Poor Liquidity, Weak Transaction Value, Volume Still, As Investors Digest Q2 Earnings

Market Update for July 29
The Nigerian Stock Exchange (NSE) recorded a seeming rebound on Monday to start the week positive, as the disappointing half-year earnings reporting season enters its peak with mixed and weak numbers, despite the financial engineering apparent in some of the scorecards released recently.

The continued interpretation of corporate earnings made available so far by market players will determine the next direction, going forward, depending on the level of liquidity available in the market as the results of many high cap stocks came below expectations.
The prevailing low trades and mixed sentiment are clear reflections of the wait-and-see attitude of traders and investors, especially when the earnings are not sufficient motivation to reverse the negative market emotions, even as betrayed weak fundamentals.
The increase in the cost of trading due to the reintroduction of Valued Added Tax (VAT) on stock market transactions and delayed release of the half-year score-cards of banking stocks may further dampen investor confidence in the market and economy. Chairman of the Federal Inland Revenue Service (FIRS), Babatunde Fowler, is however positive that the VAT waiver on the stock market transaction will be restored when the Finance Minister resumes office soon. He seems to agree with analysts arguments that the basis for the waiver is still very real in today’s market.

But, just as we have said earlier, the weak Q2 corporate earnings have given an insight into what Nigeria’s Q2 GDP numbers could look like when released eventually by the National Bureau of Statistics (NBS).
At the end of Monday’s trading, more companies published their financials including Ecobank Transnational Incorporation, Okomu Oil Palm, Total Nigeria, and others, with their stocks suffering a decline in value to hit 52 weeks low.
Monday’s trading opened slightly on the upside as buying interest in companies that posted surprising earnings increased in the early hours, before pulling back by the midday to early afternoon as more corporate earnings missed expectation. This pushed the NSE All-Share index down to intraday low of 27,912.70 basis points from a high of 27,976.14bps, before finishing the session higher at 27,950.36bps on a very low traded volume.

Market technicals for the day were positive but mixed, as volume traded was lower than the previous day’s, as the breadth favours the bulls, with mixed sentiment as revealed by Investdata’s Daily Sentiment Report of ‘buy’ volume at 51% and sell position of 49% total daily transaction volume index of 0.29.
The momentum behind the day’s performance remained weak, despite moving up, as Money Flow Index read 28.26 points, higher than previous day’s 26.21bps, indicating that funds entered some stocks and the market as selloff slowdown and high cap stock prices inched up in the phase of prevailing low liquidity and indecision.

Index and Market Cap
The benchmark NSEASI closed Monday’s trading slightly up by 31.77bps to close at 27,950.36bps after opening at 27,918.59bps, representing 0.11% growth, just as market capitalization rose N15.48bn up to close at N13.62tr, from N13.61tr, which also represented 0.11% growth.
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The day’s upturn was helped by position taking in stocks like Nestle Nigeria, Guaranty Trust Bank, Stanbic IBTC, UBA, CCNN, FBN Holdings, Wema Bank and Honeywell, which reduced the NSE’s Year-to-Date loss to 11.07%, just as YTD market capitalization gain inched to N1.65tr or 15.34% from the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indexes were largely bullish, except for the NSE Banking and Oil/Gas that closed 0.02% and 1.25% lower respectively, while the Insurance index led the advancers’ after gaining 0.63%, followed by Consumer and Industrial Goods with 0.20%resectively.
Market breadth turned positive as advancers outnumbered decliners in the ratio of 21:14; market activities were down in transaction volume and value by 28.84% and 58.05% respectively to 93.11m shares worth N1.11bn, from the previous 130.85m units valued at N2.64bn. The session’s volume was driven by trading in financial services and conglomerates stocks such as Zenith Bank, Transcorps, Lasaco Guaranty Trust Bank and Access Bank.

C & I Leasing and Vitafoam were the best-performing stocks, as they gained 10% and 9.95% respectively, closing at N5.50 and N4.09 per share, on market forces and improved Q3 numbers. On the flip side, Total Nigeria and Chams lost 9.96% and 7.14% respectively to close at N114.80 and N0.26 on unimpressive earnings and profit-taking.

Market Outlook
We expect mixed trend as players digest the earnings reports released so far, in expectation of more earnings as bargain hunters take advantage of the prolonged bearish market, just as the half-year earnings reporting season peaks. 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 7.23x, which is well below the 11x average of its peers and a five-year average of 13.x. This revealed value and high upside potentials for a rally.

They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as Central Bank of Nigeria (CBN) had rollout it plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.
There is also the likely impact of portfolio repositioning for the second half of the year in the midst of expected Q2 numbers, especially banking stocks.

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Ambrose Omordion
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https://investdata.com.ng/2019/07/poor-liquidity-weak-transaction-value-volume-still-as-investors-digest-q2-earnings/