NGX Capitalisation Sheds N480bn, In Aftermath of Markdowns, 11Plc Delisting

 

Market Update for the Week Ended May 7 and Outlook for May 10-14

The first trading week of May after the public holiday ended mixed and bearish, amid profit taking and price adjustments for corporate actions that dominated the period on a low traded volume. Investors continued to reposition their portfolios on the strength of better-than-expected Q1 numbers recently presented to market.

These corporate earnings boosted investing public confidence, supported the mixed sentiments and buying interests witnessed in the general market, just as some sectors with strong potentials to grow their earnings in the quarters ahead, and outperform the composite Nigerian Exchange’s All-Share index (NGXASI).

Fundamentally, it is believe that equity markets move in cycles, just as stock prices respond to earnings reports on the short to long-run, besides changes brought about certain factors that do occur within the period. In other words, equity price movements follow patterns and trends which enable technical traders or analysts follow trends or forecasts since they repeats themselves. As such, you need to target factors that drive market cycles, equity trends and patterns by fixing your gaze on market forces.

It is necessary to state here, as revealed by market data, that the April-May cycle, especially Q2 of the Nigerian stock market is for position taking, or buying for the year, based on previous full-year and current Q1 earnings season, both of which offer insights into what to expect in the ongoing financial year. It is common knowledge that market reactions to the last quarterly earnings season in a bull or bear cycle depends on factors like liquidity, sentiment and state of the earnings.

Other very important seasons are the half-year results and third quarter earnings reports which help to determine whether the companies maintain positive trends in their numbers, if the earnings are trending up or down to give insight of what is likely to happen when the audited 2022 accounts start flowing in. It becomes the responsibility of investors to keep a tab on the second and third-quarter earnings as they are released to the market.

Just as it has always been, 2021 has, so far, not been any different judging with the first quarter results already released. As expected, savvy investors in the Nigerian equity market should gear up for critical analyses, leading to serious actions and position taking for the best of returns in sectors and stocks in the second half of this year.

One could wonder why investors and market operators alike should focus on half-year results. Put different, why are second and third-quarter results so important to the market? The confirm trends, consolidation of numbers and potential to deliver on dividend expectations, while supporting price, in addition to revealing the financial health of the companies. 

Movement Of NSEASI

The benchmark NGXASI witnessed a bearish dominance for three of the week’s four trading sessions under consideration, on a selling pressure and portfolios rebalancing, thereby halting two weeks of positive outings. The impressive Q1 scorecards and low price attractions of many undervalued stocks as earnings improved, reducing price to earnings ratios of the market and individual stocks. The current low price to earnings ratio in the market reveals the prevailing value as the nation’s economic recovery continues despite the lingering security challenges across the country, among others.

Transaction for the week opened slightly negative with a 0.08% loss, thereby short-living the previous session’s uptrend, a trend that was sustained at the midweek and again on Thursday on the back of price markdowns for dividends declared by their boards. There was also the effect of profit-taking from the recent rally that saw the NGX index declining by 0.92% and 0.84% respectively, after which there was an upward reversal on Friday, when the index recovered 0.21% on positive sentiments and buying interests. This bought the week’s total loss to 1.60%, from the previous week’s cumulative 0.43% gain.

In all, the key performance NGXASI lost 635.67 basis points from the 38,834.42bps it opened, after touching intra-week low of 38,875.66bps, before closing the week at 39,198.75 on selling and mixed sentiments. During the period also, market capitalization shed N420bn, closing at N20.43tr, from the previous week’s N20.85tr, a drop that was boosted by the week’s delisting of 11 Plc from NGX Daily official list.

Low and medium cap stocks dominated the advancers’ chart during week, with investors repositioning their portfolios and reacting to the Q1 earnings released, after earnings performance from high cap equities beat expectations amid price adjustment for dividend in Berger Paints, Linkage Assurance, Lafarge Africa, MTNN, Eterna, Seplat, NPF Microfinance and Courteville Business Solution. Also, trading and price actions revealed the presence of profit takers and buyers in some sectors with Q1 numbers that beat investors’ expectations.

