Returns On NGSE Turn Negative YTD, As Yields, Become More Attractive

Market Update for February 18

The nation’s stock market had mixed session and dipped further in the red on Thursday, for the third consecutive day as selling pressure persisted on profit-taking and selloffs across all sectors due to concern among the investing public on the rising insecurity in the country. This seems to have overwhelmed the lure of increasing dividend yields, and mixed economic data as seen in the latest data from the National Bureau of Statistics (NBS) showing that the Nigerian economy surprisingly recorded a marginal 0.11% growth in 2020 Q4 GDP halting the two quarters of negative 6.10% and 3.62% (READ MORE). This followed Wednesday’s release of the Consumer Price Index that the nation’s inflation spike further, touching a 17-month high at 16.46% in January, as against 15.78% in December (READ MORE).

The mild GDP growth appears to signal an exit from the second recession in the life of the Muhammadu Buhari administration, as earlier indicated by the mixed performance of unaudited Q4 and 2020 full-year corporate earnings released in January. These economic data are coming ahead of the major earnings reporting season of the Nigerian Stock Exchange (NSE), which just kicked off with early filers like United Capital announcing a corporate action of 0.70 kobo dividend, with qualification date slated of March 5, 2021. The proposed dividend translates to a Dividend Yield of 11.70% (using Thursday’s closing price, being the date it was declared), beat market expectation. Payout also grew by 40%, a situation expected to influence the company’s share price positively, depending however on market reaction, which can be quite unpredictable given that it can be overshadowed by other issues.

Looking at the filing rules of the Exchange and option chosen by companies for end of year submission of results or financials within 60 and 90 days, companies that published their Q4 and unaudited full-year within 30 days after their year-end have till end of March to release their audited numbers. On the other hand, companies that do not make their results available within the 30-day window after their year-end, have another 60 days to release their audited accounts. This suggests that companies with December year-end that did not submit Q4 unaudited result have this month to make available their audited full year reports to the market, except for those that have the approval of their regulators to delay their score-card for any reason.

While chart watchers and market participants await a trigger to drive the anticipated reversal of trend, these pullbacks are creating buy opportunities ahead of earnings expectation. However, let your investment plans and objectives: entry and exit strategies, guide you to survive and profit from the expected new trend. In that way, should the full-year earnings reports and dividend news fail to impact and reverse the current trend, a big rotation in sector trends should also guide you, going into the future.

Meanwhile, Thursday’s, trading opened on the downside, before oscillating throughout the day on a mixed sentiment and selloffs ahead of corporate earnings season. This situation pushed NSE index to an intraday low of 40,196.50 basis points, from its highs of 40,473.43bps, before finally closing the session below its opening figure at 40,212.19bps on a less than average traded volume.

Market technicals were negative and mixed, with volume traded higher than previous day’s in the midst of breadth favouring the bears on a high selling pressure as revealed by Investdata’s Sentiments Report showing 94% sell volume and 6% buy position. Total transaction volume index stood at 0.74 points, just as momentum behind the day’s performance remained weak, with Money flow index dropping sharply to17.28pts, from the previous day’s 26.48pts, indicating funds left the market on profit taking.

Index and Market Caps

The composite NSEASI at the end of Thursday’s trading lost 253.13bps, closing at 40,212.19bps, from its opening level of 40,465.32bps, representing 0.63% decline. Similarly, market capitalization fell by N132.42bn, closing at N21.04tr from the N21.17tr it opened, also representing 0.63% depreciation in value. 

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Thursday’s downtrend was impacted by profit taking in MTNN, Guaranty Trust Bank, Zenith Bank, Flour Mill, Lafarge Africa, United Capital, Dangote Sugar, UBA, Access Bank, and Vitafoam, among others. This impacted Year-To-Date performance which turned negative at 0.15%, while at the same time pushing market capitalization into red at N19.98 billion, or 0.06%.

Bearish Sector Indices

All the sectorial performance indexes were down, as NSE Banking led the decliners after losing 2.60%, followed by Insurance, Consumer goods, Oil/Gas and Industrial good with 1.54%, 0.51%, 0.20% and 0.13% respectively

Market breadth remained negative, as decliners outnumbered advancers in the ratio of 30:10; just as transactions in volume and value terms rose by 74.56% and 79.5% respectively, after investors exchanged 426.27m shares worth N4.75bn, as against previous day’s 244.2m units valued at N2.65bn. Volume was driven by trades in FBNH, Zenith Bank, Dangote Sugar, Guaranty Trust Bank and Transcorp.

RT Briscoe and Cornerstone Insurance were the best performing, gaining 10% and 8.47% to close at N0.22 and N0.64 per share respectively, on market forces. On the flip side, University Press and Chams lost 9.09% and 8.33%, closing at N1.20 and N0.22 per share, on profit taking and market forces.

Market Outlook

We expect a mixed trend and less losing momentum as bargain hunters increase their positions ahead of better dividend yield occasioned by price corrections that had created entry opportunities for discerning investors ahead of earnings expectations.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities. This is especially given the rising oil prices that have so far supported the Nigerian economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports and exit from recessionary economy until the next MPC meeting in March.

The NSE’s index action and indicators are in divergence on a low traded volume and positive buying sentiments.

Again, the current undervalued state of the market offers investors 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 in the new year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

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Tel: 08028164085, 08032055467

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