NGSE Index Declines Again, But Shows High Upside Potentials, With 7.13x P/E Ratio

Market Update for September 17
Movements on the Nigerian Stock Exchange (NSE) over the past weeks are indications that the market has in its downtrend formed resistance chart patterns that support a real reversal in no distant time.

The extended pullback at the end of Tuesday’s volatile and mixed session confirms the occurrence of a failed attempted rally, which at the same revealed an imminent change in the trend with the recent top and bottom chart formations.

The massive rotation into value stocks from momentum was due to investors’ perception of the undervalued nature of many blue-chips; as well as positive news from the political space and oscillating oil price that is expected to impact the nation’s external reserves, all things being equal.

Trading on Tuesday failed to react to the slowdown in inflation rate at 11.02% in August from 11.08% in July, the slowest growth since January 2016, due to harvest season and weak demand as purchasing power of many Nigerian continued to look down, just as unemployment rate hit 36% according to the report released Tuesday by the National Bureau of Statistics (READ MORE).

This manic movement being stimulated by traders resulted in a drop in the share price of Airtel Africa to a level that will allow real trading activities to commence after staying flat due to low transaction volume before now. Profit-taking from the recent rally also weighed on the market.

Again, Tuesday’s trading started on the upside and maintained the trend, despite the up and down movement till the early to mid-afternoon before pulling back on selloffs in Airtel Africa and profit-taking in Zenith Bank.

These forced the benchmark All-Share index to touch intraday low of 27,371.89 basis points, from a high of 27,646.96bps, before later retracing up marginally to close the session lower at 27,407.04bps on less than average traded volume.

The day’s market technicals were negative and mixed, with lower transacted volume than previous day’s in the midst of positive market breadth and negative sentiment, as revealed by Investdata’s Daily Sentiment Report, showing ‘sell’ volume of 87%, while ‘buy’ position stood at 13% on total daily transaction volume index of 0.89.

The momentum behind the day’s performance was weak as Money Flow Index continues to trend down at 29.65 points, from the previous session’s 34.89bps which indicated that funds left some stocks and the market as a reflection of selloffs and profit booking.

The current stock prices and the earnings powers of companies as revealed by their half-year Price/Earnings ratios and the general market show that there are high upside potentials if the economy improves. As market PE ratio stands at 7.13x.

Index and Market Cap
At the end of trading, the NSEASI shed 167.28bps closing at 27,407.04bps after opening at 27,574.43bps, representing a 0.61% decline, just as market capitalization lost N81.43bn to close at N13.31tr from an opening a value of N13.42tr which also represented 0.61% depreciation in investors’ portfolio.

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The session’s downturn followed price declines by stocks like Airtel Africa, Zenith Bank, Flourmills, FCMB and Wema Bank, among others, which impacted negatively on the NSE’s Year-to-Date loss, raising it to 12.80%, even as YTD market capitalization gain stood at N1.62tr, representing 13.83%, from the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indexes were largely bullish, except for the NSE Banking that closed marginally lower at 0.01% while Oil/Gas was flat. The NSE Insurance index led the advancers with 0.76%, followed by Industrial and consumer goods index with 0.57% and 0.18% respectively.

Market breadth remained positive as advancers outnumbered decliners in the ratio of 22:15; while market activity in volume and value were down by 26.99% and 0.29%, respectively at 198.03m shares worth N2.9bn, from the previous day’s 271.24m units valued at N2.91bn. Volume was driven by trades in financial services stocks- Access Bank, Zenith Bank, Sterling Bank, FBNH and UBA.

NEM Insurance and Livestock Feeds were the best-performing stocks, after gaining 9.74% and 9.52% respectively to close at N2.14 and N0.46 per share, on market forces. On the flip side, Airtel Africa and UACN Property lost 10% and 9.55% respectively, closing at N283.50 and N1.42 on selloff and profit booking.

Market Outlook
We expect a mixed performance as profit-taking from this short rally continue ahead of Thursday and Friday MPC meeting, while bargain hunters take advantage of low prices of equity to position, now that index had reversed down.

Discerning investors should latch on it to average down and recoup their investment immediately a recovery stage is set through economic policies and things start to change gradually to influence equity prices positively, while investors watch these sectors that have become defensive recently like insurance, banking, industrial goods, services, and oil/gas that will go bullish in no distance time. Also, with all eye fixed on the newly appointed economic advisory council to settle down and kickoff.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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Tel: 08028164085, 08032055467

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