Profit Taking, Price Adjustments Ahead On NGSE, As Higher Yields Continue To Attract Investors

Market Update for the Week Ended May 15 and Outlook for May 18-22
Another mixed trading week ended on the Nigerian Stock Exchange (NSE) Friday with profit-taking and positioning halting the two previous weeks of bull-run, despite the impressive corporate earnings from low and medium cap companies that declared dividend at the of the financial year ended December 2019.

The quarterly numbers of these low priced stocks equally looked up, signaling opportunities in these categories of equities, while the low traded volume resulted from investors staying on the sidelines to monitor the mixed sentiments playing out between the bulls and bears.
Nevertheless, short-term rebound continued in the face of assets switch and disconnection from economic realities. The rising debt-to-GDP ratio is already a threat to investments in the bond market even as the possibility of government and corporate defaults is high in the post-coronavirus environment.

The financial sector, especially the banks, is the bellwether of the economy and the market, making the banks’ earnings performance and soundness a good economic indicator to watch when playing the stock market. No doubt, the shock arising from this unexpected pandemic has affected the economy and stock market, the market seems to have bounced back, even when the economic fundamentals remain weak as a result of many factors. The high provision for loan loss in the recent Q1 results of banks has given an insight into what the Q2 numbers will be, just like stock prices when the numbers and economic data are made available eventually.

Oil prices continue to oscillate and close higher in the period under review, thereby creating a somewhat dynamic and upward trend since it touched the 21-year low during the global lockdown. This is a sign that stakeholders in the oil and energy market have started to address the issue of storage facilities, as a gradual return to streets and workplaces are helping to balance supply and demand. This move is expected to help the global and the national economies improve, indicating that oil prices would not stay this low for too long.

Movement Of NSEASI
The NSE’s benchmark index started the week on a negative note, declining by 0.39%, an extension of the previous Friday profit-taking mode which lasted till Tuesday when the index shed another 1.06%. It thereafter reversed by midweek when it resisted further decline on improved buying interests in high cap and banking stocks, which was extended to Thursday when the market recovered 0.77%. There was a slowdown in the losing momentum by Friday with the NSE composite index closing flat at 0.01% with mixed sentiment hitting highly capitalized stocks. This brought the week’s total loss to 0.72%, as against the previous week’s 4.45% gain. Volume traded was lower, even as the profit-taking arose from the expectation of inflation data for April, even as the hike in commodity prices during the lockdown will push the figure for the period higher to a deep negative return of many investment windows.

In all of these, the NSE All-Share Index during the period shed 174.07 basis points, after opening at 24,045.40bps touching an intra-week high of 24,058.15bps, from its 23,542.33bps low on mixed sentiments of profit-taking and positioning. This occurred as some investors were cautious of the mixed trend, while others were taking advantage of the price correction to position ahead of dividend qualification dates and markdown of blue-chip stocks in the midst of corporate earnings expectations, and the economic reset. The NSE index closed lower at 23,871.33ps, compared to the previous week’s close, after breaking down the 24,000 psychological line. In the same vein, market capitalization lost N90bn, closing at N12.44tr, from the previous weekend’s N12.53tr, representing a 0.72% value loss. During the week, the share price of Seplat Petroleum was adjusted during the period for the N15.08 final dividend proposed by the directors.

During the week, more than 15 companies released their corporate earnings, of which four were 2019 audited results. Directors of NPF Microfinance, Total Nigeria, Airtel Africa, and May&Baker recommended a dividend of 20kobo, N6.71, $0.03, and 25 kobo respectively.
Others were quarterly reports from Aiico Insurance, AXA Mansard Insurance, Law Union & Rock Insurance, Lafarge Africa and Total Nigeria, with mixed performance, even as the low priced stocks posting impressive results, especially as NPF Microfinance, Aiico Insurance, Mansard, Transcorp Hotel, Transcorp, Custodian Investment, and Law Union.

The low and medium cap stocks dominated the advancers table on high dividend yields and sector attraction, just as investors demanded large-cap company shares with qualification dates that are close by. This reflected in the market breadth with advancers outpacing decliners in the ratio of 32:28, while energy behind the week’s performance was weak. Last week also, Money Flow Index read 26.38bps, up from 21.71bps in the previous week.

Despite NSE index pulling back for the period, the market remained bullish on a weekly time frame, as index’s action is set to break out from the short bearish channel to trade above the 161.8% Fibonacci retracement level, after correction from the recent overbought region. The momentum behind the market recovery remains strong as portfolio realignment and assets reclassification continue irrespective of global economic data that are pointing to a recession.
ADX weekly time frame is trending up to trade above 20 at 31.73points, with MACD looking up and crossing the signal line on mixed sentiments as revealed by Investdata’s Sentiment Report for the week, showing 64% ‘buy’ volume and sell position of 36%, with the transaction volume index at 0.58.

Mixed Sectoral Indices
The sectorial performance indexes were largely bearish, except for the NSE Consumer Goods and Oil/Gas that closed 2.25% and 1.56% higher respectively, while NSE Industrial Goods index led the decliners’ after losing 2.18%, followed by NSE Insurance and Banking that was down by 0.56% and 0.03% respectively.

Market transactions in terms of volume and value were down by 43.98% and 46.35% respectively as investors exchanged 926.42m shares worth N9.77bn, from the previous week’s 1.66bn units valued at N18.21bn. The week’s volume was boosted by trades in financial services stocks, especially FBN Holdings, Guaranty Trust Bank, and Zenith Bank.
The best-performing stocks for the week were NPF Microfinance and Unilever, which gained 50.83% and 20.95% respectively, closing at N1.78 and N12.70per share on high dividend and low price attraction. On the flip side, UACN Property and CAP, its sister company, lost 13.04% and 9.83% respectively, closing at N0.80 per share and N20.65 per share on profit-taking and market forces.

Market Outlook
We expect a mixed performance on profit-taking, price adjustment of Nestle, Okomu Oil, and UACN, as positioning taking in the healthcare sector and blue-chip stocks ahead of their qualification and payment dates. Also, the possibility of continued funds inflow to the market in the new week is high due to higher yields in equity assets, considering the low rates in the money market and high risk in the bond market.

In the meantime, investors continue to digest the score-cards released last week to help them make informed decisions while waiting for the April Consumer price index and Q1 2020 GDP reports from the National Bureau of Statistics (NBS) to enable portfolios repositioning. Investors also should look out for developments regarding the implementation of the CBN’s funding plan for small and medium scale businesses.
Already, we notice that investors are taking a position in healthcare and other defensive stocks that are likely to survive this meltdown, following which there is increased transactions in them, even as global markets continue on the recovery path already, as lockdowns are gradually being relaxed.
Also, do not forget to identify and play defensive stocks among the many fundamentally sound companies, as their share prices remained depressed, making them attractive for bargain hunting by market players. This has also resulted in significant improvements in Dividend Yields of stocks, even as we note the fact that fund managers who held cash before now, may have to rethink the strategy and go for value stocks with high upside potentials.
While discerning investors should take advantage of the current low stocks valuation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.
On a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With a dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.

To position for the short to long-term, this is why investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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