Mixed Sentiments May Linger, Amid Adjustment Of MTNN, Flourmills Prices

Market Update for the Week Ended August 14 and Outlook for August 17-21

Trading on the Nigerian Stock Exchange (NSE) was mixed over the past week, just like the major sectoral performance indexes, even while equity prices closed higher on above-average traded volume. It therefore extended the positive sentiment for the fourth consecutive week on strong buying pressure, propelled by corporate earnings that beat market expectations and sectoral rotation.

Cases of the novel Coronavirus pandemic across the globe continue amidst the easing of lockdowns by countries which have reopened their borders for economic activities, triggering production activities and impacting commodity prices, especially crude oil that has remained in the uptrend. Besides the oil price recovery and the earnings reporting season have supported the global stock markets and the NSE amidst the geopolitical tension, mixed economic outlook and fundamentals, with the UK’s economy already slipping into what has been termed its worst recession.

Nigeria’s hyperinflation, made worse by the latest currency devaluation are investors’ worst nightmares, even with the weakening foreign reserves and its ability to withstand these situations, which could delay economic recovery or worsen the prevailing state. This has resulted in speculations that weakened the exchange rate of the Naira against major currencies. With factors driving inflation on the increase, ranging from the continued border closure since August last year, low interest rate regime, hike in the pump price of fuel resulting high cost transportation, heightening insecurity, imported inflation due high exchange rate at the black market and the coronavirus outbreak that had weakened the purchasing power of Nigerians as the combined rate of underemployment and unemployment in the country hit 55.7% at the end of the 2020 Q2, threatening its socio-economy.

Movement Of NSEASI

Last week, the positive momentum slowed down from the previous week’s uptrend as the NSE All-Share index recorded three session of losses and two up markets, after opening on a slightly negative note at 0.06%. This was extended to Tuesday when the margin of loss increased to 0.41% amidst mixed sentiment after profit taking worsened. This was halted at midweek when the index closed 1.04% up, reversing the trend. This was sustained on Thursday when the benchmark index gained 0.38% before pulling back on profit booking among high cap stocks on Friday, closing 0.15% down. This reduced the week’s total gain to 0.63%, lower than the previous week 1.41% positive close.

Specifically, the NSEASI gained 157.95 basis points, after opening at 25,041.89bps, touching an intra-week high of 25,236.97bps, from its low of 24,841.94bps on a positive buying sentiments and profit taking,  driven by the better-than-expected earnings from companies, as well as sector rotation. This was linked to portfolios repositioning by retail and institutional investors on the strength of the recent half-year earnings reports released as revealed by the week’s traded volume. The composite index closed the week up at 25,199.84ps, in the same vein, market capitalization rose by N82.46bn, closing at N13.15tr, from the previous week’s N13.1tr, also representing a 0.63% value gain.

During the week, over 9 companies released their half-year scorecards and full-year earnings reports for March 31, 2020 ended financial year from Northern Nigeria Flour Mill, Tripple Gee, Lasaco Association, and Goldlink Insurance.  Directors of NNFM, Tripple Gee and Lasaco recommended a dividend of 15 kobo, 0.055 kobo and 0.05 kobo respectively. Also, within the week, the share price of Cornerstone Insurance was adjusted for a bonus of seven shares for every 30 held.

Consumer goods and high priced stocks dominated the top advancers’ table, even as decliners outnumbered the gainers in the ratio of 33:29, while the impetus behind the week’s performance was relatively strong, with Money Flow Index reading 66.88bps from prior week’s 71.24ps. This reflects the increased buying interests in the face of the seeming profit-taking and selloffs on portfolio rebalancing.

The NSE’s index action has again formed the double top chart pattern on a weekly time frame that signals pullback or correction depending market forces, as the index continues to trade above its 20-Day Moving Average. At the same time it is heading to breakout the 50-DMA and 50% line of Fibonacci retracement on above average traded volume that indicates the wait-and-see attitude of market players as interim dividend paying stocks financials are expected any moment from the new week. 

However, we envisage profits booking ahead, as the interim dividend yield of some companies are thinning out on relatively high prices.

On a daily and weekly time frame MACD remain bullish, supporting an uptrend and changing momentum in the market on the increasing numbers of earnings reports that are above expectation. The buy volume for the period stood at 91%, and money flow index at 66.88 points.

Mixed Sectoral Indices

The performance index across the sectors were mixed, with the NSE Industrial Goods and Banking closing 2.71% and 0.03% lower respectively, while the NSE Oil/Gas index led advancers after gaining 5.92%, followed by the NSE Consumer and Insurance that closed 2.25%  and 1.12% higher respectively.  In addition to the general market, over the most recent period, therefore the overall outlook remained mixed and bullish in the short-term. Investors should focus on diversifying their long-term trades, especially agribusiness, healthcare, industrial goods and telecoms which have shown the most strength. 

Transactions for the week, in terms of volume and value, were up by 24.3% and 28.98% respectively as market players exchanged 1.33bn shares worth N13.93bn from the previous week’s 1.07bn units valued at N10.8bn. The week’s volume was boosted by trades in financial services, conglomerates and consumer goods stocks, especially Guaranty Trust Bank, Transacorp, Zenith Bank, Access Bank and Guinness.

The best performing stocks for the week were Cadbury and Nigerian Breweries which gained 12.88% and 12.50% respectively, closing at N7.45 and N36.00 per unit on market forces and major shareholders increasing their stakes respectively.  On the flip side, Champion Brewery and Ikeja Hotel lost 25.26% and 25% respectively, closing at N0.71 and N0.84 per share on weak earnings and selloffs.

Market Outlook

We expect mixed sentiment and profit taking to continue as MTNN, Flourmills and others will be adjusted for dividends declared by their boards, funds flowing into expected government bond and dividend paying stocks ahead of July inflation reports from NBS.  This is coming amidst reactions to the many impressive half-year reports that beats market expectation spurred retail and institutional investors to reposition their portfolios on the strength of these companies earnings power and future prospects.

We cannot also rule out investors pricing in government’s inconsistent, mismatch policies and weak macroeconomic data as labour market report released by NBS which revealed the worse state of the nation unemployment and its threats to the economy. Already, the hyperinflation which has risen above the Central Bank of Nigeria’s benchmark Monetary Policy Rate (MPR) at 12.5%, even as the declining industrial productivity points to the reality of a recession.

The sectoral rotational wave will help investors cash in on low cap stocks and sectors that have suffered huge losses before now. Already investors are looking the way of healthcare, airline service providers, oil marketing stocks, banking among sectors likely to be impacted positively in the much anticipated global and domestic economic recovery.

Also, the possibility of continued funds inflow to low priced stocks is high, due to the higher yields and upside potentials, considering the low rates on offer in the money and bond markets. In the meantime, investors should also look out for developments around the implementation of the CBN’s funding plan for small and medium scale businesses. 

Already, we notice that investors are taking position in healthcare and other defensive stocks likely to survive this meltdown, as seen in the increased trading in them, even as the global markets continue on the recovery path, with the gradual easing of the lockdown.

While discerning investors should prepare to take advantage of stocks revaluation 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.

Expect a pullback that will support the upside potential, especially with many fundamentally sound stocks remaining underpriced, and the 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, 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.

Meanwhile, the home study packs, videos on Strategies and How to Invest Profitably in This Changing Market Dynamics and Recession.  Mastering Earnings Season for Profitable Trading and Investing in any market situation/Cycleare available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd

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