NGSE’s Relatively High P/E Ratio Discourages Buying Interests, Amidst Earnings Inflow

Market Update for June 16

Tuesday’s negative outlook on the Nigerian Stock Exchange (NSE) extended for the third straight session as profit taking and mixed sentiments hit highly capitalized stocks, dragging the composite All-Share index lower on selloffs.

Stock prices closed lower as bulls and bears battled for dominance at a strong resistance and support level as trading patterns revealed indecision among traders, with buyers unwilling to position beyond a certain price level considering the expected Q2 earnings season. This is also considering that the market has rallied so far on strong sentiments supported by oil price recovery without any commensurate domestic economic fundamentals. The continued slide in oil prices again is sending cautious signals to the investing public.

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Tuesday’s trading started on the upside which persisted till mid-morning before oscillating in the midday to afternoon on positioning and profit taking among the low and high cap stocks that pushed the ASI below the 25,000 mark again after a slight breakout. The index also touched an intraday low of 24,930.68 basis points, from its high of 25,046.42bps, before closing lower for the day at 24,930.88bps on a low traded volume.

Market technicals for the session were negative and weak while volume traded was lower than the previous session’s, on a negative market breadth and high selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 100%. Total daily transaction volume index stood at 0.67, just as the impetus behind the day’s performance stayed relatively strong, with Money Flow Index reading 64.34 points, dropping from the previous 68.42ps. This indicates that funds are leaving the market on profit taking.

Index and Market Caps

At the end of the day’s trading, the NSE’s benchmark index lost marginally shedding 23.44bps, closing at 24,930.88ps, from the 24,945.25bps it opened, representing a 0.09% drop, while market capitalisation fell by N12.19bn to N13.01 trillion from an opening value of N13.02tr, representing a 0.09% value loss.

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The session’s decline was impacted by selloffs in high cap stocks like MTNN, Flour Mills, Zenith Bank, Ardova, GSK, C/I Leasing and Neimeth Pharmaceuticals. This impacted mildly on the NSE’s benchmark index, increasing the NSE’s Year-To-Date loss to 7.12%, while market capitalization YTD gains stood at N47.08bn, representing a 0.36% up from the year’s opening level.

Bearish Sector Indices

All the sectorial performance indexes closed lower, except for the NSE Industrial Goods index that closed 1.03% higher, while the NSE Insurance index led the decliners after losing 2.09%, followed by the NSE Oil/Gas, Consumer Goods and Banking with 0.57%, 0.24% and 0.11% respectively. Market breadth was negative as the decliner’s outnumbered advancers in the ratio of 22:13, while transactions in volume and value terms were down by 15.69% and 1.47% respectively to 200.39m shares worth N1.59bn, from the previous day’s 237.65m units, valued at N1.61bn. Volume was driven by trades in FBNH, Zenith Bank, FCMB, Lafarge Africa and Guaranty Trust Bank.

Fidson Healthcare and Skyway Aviation were the best performing stocks of the day, after gaining 10% and 8.08% respectively, closing at N3.63 and N2.95 per share respectively on the CBN’s intervention in the sector and dividend news. On the flip side, Neimeth Pharm and Prestige Assurance lost 9.91% and 9.52% respectively, closing at N2.09 and N0.57per share respectively onprofit taking and market forces.

Market Outlook

Market dynamics reveals that players are afraid to buy at this level, waiting for pullbacks to take a plunge as money is flowing from one sector to another seeking value in term of low prices with high upside potentials.  This is just as economic recovery is expected to come fast on government and CBN interventions, ahead of May inflation figure and Q2 earnings reports. This also implies that opportunities are still available as sectorial rotation continues. Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.

However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalued state of the market offers opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation going forward.

This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.

 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.

NB: The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond, How to invest or trade profitably in a changing market dynamics and recession and mastering earnings season for profitable investment are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd

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