Pullback Ahead On MTNN Markdown For Dividend, Sustained Profit-Taking

 

Market Update for August 19

The Nigerian Exchange’s NGX All-Share index found its footing on Thursday as equity prices moved north on an improved traded volume and positive breadth, wiping away the previous session’s negative outing on a seesaw movement that had characterised the market in recent days. Buyers, during the session, dominated sellers, as fixed-income market activities remained flat, with rates declining. This is likely to make the equity space more attractive, considering the better-than-expected half-year corporate earnings that were released to the market recently.

Thursday’s market sentiments gravitated towards stocks that had positive investor reactions, especially in the healthcare sector that topped the gainers’ chart during the session. The falling oil price in the international market now at $65 may not affect the Nigerian market immediately due to less participation of foreign investors.

Overall, the economy’s recovery remains on a slow path even as the inflation rate continues to moderate Y-o-Y, driven by base year effects. Despite moderation in the inflation rate, prices of basic food items remain on the high side, traceable to the deficiency in the supply side and heightening insecurity across the country.

Moderation in inflation rate might continue towards the end of the year hinged on base effects, however, increased government spending (budget deficit financing), exchange rate pressure in the parallel market, and possible subsidy removal remain threats to the long-term CBN-MPC benchmark single-digit target by 2022.

Technically, the market has moved away from the ranging trend to the uptrend heading to the black line which is a major resistance level of 39,840.62 basis points, following which a breakout will usher in a strong recovery move, which the expected results of the interim dividend-paying banks. The price adjustments of high cap stocks will determine how far the benchmark index will go, considering the improved traded volume, positive broad market, and bullish indicators which suggest that investors and traders are still taking a position in value and growth stocks.

Meanwhile, Thursday’s trading started on a positive note before oscillating on selloffs and position taking in high and low cap stocks which pushed the benchmark index to an intraday high of 39,670.29 basis points, from its lows of 39,462.39bps. Thereafter it closed above the opening points at 39,670.29bps.

Market technicals were positive as the volume traded was higher than that of the previous sessions in the midst of breadth favouring the bulls on buying pressure as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ volume. The total transaction volume index stood at 0.87 points, just as the momentum behind the day’s performance was strong as Money Flow Index read 74.40points, from the previous day’s 63.61 points, an indication that funds entered the market.

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Index and Market Caps

The composite NGX All-Share Index, at the end of the session, gained 124.62bps, closing at 39,670.29bps, from its opening level of 39,545.67bps, representing a 0.32% up, just as market capitalization rose by N64.93bn at N20.67tr, from the opening value of N20.60tr, also representing a 0.32% appreciation in value.

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Thursday upturn was driven by buying interests in stocks like MTNN, Zenith Bank, FBNH, Access Bank, BOC Gas, Honeywell, Pharma Deko, Lafarge Africa, Livestock Feeds, Neimeth Pharmaceutical and Nahco among others. These impacted mildly on Year-To-Date loss which dropped to 1.49%, just as loss in market capitalization YTD fell to N388.17bn, representing a 1.83% decline from the year’s opening value.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance and Industrial Goods closed higher by 0.77% and 0.22% respectively, while the NGX Consumer Goods Index led the decliners, after shedding 1.68%, followed by Energy and Banking with 0.07% and 0.06% respectively.

Market breadth was positive as gainers outnumbered losers in the ratio of 23:16, while activities in volume and value terms were mixed as stockbrokers traded 201.84m shares worth N1.68bn, compared to the previous day’s  132.08m units valued at N2.67bn. The day’s volume was driven by trades in Courtville Business Soluation, Ecobank Transnational Incorporated, Transcorp, Nahco and Honeywell Flour.

Neimeth Pharmaceutical and Nahco were the best-performing, gaining 10% each, closing at N1.87 and N2.97per share respectively on the positive market sentiment. On the flip side, Nigerian Breweries and Consolidated Hallmark Insurance lost 8.77% and 6.67% respectively, closing at N52 and N0.42 per share, on selloffs and market forces.

Market Outlook

We expect a pullback on the markdown of MTNN for its N4.55 dividend, besides profit-booking and repositioning in value and growth stocks on the strength of half-year earnings reports, while investors continue their portfolio reshuffling and studying of the corporate earnings ahead of first-tier banks results and Q2 GDP data release, as well as results from interim dividend-paying banks. Also, investors are still observing the interplay of market forces following recent developments in the FX market as the CBN plans to launch a digital currency platform. The day’s low volume suggests that institutional investors and others are still cautiously looking at the numbers. It is noteworthy that oil price continues to oscillate in the international market; as well as corporate actions, and interim dividend possibilities, are around the corner.

We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $68pb to support the global economy and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery expected to enhance the market and give direction.

The banking sector and others remain attractive on the back of the prevailing low prices, despite the mixed half-year earnings.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021 and beyond, looking the way of mispriced equities ahead of interim dividend announcement and last quarter economic activities. This is especially given that despite the seeming improvements, fixed income yield continues to offer a negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting next month.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

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