NGX Index Rebounds On Renewed Positioning For Dividends, Capital Gains

 

Market Update for January 25

Tuesday’s rekindled buying interest on the Nigerian Exchange halted the previous session’s negative outing as the key performance index inched up to close higher on low traded volume and positive market breadth. It is noteworthy that the outcome of the year’s first Monetary Policy Committee meeting is in line with market expectation, as earlier predicted by Investdata and other financial analysts.

We believe that it is still too early to hike rates in an economy that is in recovery, with less inflow of foreign capital over the past two years, in the face of rising economic uncertainties around the globe and locally. The retention of monetary policy instruments unchanged is part of efforts to manage inflation and support economic expansion.

The demand and positive sentiment for blue-chips and dividend paying stocks supported the marginal recovery recorded at the close of Tuesday’s trading, as more companies notified the investing public of their board meetings and closed periods during the session. Also, NPF Microfinance Bank and Cadbury presented their unaudited earnings reports to the market.

The result from microfinance bank was impressive with gross earrings of N5.78bn, up by 24% from N4.66 billion, and profit after tax of N935.79m, from N614.42m in 2020, which translates to earnings per share of 41 kobo compared to 27 kobo recorded in 2020;

while that from the consumer goods company came mixed with revenue up by 20% to N42.37 billion from N35.41bn in 2020, whereas profit level fell by 11% to N830.48m from N931.10m posted in 2020, leading to EPS of 44 kobo, against 50 kobo in 2020.

Technically, the NGX index action remained strong as it side-trended with trade metrics and candlestick at the end of trading revealed top pattern reversal that supports a correction, despite the fact that the index inched up to trades above 20, 50 and 200 Moving Averages. Momentum indicators on Tuesday were mixed, just as the ADX read 45.32, RSI closed above 50 at 80.87 and Money Flow Index looking down to read 76.54 points on the daily time frame. The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as the fixed income market yields direction remains unclear ahead of today NTB primary market auction, in the face of inflation up tick at 15.63%.

Tuesday’s trading started slightly in the downside, and oscillated for the rest of the session, on position taking in banking and energy stocks that pushed the index to an intraday high of 45,939.66bps, from its lows of 45,898.24bps. Thereafter, the index closed slightly above its opening level at 45,939.51bps.

Market technicals were positive and mixed as volume traded was slightly lower than the previous day’s in the midst of breadth favoring bulls on buying sentiment as revealed by Investdata’s Sentiment Report showing 100% buy volume. The total transaction volume index stood at 0.81 points, just as impetus behind the day’s performance remained strong.

Money Flow Index was down sharply at 76.54points, from the previous day’s 86.09 points.  

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Index and Mkt Cap Movement 

At the end of Tuesday’s trading, the composite NGX All-Share Index inched up by 11.24 basis points, at 45,939.51bps, after opening at 45,928.27bps, representing a 0.02% marginal rise. Market capitalisation gained N6.06bn, closing at N24.76tr, from the opening value of N24.75tr, also representing 0.02% appreciation in value.

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We note the decision by the Federal Government to postpone its planned removal of subsidy on premium motor spirit, popularly called petrol for another 18 months. Continuing with the planned removal without fixing the refineries and other critical infrastructure would have worsened the already terrible leaving conditions of most Nigerians, further heightened inflation rate and thrown many more investments into a negative real rate of return.

Meanwhile, Tuesday’s upturn was driven by accumulation in Ecobank TransnationaI, Seplat, NGX Group, UBA, UBN, Custodian Investment, NPF Microfinance, Redstar and Champion Breweries, among others. This impacted mildly on Year-To-Date gain as it inched up to 7.55%. Market capitalization growth stood at N2.21tr YTD, representing a 9% rise over the opening level for the year.

Mixed Sector Indices 

Performance indexes across the sectors were mixed, as the NGX Insurance and Industrial Goods indexes closed 0.88% and 0.03% lower respectively, while the NGX Oil/Gas index led the advancers, gaining 0.69%, followed by Banking and Consumer goods with 0.52% and 0.08% respectively.

Market breadth turned positive as gainers outpaced losers in the ratio of 20:15, while transactions in volume and value terms were mixed after stockbrokers traded 247.69m shares worth N3.58bn, compared to previous day’s 278.61m units valued at N2.89bn. Volume was driven by trades in GTCO, Courteville, Transcorp, Zenith Bank and Chams.

Courtville Business Solution and ETI were the best performing stocks after gaining 10% and 9.94% respectively, closing at N0.55 and N9.95 per share on market sentiments and earnings expectations. On the flip side, C & I Leasing and Prestige Assurance lost 10% and 9.80% respectively, closing at N3.78 and N0.46 per share, purely on selloffs and profit taking.

Market Outlook

We expect market breath to improve on renewed position taking in fundamentally sound and dividend paying stocks, as oil price rebounds again, which is one factor that also continues to support economic and market fundamentals. Also, investors are targeting dividend paying stocks as they reposition portfolios ahead of 2021 Q4 and full-year audited earnings reports that may start hitting the market any moment from now.

Also, all eye are on NTB primary market auction rates, as inflation remain high at 15.62%.

Also noteworthy is the oil price that remains above $74 projection of IMF at $86.12, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira.

Inflow into equity space is looking up slowly on changing investment decision to keep this trend ahead of the new year holiday. 

As market players digest MPC meeting outcome and happenings in fixed income market after the NGX index action retraced up to trade above its 50-Day Moving Average on a low buy volume in the face of assets rebalancing and the new January Effect pattern likely to influence stock prices ahead of 2021 earnings reporting season.

The relatively low volume traded in the midst of uptrend and recovery moves are creating new buy opportunities on the strength of the Q3 numbers.

Also, candlestick formation and volume traded during the session revealed that institutional players are not buying yet. It is equally noteworthy that during a ranging market many players seat on the fence waiting for a breakout or down before jumping into any position.

 Even as many stocks are trading within their buy ranges, a situation expected to attract more funds into the stock market, given the Dividend Yield capable of serving as a hedge against inflation.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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