The week recorded negative breadth as decliners outnumbered advancers in the ratio of 37:31 on buying sentiments and relatively weak momentum, just as Money Flow Index read 24.21bps, down from 33.50 points in the previous week. During the week also, Seplat released its Q1 numbers, offering an interim dividend of 2.5cent to investors whose names are in its register before the close of business on May 12, 2021.

NSEASI WEEKLY CHART MOVEMENT

The NGX index witnessed a pullback last week on markdown for dividend and profit booking during week in the midst of the ongoing portfolio repositioning on the strength of Q1 earnings reports that beat market expectations.

Going forward, all eyes are on the April inflation report, Purchasing Managers’ Index and Q1 GDP 2021 in the face of rising fixed income yields. There is also an increased volatility rate in the midst of changing price patterns and trading environment, while investors continue accumulating positions in undervalued and growth stocks.

Also, we note that the index has formed a bearish engulfing candlestick that signals a continuation of bear trend on a weekly chart, depending on market forces in the new week. We observe that volume traded was low, as the daily timeframe chart signals a bottom that needs confirmation on Monday.  This is likely to continue, depending on how investors react to the Q1 numbers in the remaining sessions of the month.

Nevertheless, we see the market maintaining a mixed trend, especially as investors await key economic data and the March year-end corporate earnings reports, just as the index continues trading above the 39,000 basis points.

The strong support level to watch out for on the NGX is within the 39,000bps and 38,845.16bps, and a breakdown of these levels will attract new positioning by traders and support stronger recovery. This is happening at a time crude oil is approaching $70 per barrel level at the international market, while the Covid-19 vaccination is on a high gear at the global and domestic levels, despite few climates suffering the second wave hit of Covid-19. As positive economic data from US and China support oil prices.

However, we envisage a mixed outlook for the rest of Q2, while not ruling out profit booking and repositioning of portfolios especially after the market recorded a sharp uptrend in 2020.

Our expectation of a mixed outlook is hinged on such factors as the possible impact of corporate earnings, ongoing vaccination, mismatch of monetary and fiscal policies, implementation of the 2021 capital budget, as well as implications of oil prices oscillating on the nation’s revenue. We note too, that impact of the Money Flow Index and MACD are bearish on a weekly chart, but bullish on daily time frame.

Mixed Sectoral Indices

Performance indexes across the sectors were mixed, as NSEOil/Gas, Consumer Goods and Banking closed 5.98%, 0,62% and 0.62% higher respectively, while the NSE Insurance led decliners after losing 2.20%, followed by Industrial goods with 1.60%. 

The general market’s outlook remains mixed in the short and long-term following which investors should take short and medium-term positions, while diversifying their portfolios along long-term trades to protect capital. This, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence.

Activities in volume and value terms were mixed as players exchanged 1.42bn shares worth N15.92bn, compared to the previous week’s 1.44bn units valued at N10.88bn, with the week’s volume was driven by trades in Financial Services, Industrial goods and Consumer goods sectors. Volume was driven by Access Bank, FBNH, Zenith Bank, Lafarge Africa and Transcorp.

The week’s best performing stocks were Royal Exchange Assurance and Sovereign Trust Insurance, which gained 22.64% and 17.39% respectively, closing at N0.65 and N0.27 each on market forces. On the other hand, Linkage Assurance and Courteville Business Solution lost 18.82% and 13.04% respectively, at N0.69 and N0.20 per share on price adjustment for dividend and bonus.

Market Outlook

We expect the mixed trend to continue as portfolio rebalancing and profit taking persist, just as market expects economic data like April Inflation, PMI and Q1 GDP in the face of rising fixed income market yields. Also, the pullback offers new entry opportunities for traders and investors to reposition in value and underpriced growth stocks, while companies with March year-end accounts release their unaudited and audited full-year numbers to support recovery in the new month. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.

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 oscillating oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q1 earnings reports, until the next MPC meeting in May.

Also, 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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