Mixed Trend May Linger Amidst Positioning On NGX’s Sideways Trending Ahead Q3, Full-Year

Market Update September 7, 2021

Equity prices on the Nigerian Exchange fell mildly on Tuesday as indecision among market players persisted in the midst of very high traded volume and negative breadth, as positioning in stocks like Access Bank, Zenith Bank and FBN Holdings revealed the presence of local institutional investors accumulating ahead of markup and year-end seasonality that are around the corner.

With the recently released Q2 GDP report confirming the nation’s economic recovery, earlier noted in the corporate earnings of listed companies, even as other conditions that impacted the growth and performance are still intact ahead of Q3 earnings reporting season, there is the high possibility of these companies sustaining an uptrend in their numbers, all things being equal. Consequently, a stronger earnings power is bound to influence equity prices in the short or long run, especially given that high earnings and dividend yield are likely to attract funds to the equity space in no distant time.

As investors and analysts reflect on the current economic realities and some measures at a time the government and its economic manager’s are bent on borrowing more and further heightening the nation’s already high debt profile and servicing cost, there is a palpable fear of spiraling inflation, despite the slowdown in recent months. This may trigger another influx of investors to the stock market any soon.

AXA Mansard Insurance, on Tuesday also, notified the Nigerian Exchange and investors of its planned share reconstruction after a long delay. It is obvious that both investors and shareholders alike are not favourably disposed to share reconstruction in Nigeria, because of the many that engaged in such in the past, only Stanbic IBTC has reconstructed its shares and is today selling above its reconstructed price. This is because its smaller share in issue and stronger earnings are adequately supporting its price and payout.

Mansard plans to reduce its total shares outstanding by 75%, such that every four ordinary shares of 50 kobo each held, would become one ordinary share of N2.00 each. As such, if you currently hold one million units of the company shares, the number would henceforth be 250,000 units of N2.OO each as par value. Its earnings per share would increase book value per share also would increase, while capital and earnings remain the same. Many investors today seem not to understand share reconstruction well. Other companies that did the same exercises in the recent past are Unity Bank, which reconstructed its share price to N5.00 and today is selling for a mere 58 kobo, Ecobank, Lasaco, and Goldlink Insurance, etc

Meanwhile, Tuesday’s trading started slightly on the upside but the market was calm, oscillating mildly in the midday to afternoon on buying interests in medium and low priced stocks that made new 52-week highs, while profit booking hit the financial stocks. This situation pushed the NGX index to an intraday low of 39,241.54 basis points, from its highs of 39,273.75bps, after which it closed below the opening point at 39,251.29bps.

Market technicals were positive and weak as volume traded was higher than that of the previous day in the midst of breadth favoring the bears on a selling pressure as revealed by Investdata’s Sentiment Report showing 30% ‘buy’ volume and 70% sell position. Total transaction volume index stood at 1.52 points, just as the energy behind the day’s performance was relatively weak, with Money Flow Index reading 43.68 points, down from the previous day’s 50.88points, an indication that funds left the market, as the market continues to side-trend.

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Index and Market Caps

The key performance NGX All-Share Index, at the end of Tuesday’s trading, slid by 1.60 basis points, closing at 39,251.29bps, from its opening level of 39,252.89bps, representing a 0.004% marginal drop, just as market capitalization fell by N830m, closing at N20.45tr, from the opening value of N20.45tr, also represented 0.004% value loss.

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The session’s downturn was driven by profit-taking in GTCO, FBN Holding, Zenith Bank, Ecobank Transnational Incorporated, UACN, FCMB, Dangote Sugar, Transcorp Hotel, Neimeth Pharmaceuticals, and Transcorp, among others. These impacted mildly on Year-To-Date loss, which increased to 2.53%, just as the loss in market capitalization YTD stood at N606.48bn, representing a 2.77% decline from the year’s opening value.

Mixed Sector Indices

Performance indexes across the sectors were mixed, as NGX Insurance and Banking caved in by 0.90% and 0.31% respectively, while the NGX Energy Index led the advancers, after gaining 1.00%, followed by Consumer Goods with 0.52%, and NGX Industrial Goods closed flat.

Market breadth turned negative as losers outnumbered gainers in the ratio of 21:15, while transactions in volume and value terms were up after stockbrokers traded 355.94m shares worth N2.87bn, compared to the previous day’s 210.95m units valued at N1.38bn. The day’s volume was driven by trades in FBNH, Access Bank, Universal Insurance, UBA, and Zenith Bank.

United Capital and International Breweries were the best-performing after gaining 8.00% and 7.53% and closing at N8.10 and N5.00 per share respectively on the back of strong earnings/high payout and market forces. On the flip side, Cornerstone Insurance and Universal Insurance lost 8.77% and 4.76% respectively, closing at N0.52 and N0.20 per share, purely on profit-taking and selloffs.

Market Outlook

We expect the mixed trend to continue as investors and traders utilizes the market’s sideways trending to position, while many stocks are trading within their buy ranges, a situation expected to attract funds into the equity space given the dividend yields capable of serving as a hedge against inflation. Also, institutional investors and others continue to digest the Q2 GDP growth ahead of more first-tier bank results, as well as the continued repositioning of portfolios for the year’s last quarter. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new 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 rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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