Weak Numbers May Impact Low Equity Prices, Amidst Hope For Fiscal Stimulus

Market Roundup for April 2019
Nigeria’s equity market had a negative outing in the month of April, suffering the worst monthly performance year-to-date, with the All-Share Index lost 6.06%, significantly higher than the negative position of 2.14% in the month of March on the back of the increasing selling volume. This reflected the low confidence and liquidity in the market and the economy at large.

This post-election stock market lull or bearishness was deepened by confidence crisis arising from the electoral process that short-lived the inflow of funds as smart money exited their position immediately the outcome of the election was opposite of their expectations. This led to 41.46% decline in Foreign Portfolio Investment inflow in March to N110.1bn as against February’s N188.1bn, as the high rate in fixed income market further reduced liquidity in the equity segment with the government continuing to borrow and dominate the market.
Also important is the weak corporate earnings that revealed weak economic fundamentals which continued from 2018 into the year 2019, despite the seemingly improved economic data.

The low consumer and investor confidence persisted during the month under review, despite the seeming rise in oil prices and sustained stable, as well as the robust foreign exchange market that had supported the Naira.
Recall that the February market rebound was due to investor expectations of strong 2018 full-year earnings season, just as the pro-market ideas with the hope that the main opposition Peoples Democratic Party (PDP) could emerge victorious in the elections were dashed. This was despite the seeming high dividend yield that triggered this prevailing pessimism and low liquidity on the NSE. This was in addition to the 2019 first-quarter earnings reports that were weak.

Meanwhile, in the 20 trading sessions of April, the composite NSE index oscillated to close lower after recording 12 trading days of the down market and eight sessions of upmarket for the period. The composite NSEASI for the month shed 1,881.68 basis points to close at 29,159.74bps, from the opening figure of 31,041.42bps, representing 6.06% decline over the period.
The sell volume of total transactions for the month was 83% while buying position was 17% to continue the previous months down market as volume index for the period was 1.16. Market capitalization for the month dropped by N713.38bn, closing significantly lower at N10.9tr from an opening value of N11.67tr. This represented 6.08% value depreciation, despite the listing of additional shares of Access Bank and Sahco by way of introduction after a successful Initial Public Offering. This was in the midst of negative sentiment in the midst of Q1 earnings season that continued due to weak numbers that were below market and analysts expectations.
The month’s traded volume was up by 26.22% at 8.28 billion shares from 6.56bn in the previous month.
The NSEASI’s year-to-date negative position stood at 7.22%, just as market capitalization decline by N762bn, representing 6.48% YTD loss from the opening value.

Market breadth for April was negative as decliners outpaced advancers in the ratio of 55:26 to continue the bear transition, despite the fact that over 68% of quoted company’s shares are undervalued, even with the recent weak and mixed numbers as prices are generally low as many are trading below price earnings ratio of 8.22x.
The sectoral performance chart below shows that the NSE Industrial Goods sector depressed the market the most in the period under review, losing 12.98%, compared to a loss by the benchmark NSEASI. It was followed by the NSE Consumers Goods, which shed by 5.78% to reflect gloomy economy and low purchasing power of Nigerians, making the April CBN Purchasing Managers’ Index figure of 57.7 points that indicated expansion in manufacturing sector for period a bit somehow as NSE Banking was next after shedding 5.51% ahead of NSE Insurance and Oil/Gas index, which declined by 3.74% and 3.40% respectively.


The month’s best performer was Chams Plc, which is finding its true market value following its recently announced three kobo dividend that was paid from removed debt, despite the company weak numbers. Chams closed the month better by a significant 150% of its opening price; followed by Dangote Flour Mills, which chalked 84.31% as a result of acquisition talk/offer by Olam International, despite the dwindling performance of the company (READ MORE); while Japaul Oil grabbed 65% due to market forces/sentiment; and First Aluminum, 56.67% purely market forces.
Low and medium cap stocks dominated the top gainers for the month, including Forte Oil, 27.44% low price and the entrance of new investor; Sovereign Trust Insurance, 20% proposed right issue; and Caverton, 19.28% strong Q1 numbers and 25 kobo dividend; among others.


The worst performing stock for the period was ABC Transport, which lost 43.4%, linked to market forces and profit taking. CCNN shed 29.65% due seeming weak Earnings Per Share and price correction; Union Diagnostic declined by 23.33% as a result of market forces; International Breweries, 23.08%; and Guinness Nigeria, 22.18% on the back of weak earnings power.


Where To Invest And expectations for May, June
The expected economic direction and recovery are tied to the government’s policy as the market looks to the constitution of a new cabinet in the month of May, as the new dispensation kicks off. Also, we expect more encouraging economic data as the 2019 budget was approved on Tuesday by the National Assembly and will be accented by the President. Investors are expecting a change in the implementation style of the government so that this huge budget can make impact in the economy and living standard of Nigerians, and at the same time complementing the Central Bank of Nigeria’s effort to boost productivity that will create jobs and sustain recovery.
Reasons for this are not far-fetched, given the relative peace and security in Niger Delta region, resulting in oil production stability, all of which would impact the nation’s revenue positively, despite the unstable oil price.

In May, we expect the release of the nation’s April consumer price index (CPI) by the National Bureau of Statistics (NBS), with inflation dropping further; just as the CBN’s PMI improved in April to 57.7%, indicating an expansion in the manufacturing sector for the 23thconsecutive month. The nation’s GDP is also expected this month and would confirm the true state of the economy.
With the Q1 earnings reporting season officially coming to close, just as the month of April and company fundamentals have come out relatively weak, leading to mixed numbers that kick-started the 2019 financial year, while providing a guide for investors to know where to seek returns depending on their investment horizon, especially as the May 29 inauguration date draws nearer.
Traders and investors who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market should take this opportunity to position in some sectors for medium and short-term gains, especially in banking, Industrial, services and conglomerates subsectors after a careful study of recent numbers made available to the market.

What to expect in May and June
• In the new month, the weak numbers are likely to impact equity prices because prices are already low waiting for positive stimulus to rebound and create wealth for discerning investors and traders.
• Expect few quarterly and full year earnings to hit the market. Earnings from blue-chip companies may strengthen market fundamentals if liquidity improves.
• Continuation of the oscillating trend of equity prices as a result of the repositioning of the portfolio along the line of positive numbers and profit taking. Also due to lack of direction, the second half of this year will be mixed sentiment.
• Market outlook for May is always dicey, in line with popular saying that traders always “sell in May and come back in October,” which may necessarily depress the market in May. But in the Nigerian market, however, this theory has been defiled five times over the past seven years when the market was up, contrary to the expected down market for the period. The approved 2019 budget with CBN’s readiness to sustain its intervention in the FX market; and with the nation’s external reserve still robust, there is a likelihood of improvement in liquidity if the rate is further reduced; and business activity ahead of the second half of the year improves.
• The sustained low valuation in the market may trigger high demand for stocks as the government rolls out its reform policies very soon. However, there is need to invest wisely, using value area of support and resistance, volume spike when taking decisions as a trader.
• Managing risk and protecting capital at this point is very important, to enable you to determine when to buy or sell, by watching the stocks and the market, using technical tools. Look for investdata daily sentiment report.
• Let numbers released by the companies guide your decision and time to stay in that position.
• Full-year earnings reports of March year-end companies will start hitting the market this month until June.

TAKE ACTION
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Ambrose Omordion
CRO|Investdata Consulting Ltd
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https://investdata.com.ng/2019/05/weak-numbers-may-impact-low-equity-prices-awaiting-positive-stimulus-for-rebound/