July: Month Of Low Liquidity, Negative Breadth, New Lows, As NGSE Suffers Deepest Cut
Market Roundup for July 2019
The month of July ended lower on the Nigerian Stock Exchange (NSE), extending its 18-month of decline as the benchmark All-Share index kicked started the second half of the year on a strong negative note as selling pressure heightened on weak market and economic fundamentals.
Add this to the heightening insecurity situation in the country and weak earnings reports from quoted companies that have revealed the weak fundamentals of the economy which have fueled the negative sentiments and outing in the period under review when many stocks suffered huge losses, as many hit new 52-week lows. The market, therefore, recorded what has become its worst monthly performance year-to-date and over even in many years, with the NSEASI shedding all of 7.5%%, more than double the 3.55% it lost in the month of June on the back of the decreasing transaction volume.
This is a reflection of low confidence and liquidity in the market and the economy at large, as consumer confidence and stock prices continue to look downward.
This continued rapid fall in stock prices since the inauguration of President Muhammadu Buhari for a second and final four-year term in office, with the sustained stock market lull or bear run- further deepened by the worsening confidence crisis. This has been propelled by the political risk, which became much talked about in February after the Presidential and National Assembly elections were postponed amidst a tinge of suspicion. Since then, the level of insecurity at a time government said it had decimated the Boko Haram insurgents; a seeming lack of direction for the economy and the calibre of 43 Ministerial nominees, all of which have been cleared by the Senate, have all but assuaged the fears of investors that a change is in the offing any time soon.
Also noteworthy, is the weak corporate earnings that tell the weak state of economic fundamentals, especially the lowering purchasing power among Nigerians that has only grown worse beginning from 2018 into the year 2019, despite the seemingly mixed economic data. The low purchasing power in the country was confirmed by CBN’s Purchasing Managers’ Index for July at 57.6 points, confirming the constraining expansion in Nigeria’s manufacturing sector during the period.
The low consumer and investor confidence persisted during the month under review, notwithstanding the seeming rise in oil prices as well as the sustained Central Bank of Nigeria (CBN) interventions in the foreign exchange market which has supported the Naira.
Recall that the rebound of the market in May was due to the listing of telecommunication giant MTN Nigeria by way of introduction, when demand by investors was unmatched, with the stock not available for the local investors, among other issues, including free-float deficiency, etc.
The company’s first earnings report to the NSE last month, however, shows strength with top and bottom lines in green, laced with an offer of N2.95 per share interim dividend, while Airtel Africa Plc, which was listed in the month under consideration by introduction, did not impact the market. It only gained 10% on the day it was listed and reversed the following day and went on to trade for as low as N323, from its N363 per share listing price.
Meanwhile, in the 23 trading sessions of July, the composite NSE index oscillated to close lower, recording 18 days of the down market and only five up-markets. The composite NSEASI, during the month, shed 2,248.61 basis points, closing at 27,718.26bps from its opening figure of 29,966.87bps, representing a 7.5% decline over the period.
The ‘sell’ volume of total transactions for the month was 98% while buying position stood at 2% to continue the previous month’s downmarket with volume index for the period at 0.64. Market capitalization for the month was up significantly by 23.26% as a result of Airtel Africa listing, closing at N13.51tr, amidst negative sentiments and Q2 earnings that came weak and below market and analysts expectations.
The month’s traded volume was down by 49.84% at 4.67bn shares, compared to 9.31bn in the previous month.
The NSEASI’s year-to-date negative position stood at 11.81%, just as market capitalization was up by N1.28tr, representing 14.38% YTD gain from the opening value.
Market breadth for July was negative as decliners outpaced advancers in the ratio of 72:21 to continue the bear transition, despite the fact that over 68% of quoted company’s shares are undervalued, even with the market price to earnings ratio of 6.21x lower than the previous month position 7.35x.
The sectoral performance chart below shows that the NSE Consumer Goods sector depressed the market the most in the period under review, losing 11.85%, compared to a loss by the benchmark NSEASI. It was followed by the NSE Oil with 10.80%. The NSE Banking index followed with a decline of 9.19%, ahead of the NSE Insurance and Industrial Goods index, which fell by 6.47% and 1.30% respectively.
The month’s best-performing stock was Academy Press, which is finding its true market value, following its recently announced three kobo dividend which was paid, despite the huge debt sitting in its books, as well as the mixed numbers. Consolidated Hallmark Insurance closed the month 26.52% better; followed by NPF Microfinance Bank with 22.86% on the impressive quarterly numbers and despite the lean 5kobo dividend; BOC Gases chalked 22.76% owing to its improved performance and high payout; while Lafarge Africa grabbed 20.83% due to improving numbers and expected sales of its South Africa operation; while LASACO Assurance rose 13.79% purely on market forces; among others (READ MORE).
The worst performing stock for the period was International Brewery (READ), which lost 31.69%, linked to poor and weak earnings performance of the company since it merger three years ago (READ MORE). Linkage Assurance shed 26.96% due to its seemingly weak Earnings Per Share and the pull by market forces; Forte Oil declined by 26.68% as a result of its weak earnings and exit of the major shareholder, Femi Otedola; Ecobank Transnational Incorporated, 25.45%; and Eternal, 24.05% on the back of mixed earnings and market forces.
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