NGSE Downtrend Declines, On Earnings Expectation, Oil Price, CBN Policies

Market Update for July 21

Tuesday’s trading on the Nigerian Stock Exchange (NSE) continued its bearish trend as highly capitalized stocks suffered losses, making the composite All-Share index to side-range on mixed sentiments for the third consecutive session, closing lower. This was due to sustained cautious trading among investors as they await the release of more quarterly earnings reports and the impact of government policies on the economy.

The increasing negative return in other investment windows as inflation keeps rising may trigger an inflow into the equity segment of the market during this earnings season and after. This is considering the impressive yield of dividend paying stocks, even when they cut payouts at the end of the current financial year, due to the impact of the Coronavirus pandemic. The yield of some selected interim dividend paying stocks, if they sustain last year’s payout, is better than that of NTBs at 2.2% and bonds- 7.3%, considering the time frame and the 12.56% inflation rate, which has outpaced the 12.5% benchmark Monetary Policy Rate (MPR).

With the strong performance of the banks as engine room of the economy and despite this ongoing economic downturn due to the COVID-19 pandemic, the industry’s Non-Performing Loans (NPL) continues to decline according data from the Central Bank of Nigeria (CBN). It was estimated at 6.4% in June, down from 6.58% in April 2020 and 9.4% in June 2019. We note that there are some banking stocks with high upside potentials and yields with buy range ahead of their half-year earnings reports. To have access to Investdata stock pick, kindly login to our buy and sell signal setup.

Interim Dividend Of Selected Companies

Securities Last Int.Div Mtk Value BVPS Yields

Access Bank 0.25 6.20 17.30 4.03

Seplat 15.00 386.00 921.35 3.88

Stanbic IBTC 1.00 29.00 30.34 3.44

UBA 0.20 6.15 17.00 3.25

Airtel Africa 9.20 348.00 2.64

MTNN 2.95 118.00 9.61 2.50

Nestle Nigeria 25.00 1175.00 71.29 2.12

Custodian Inv 0.10 4.80 7.55 2.08

Zenith Bank 0.30 15.75 30.00 1.90

AXA Mansard 0.03 1.58 2.18 1.89

NB 0.50 30.00 20.34 1.66

Guaranty Trust 0.30 21.50 23.24 1.39

Meanwhile, trading started on Customs Street slightly in the upside Tuesday morning with a pullback at mid-morning, oscillating throughout the session on selloffs and position taking that pushed the NSE Index to an intra-day low of 24,130.26 basis points, from its high of 24,330.06bps. Thereafter, it finished the day lower at 24,174.45bps on a very high traded volume and positive breadth that supports pattern reversal, but we advice that you await a confirmation.

Tuesday’s market technicals were mixed as volume traded was slightly lower than the previous session’s in the midst of positive breadth and selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 22% and sell position of 78%. The total daily transaction volume index stood at 1.48, just as impetus behind the day’s performance stayed weak, with Money Flow Index read 22.20 points, as against the previous 30.34ps, indicating that funds left some stocks.

Index and Market Caps

The benchmark index, at the end of Tuesday’s trading, lost 95.13 basis points, closing at 24,174.45bps, after opening at 24,269.58bps, representing 0.39% decline, just as market capitalization lost N49.63bn, closing at N12.61tr from an opening value of N12.66tr, representing 0.39% depreciation in value.

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The day’s decline was due to selloffs in Dangote Cement, Zenith Bank, International Brewery, Eterna, and Honeywell Flourmill, which impacted negatively on the NSE’s benchmark index’s Year-To-Date loss, which increased to 9.94%. Also, the contraction in market capitalization YTD, rose to N281.31bn, representing a 2.73% drop from the year’s opening level.

Bearish Sector indices

Performance indexes across sectors were down, except for NSE Oil/Gas that closed flat. The NSE Industrial Goods index led the decliners after shedding 1.57%, followed by the NSE Insurance which was down by 0.93%. Others were the NSE Banking and Consumer Goods that shed by 0.07% and 0.06% respectively.

Market breadth turned positive as advancers outweighed decliners in the ratio of 14:10, while activities in volume and value terms were mixed as volume was slightly down by 0.30% after investors traded 304.19m shares, up from Monday’s 305.1m units, while value was up by 55.71% to N3.27bn, as against the N2.1bn recorded on Monday. Volume was boosted by trades in FBNH, Custodian Investment, Sterling Bank, Flourmills and Nigerian Breweries.

The best performing stocks for the session were Linkage Assurance and Vitafoam, after gaining 8.57% and 7.88% respectively, closing at N0.38 and N5.75 per share on market forces and Q3 earnings expectation. On the flip side, Eterna and Prestige Assurance lost 10.00% and 9.26%, closing at N1.80 and N0.49 per share respectively on selloffs.

Market Outlook

We expect the downtrend to slow down as more earnings are expected in the market in the midst of positive news of coronavirus vaccine on oil price and impact of CBN policies on the economy. Amidst inconsistent government policies which have continue to dampen investor confidence. This is likely to support the wave of decline as pullbacks persist, creating new entering opportunities. Money flow index has continued to look down at 35.64, despite flowing from one sector to the other, seeking value in terms of low prices with high upside potentials.

This is just as economic recovery is threatened by the rising cases of the COVID-19 pandemic, as earnings reporting season has kicked off, which implies that opportunities are still available as sectoral 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.

For immediate liquidity or cash, we advise that you trade low priced stocks with serious caution to avoid being trapped. However, the market’s high dividend yield continues to attract buying interests, as few audited and unaudited corporate earnings will hit the market, going forward. This is despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of Q2 numbers. It 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.

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. 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 and videos that will help you prepare and take advantage of the current happening in the market and economy are available at Investdata. How to invest or trade profitably in changing market dynamics and recession. Mastering earnings season for profitable investment To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085,08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd

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