NGSE Index Looks Towards Emerging Earnings Reports, As July’s Last Full Week Ends

Market Update for July 25
Thursday’s session on the Nigerian Stock Exchange (NSE) was a floppy and rough as its composite All-Share index consolidated back-to-back losses on a higher traded volume with earnings reporting season further dampening the market’s momentum. This was not unexpected mixed and weak scorecards emanating from listed companies thereby extending the bearish sentiments.
The Q1 and Q2 numbers so far released from companies like University Press, 11 Plc, Ikeja Hotel, Flour Mills (READ), Chemical & Allied Products and Julius Berger (READ), were weak and below market expectation. Beyond every other thing, it reflects the gloomy state of the nation’s economy, despite the fact that oil prices at the international market are on the upswing, with September-dated crude futures up 1% at $56.40 per barrel.

Two major factors are consistently working against the Nigerian market, giving the bears an upper hand since early 2018 when volatility started to trend down. They are the weak economy and political uncertainty, both of which have affected breadth, and specifically the index’s cumulative A/D line. Each time the benchmark index has made a new low, breadth has confirmed the move, and in each of the declines coming out of rallies, breadth has consistently lead price.

The extended bear market even after the release of the Ministerial list may be the result of the widespread dissatisfaction over the calibre of the nominees, restoration of Value Added Tax (VAT) charges that have heightened transaction costs in the market, as well as the poor numbers so far released. There is also the fear of a continued decline or slowdown in Q2 GDP being expected from the National Bureau of Statistics (NBS), given the quality of results already presented by the companies.

Trading on Thursday opened slightly up in the morning, oscillated in the mid-morning to midday, but stayed flat by early afternoon before pulling back at midafternoon to touch intraday low of 27,985.62 basis points from its high of 28,103.69bps, propelled by the continued selloff in high cap stocks. It then retraced up marginally to close the day at 27,990.81bps
Market technicals during the session were negative but mixed as volume traded was higher than previous day’s, amidst negative breadth and sentiment as revealed by Investdata’s Daily Sentiment Report, with the day’s ‘sell’ position at 96% and buy volume at 4% of total daily transaction volume index of 0.86.

The impetus behind the day’s performance remained weak and flat as Money Flow Index read 25.39 points, higher than previous day’s 25.79bps, indicating that funds left some stocks for another and for cash as factors militating against the market continue to increase in the face of already weak market and economic fundamentals.

Index and Market Cap
The All-Share Index at the end of Thursday trading lost 98.13bps to close at 27.990.61bps, after opening at 28,088.74bps, representing 0.35% decline, just as market capitalization fell by N47.82bn to close at N13.64tr, from an opening value of N13.69tr, also representing 0.35% value loss.
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The day’s decline was due to the persistent selloffs in high cap stocks like Dangote Cement, MTNN, Zenit Bank, FBNH, Access Bank, CCNN, Forte Oil, Oando, and Transcorp, which impacted negatively on the NSE’s Year-to-Date loss position raising it to 10.94%. Also, YTD market capitalization gain dropped to N1.92tr, or 16.64%, above the year’s opening level of N11.72tr.


Sector Indices
The sectoral indices had a mixed performance that was largely bullish, except for the NSE Oil/Gas and Banking that closed lower by 0.81% and 0.39% respectively, while the Insurance index led the advancers after gaining 0.27%, followed by Industrial Goods with 0.26% and next was Consumer Goods with 0.16%.

Market breadth slipped into negative as decliners outnumbered advancers in the ratio of 16:15; market activities were mixed as volume traded was up by 127.59% to 357.11m shares from previous day 157.79m units, while value declined to N1.89bn from midweek’s N2.52bn. The day’s volume was driven by trading in financial services, Conglomerates and ICT stocks such as Courtville Business Solution, FCMB, UBA, Transcorp, and Zenith Bank.

FCMB and Chams were the best-performing stocks for the day, as they topped the advancers’ table with 8.81% and 8% gains respectively, closing at N1.73 and N0.27 per share, on earnings expectation and market forces. On the flip side, Wapic Insurance and GSPECPLC lost 10% and 9.57% respectively to close at N0.36 and N5.20 on profit-taking and market forces.

Market Outlook
Being the last trading day of the week, the current trend is expected to continue as half-year numbers miss expectation to propel the prolonged bearish run as more companies release reports to the market.
Discerning investors should target value stocks considering the current low valuation to position for dividend income and capital gain, especially as the market’s Price to Earnings ratio is 7.28x, which is well below the 11.1x average of its peers and a five-year average of 13.2x. This revealed value and high upside potentials for a rally.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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