NGSE Index YTD Loss Drops To 1.15% On MTNN Listing In May, But Market Breadth Stays Negative

Market Roundup for May 2019
The nation’s equity market had another mixed performance off the earnings season, reversing the negative position in the month of April on the strength of the listing by way of introduction of 20.35bn ordinary shares of MTN Nigeria Communications Plc, on the premium board of the Nigerian Stock Exchange (NSE) at N90 per unit. The stock gained 10% on its first trading day, closing at N99, which raised its a market capitalization from N1.8tr to N2. 02tr, inching closer to the value of Dangote Cement, the biggest company on the bourse.
Trading activities on MTN after five days of its listing resulted in 76.66% price appreciation, due to unavailability of the stock to retail investors, who had no access. This meant that trading of MTN Nigeria shares was only by cross deals and premium transactions that supported the rally before slowing down on profit booking and news of an ongoing investigation of the listing process by the Economic & Financial Crimes Commission (EFCC).

The relatively improved liquidity on the NSE in the second half of the month as a result of mixed 2019Q1 GDP data released by the National Bureau of Statistics (NBS), showing that the Nigerian economy grew by 2.01%, slower than the 2.74% population rate. There was the impact of the MTN listing on the NSE, gradual inflow of smart money into emerging markets as the 10-year U.S Treasury yield hit its recent low at 2.25%, amidst the heightening trade dispute between China and the U.S. This was made worse also by other geopolitical issues around the world.

Also, the recent positive sentiment for high cap and blue-chip stocks impacted the market positively, despite the seeming low confidence as governments at different levels are expected to hit the ground running, armed with their economic reforms policies, after last week’s inauguration.
Despite the seeming rebound of the market, consumer and investor confidence remained low as manufacturing sector activities were slow as reflected in the Purchasing Managers’ Index (PMI) that expanded marginally to 57.8 points in May from the previous month’s 57.7points. This is notwithstanding the relative stability in the nation’s foreign exchange market and increased foreign reserves level that supported the Naira.

Meanwhile, the NSE All-Share Index gained a significant 1,909.63 basis points during the week under review, closing at 31,069.37bps after opening the month at 29, 159.74bps to touch the month high of 31,917.13 from a low of 28,019.92bps, representing 6.55% growth. In the same direction, market capitalization was up by N2.77tr, representing 25.41% gain in value, as it closed at N13.67tr, from the opening value of N10.9tr, becoming the best monthly value appreciation on the back of the listing of MTN Nigeria and increased buying position.

The 21 trading sessions in May was mixed of up and down movement, closing higher after recording 12 trading days of down market and nine sessions of upmarket for the period. ‘Buy’ volume of total transactions for the period was 78%, while ‘sell’ position was 22% to halt the previous months’ down market as volume index for the month stood at 0.84. This was in the midst of mixed sentiments and May selloff.

Traded volume for the period was however down by 26.45% to 6.09bn, compared to 8.28bn units in the previous month.
The NSEASI’s year-to-date negative position reduced significantly to 1.15%, just as market capitalization gain soared to N1.94tr, representing 16.54% Year-To-Day growth from the opening level of N11.72tr.

Market breadth for May was negative as decliners outpaced advancers in the ratio of 67:15 to stop the bear transition, due to prevailing low price as more than 70% of listed companies are selling marginally above their 52-week low and below market price earnings ratio of 7.47x.

The sectoral performance chart below shows that the NSE Premium and Industrial Goods indexes were drivers of the market during the month of May, after gaining 15.78% and 5.05% respectively, compared to the appreciation recorded by the benchmark NSEASI. Other indices were in the red in the period under review, led by the NSE Oil/Gas which lost 6.44%, reflecting massive selloff in that sector despite the relatively high oil price in the international market. It was followed by the NSE Consumer Goods index, which shed 5.86% as a result of the gloomy state of the economy and low purchasing power of Nigerians. It was followed by the NSE Banking, Pension, NSE 30 and Insurance with 5.28%, 4.12%, 1.925 and 1.20% respectively.

The best-performing stock for the month of May was Thomas Watt Plc, a kobo stock that had been comatose for years but rebounded on market forces even without dividend payment and financials reports to ascertain the health status of the company. It closed for the month with a 60% gain on its opening price; followed by Beta Glass, which chalked 33.93% owing to its low price attraction and seeming improvement in its numbers; Fidson Healthcare grabbed 20.24%, due to market forces and sentiments; ahead of Courtville’s 20% purely on market forces.
Low, medium and high cap stocks dominated the top gainers’ table for the month, including Dangote Cement and NEM with 10.83% and 9.26% respectively, due to dividend payouts, Just as CCNN inched 7.14% up, as a result of low price attraction.

The worst performing stock for the period was Goldlink Insurance, which lost 50% of the month’s opening price, arising from correction and market forces; ahead of Champion Breweries’ 29.37% due to its poor Earnings Per Share; just as Chams declined by 24% as a result of profit taking and market forces. Forte Oil lost 22.10%, just as Regency Insurance shed 20% on the back of weak earnings power and market forces respectively.

Market Outlook
We expect mixed performance in the new month as recovery may continue, as investors take advantage of cheaper valuation to rebalance their portfolio ahead of March year-end numbers from Flour Mills, Redstar Express, University Press, Honeywell Flour, and Learn Africa which is billed to release its 15-month earnings due to change in its financial year-end from December.

Economic indices are likely to be mixed as May inflation data may maintain the up movement, just as Q2 GDP could further slowdown due to late approval of the 2019 budget. Investors should also take into consideration, plans by the Central Bank of Nigeria (CBN) to reduce banks’ participation in government securities, while boosting private sector lending to drive economic activities and investment.
Investors look to government’s policy direction as the market faced low liquidity problems in pre and post-inauguration season, vis-à-vis market and economic fundamentals.
The drop in prices of major blue chips in recent times has created entry opportunities, following which we expect speculative trading to shape the market direction going forward.

The ongoing volatility will continue as investors and fund managers rebalance their portfolios, with eyes fixed on political space and ongoing quarterly earnings position and post-election market dynamics. Investors should review their positions in line with their investment goals, the 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 to 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
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