nestle Nigeria.
• As investors reshuffle their portfolio to moving into equities with strong fundamentals, high Dividend Yield and possibility of issuing bonus shares, we should expect stock prices to be in the upward direction, if their numbers beat expectation.
• A more vibrant market as a result of market players positioning for the last month of the quarter and then taking profit to reposition for the earnings season, even as we expect liquidity prices to improve with more foreign funds entering.
• Market outlook for the month of February and March are still very dicey, but investors should decide wisely, using dates, bids, offers and volume while doing so.
• Managing risk and protecting capital at this point is very important, so you will be able to determine when to buy or sell by watching the stocks and the market, using technical analysis, aided by investdata buy & sell signal.
• Let numbers emanating from companies and releases/markdown dates guide you into profitable investment.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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Tel: 08028164085, 08032055467
https://investdata.com.ng/2019/02/feb-outlook-all-eyes-on-elections-economy-earnings-season-for-ngse-direction/