Mixed Performance Amidst Earnings, Repositioning For 2019 Dividends

Market Update for March 5
Trading on the Nigerian Stock Exchange on Tuesday was mixed and sluggish, closing marginally higher on declining momentum, but higher traded volume, after consolidating three trading sessions of back to back gains due to increased buying interest in banking and consumer goods stocks. All eyes are on the earnings reports from these sectors, especially high cap that are dividend paying.

Note that Nestle Nigeria’s N38.50 final dividend may not impact much on the share price, given its high price, from an Earnings Per Share of N54.26, compared to the N42.55 EPS from which the board offered N27.50 as dividend.

A bonus issue as anticipated by shareholders could have had a greater impact on the price. Summary of its earnings which the market would react to when trading opens on Wednesday, shows that sales revenue crawled 9% to N266.274bn in 2018, from N244.151bn in the prior full year, while net profit climbed 28% from N33.723bn to N43.008bn. The directors however recommended N37.653bn, representing 90% increase payout, when compared to the N19.816bn.

The market’s sluggish situation arose from fake news that Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN) had been sacked barely three months to the end of his five-year tenure, which the Presidency refuted. Later in the day however, international newswire- Reuters, reported that the Governor would soon commence on his terminal leave ahead of the end of his tenure in June. This kept the market foot dragging all day as investors sort some form of confirmation.

Also, following the recent adjustment in interest rate on Treasury Bills and OMO Auction, less funds will flow into money market instruments except for the back door arrangement.
The NSE All-Share index started out the day with a little upside in the morning, which was sustained till mid-morning before pulling back between midday and afternoon amidst profit taking in insurance, industrial and oil/gas stocks to test support.

After touching intraday low of 32,126.64 basis points, from a high of 32,252.89bps to form a consolidated wedge and finish the session at 32,173.66bps. It is not known whether profit taking seen in insurance stocks had anything to do with the players announcing late filing of their 2018 annual accounts, after the National Insurance Commission (NIC), their primary regulator just recently published account filing format for immediate compliance.

Market technicals for the day were positive but mixed, with higher traded volume than previous session in the midst of negative breadth and mixed sentiments, as revealed by Investdata’s Daily Sentiment Report, showing a selling volume of 63% and buy position of 37% on a daily transaction volume index for the day at 1.09.

Energy behind the day’s market performance was slightly down, despite the up market as shown by money flow index at 61.18 points, down from previous day’s 61.73bps, indicating that funds are still leaving the market.

Index and Market Cap
Benchmark index NSEASI was marginally up on Tuesday by 43.72 points to close at 32,173.66bps, after opening at 32,129,94bps, representing a 0.14% growth. Market capitalization went up N16.31bn to close at N11.99tr, from an opening value of N11.98tr, representing a 0.14% value gain.

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The upturn was impacted by gains recorded in medium and high cap stocks like: Guaranty Trust Bank, Stanbic IBTC, Zenith Bank, UBA, Access Bank, FBNH, Dangote Flour and Dangote Sugar, among others.

This impacted positively on Year-to-Date gains, lifting it to 2.34%, while market capitalization notched N264.70bn, from the year’s opening level of N11.72tr, representing a 2.34% growth. Shareholders of Access Bank and Diamond Bank, on Tuesday, at separate court-ordered meetings in Lagos, approved the merger of both entities to create one of Africa’s biggest banks by several parameters. The combination is now expected to happen on April 1, quicker than the June previously envisaged (READ MORE).

Mixed Sector Indices
The sectoral performance indices were largely bearish, except for the NSE Banking and NSE consumer goods that closed 0.95% and 0.25% higher respectively. Market breadth was negative as decliners outpaced advancers in the ratio of 17:14.

Market activity in volume and value were up by 75.45% and 32.57% respectively to 400.87m shares worth N3.46bn, as against previous session’s 228.48m units valued at N2.61bn. This was driven by financial services stocks like: Diamond Bank, FBNH, UBA, Guaranty Trust Bank and Zenith Bank.

The best performing stocks for the session were McNichols and Dangote Flour that topped the advancers table with the gain of 7.14% and 5.77% respectively to close at N0.60 and N11.00 per share on the offer of five kobo dividend payout and market sentiment. The flipside was led by Redstar Express and JapaulOil, which shed 9.09%% and 8.70% respectively to close at N5.00 and N0.21 each, on market forces and profit booking.

Market Outlook
We expect a mixed performance as profit taking is underway in the midst of more earnings expectation, despite the numbers and rewards beating expectations. Investors and traders also should continue their repositioning for 2019 dividend declaration season and post-election rally expected to shape market performance in the interim. We advise cautious trading and investingwhile positioning in fundamentally sound equities.

Volatility will also continue as investors and fund managers reposition their portfolios, with eyes fixed on earnings reports, but investors should review their positions in line with their 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 also that investors should allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain low in the midst of mixed company numbers, weak economic and market fundamentals

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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https://investdata.com.ng/2019/03/mixed-performance-amidst-earnings-repositioning-for-2019-dividends/