Bargain hunting seen dictating market performance as correction nears end

The prolonged volatility in the Nigerian equities market, which began in early March, is gradually drawing to a close, according to analysts who see a positive outlook for the market in the near term.

They say despite subsisting weak sentiment, they expect a bullish return as was in the first two months of the year before the market went into a correction mode.

“We maintain our near-term positive outlook on the market. Hence, in the coming week, we expect market performance to be driven by increased bargain hunting as already witnessed this week,” say analysts at Nigeria’s Afrinvest.

For analysts at United Capital Research, there room for further upside in the market “given that the benchmark index currently trades below our base case return of 12.4 percent for the year.”

The analysts, however, noted that although, rising external reserves ($46.3 billion) and oil prices ($68.5/b) support a stable outlook for FX rate, elevated equity valuation and an earlier than expected political uncertainty may cap further uptrend.

“Nevertheless, primary market issuances, especially the proposed MTN listing (expected to add up to N1.7 trillion {$5.6 billion} to market capitalization) should boost momentum, going into the rest of the year,” they said.

The Nigerian Stock Exchange (NSE) closed last year as one of the five top performers globally, topping equities markets of most major European, Middle Eastern and Asian countries with over 40 percent year-on-year growth.

The positive sentiment was carried over into 2018 with the All-Share Index (ASI) gaining 16 percent in the first month of the year, just as it appreciated by 11 percent in February.

However, market correction closed in March with sell-offs, which dipped returns to 6.8 percent at the end of the first quarter.

With the second quarter of the year already started, analysts say, despite investors largely unsure what lies ahead as more political events unfold, the market would rally in Q2 before tapering in the wake of the 2019 elections.

But analysts who spoke to business a.m. who want to be anonymous as they have no authority to speak on the record for their organisations, have played down the impact of the elections.

They said international investors seem to be wiser now following the panic which heralded the 2015 elections in Nigeria and the elections in Kenya and Ghana, which at the end did not turn out as expected.

“Elections come and go but the market remains,” one said, adding that most portfolio investors would make stakes on the market with the hope of reaping big when the elections are done with.

They are upbeat that the implementation of a decent list of pro-market policy actions with the fact that the chill of recession has given way to spring and leading indicators turning positive, may sustain investors’ sentiments despite the coming elections.

The analysts say growth in the economy is anticipated to strengthen as commodity prices firm up and domestic demand gradually gains ground, adding that the usual downside risk of the 2019 elections would not count for much.

Equity Review

Performance of the local bourse was mixed last week with the benchmark index closing positive on three of five trading days. Consequently, The Nigerian Stock Exchange All-Share Index (NSEASI) rose by 0.2 percent week-on-week (w-o-w) to settle at 40,928.70 points while year-to-date (YTD) return improved to 7.0 percent.

As a result, market capitalisation gained N30.7 billion to close at N14.8 trillion. At the start of the week, the ASI fell 1.0 percent, extending the bearish trend from the previous week.

However, on Tuesday and Wednesday, the ASI gained 17bps and 90bps respectively, due to bargain hunting in DANGCEM, INTERBREW and FBNH.

Nonetheless, profit-taking activities resumed on Thursday with the ASI sliding 10bps but the week was rounded off on a positive note with the benchmark index gaining 28bps on Friday.

Market and sector performance

General market performance in the week was majorly driven by gains in DANGCEM (+2.0%), NIGERIAN CAPITAL MARKET BREWERIES (+0.8%) and SEPLAT (+5.0%).

However, activity level waned W-o-W as average volume and value traded reduced by 35.8% and 40.8% to 283.1m units and N3.9bn respectively.

Specifically, 1.415 billion shares worth N19.644 billion in 20,659 deals were traded during the week in contrast to a total of 1.765 billion shares valued at N26.562 billion that exchanged hands last week in 20,265 deals.

The financial services industry (measured by volume) led the activity chart with 1.136 billion shares valued at N12.336 billion traded in 12,240 deals; thus contributing 80.26% and 62.80% to the total equity turnover volume and value respectively.

The consumer goods industry followed with 103.975 million shares worth N5.723 billion in 3,369 deals.

The third place was occupied by oil and gas industry with a turnover of 51.007 million shares worth N436.610 million in 1,417 deals.

The most traded stocks by volume were ZENITH (195.2m), SOVRENINS (106.5m) and SKYE (104.9m), which accounted for 437.704 million shares worth N5.609 billion in 2,659 deals, contributing 30.93 percent and 28.55 percent to the total equity turnover volume and value respectively.

On the other hand the top traded by value were ZENITH (N5.1bn), NIGERIAN BREWERIES (N2.7bn) and GUARANTY (N2.6bn).

Sector performance w-o-w was largely bearish as only two of the five indices closed in the green.

The oil & gas index led the gainers chart, up 3.8 percent buoyed by buy interest in SEPLAT (+5.0%). The industrial goods index followed, rising 1.3 percent due to appreciations in DANGCEM (+2.0%) and WAPCO (+0.7%).

On the flipside, the banking and insurance indices were pulled down 2.2 percent and 0.8 percent respectively due to losses in UBA (-10.5%), ZENITH (-4.4%), AIICO (-4.4%) and NEM (-11.1%).

Similarly, the Consumer Goods index lost 0.7% following selloffs in UNILEVER (-13.0%).

Investor sentiment (measured by advance/decline ratio) advanced in the week to 1.0x from 0.4x posted in the previous week as 36 stocks advanced against 37 stocks that declined.

The top-performing stocks in the week were LEARNAFRCA (+18.6%), MOBIL (+17.6%) and OANDO (+15.2%) while CILEASIN (-18.0%), HMARKINS (-14.7%) and UNILEVER (-13.0%) were the worst performers.

Summary of price changes

A total of 37 equities appreciated in price during the week, higher than 19 in the previous week. On the other hand, 38 equities depreciated, lower than 53 previously.

However, 94 equities remained unchanged lower than 99 recorded in the preceding week.

Price adjustments

For major caps saw their prices adjusted for dividend payments in the week, including United Bank for Africa, Access Bank Plc., Custodian & Allied Plc. and FCMB Group.

The price of United Bank for Africa Plc. was adjusted on the 10th of April 2018 to N11.20 from the last close price of N11.85 for a dividend of N0.65.

Custodian & Allied Plc. saw its price adjusted on the 12th of April 2018 to N4.68 from N5.00 for a dividend of N0.32. FCMB Group Plc. share price was also adjusted in the week (on the 13th of April 2018) to N2.29 from N2.39 for a dividend of N0.10.

The price of Access Bank Plc was equally adjusted on the 13th of April, 2018 to N11.30 from N11.70 for a dividend of N0.40.

Other products review

Exchange Traded Products (ETPs) Also traded during the week were a total of 616,587 units of Exchange Traded Products (ETPs) valued at N9.185 million executed in 21 deals, compared with a total of 125,282 units valued at N2.835 million that was transacted last week in 11 deals.

Bonds A total of 2,500 units of Federal Government Bonds valued at N2.367 million were traded the week in 10 deals, compared with a total of 4,457 units valued at N4.247 million transacted last week in 13 deals.