Market Update Jan 23 2016
NSE Searches for Direction as Investors Await MPC Decision on rates
The equity market yesterday closed marginally up after opening lower in the early hour of the day trading till the last minute when highly capitalized stocks gained some value, pushing the market into green. The positive sentiment for stocks on the first trading of the week is a good start, while the all-important Monetary Policy Committee of the Central Bank of Nigeria (CBN) began its two-day meeting means there must have been feelers and high hopes among watchers of the nation’s economic space, of which the capital market is an integral part, that rates will remain unchanged.
This begins to make more sense when you juxtapose it with the oncoming earnings season which would last from February to April, within which discerning and smart investors would be rewarded with good returns on their investment at a time only a few companies dividend yields are expected to outperformed returns on Treasury Bills and other fixed income securities. These are investors who recorded return on their investment that is above 21% per annum (or 5.25% for 90days).
This is why funds might flow out of other investment windows for quick returns from the few value stocks that have strong numbers to support dividend payout, despite the weak macro-economic fundamentals that need to be addressed by the Federal Government and its agencies.
Meanwhile, the composite NSE All-Share Index gained 7.83 points to close at 26,231.37, after opening at 26,223.54 for the day, representing a flat growth of 0.03% on above average traded volume. Similarly, market capitalisation added N2.69 billion to close at N9.03 trillion from the opening value of N9.02 trillion, which equally represented 0.03% appreciation in value.
This marginally reduced the NSE’s ASI Year-to-Date negative returns to 2.39%, just like market capitalisation for the same period has fallen by N221.35 billion.
Market breadth for Monday remained positive and moderately strong as the number of advancers outpaced decliners in the ratio of 19:15 to continue the two day Bull Run in a row, just as the number of advancers increased on a high buy volume.
The volume and value of trades were up by 12.5% and 27.72% to 228.60 million shares and N2.58 billion respectively, from 203.19 million and N2.02 billion in the previous session. This was boosted by transactions in financial services sector and agribusiness stocks, especially in UBA, Access Bank, Presco, Diamond Bank and Zenith Bank that topped the activity chart as most traded equities by volume.
The benchmark index and few sectorial indices closed green, including NSE Banking, NSE Oil/Gas while others closed lower except for NSE Asem that was flat to close the day.
During the day’s trading, Daar Communication released it belated audited earnings report for 2015.
Also, at the end of the day’s transactions, UAC-Prop led the advancers table with 4.86% to close at N3.02, followed by Cutix with 4.40% to close at N1.66 while MayBaker led the decliners table with a loss of 4.90% to close at N0.97k, behind it was Honeywell Flour with 4.84% to close at N1.18
This trend may continue in today’s session but in the early hour of the trading market may be struggling for direction until the final outcome of the MPC becomes public knowledge. However, we would like to reiterate that investors should go for value equities, especially during this season that dividend payment is approaching.
NSEASI DAILY TIME FRAME
The index on a daily time frame is struggling to reverse within the bearish channel and symmetrical triangle chart pattern that supports continuation of trend, the increasing buy volume as at yesterday’s trading signals positive momentum and sentiment. A breakout of the dotted blue line will confirm uptrend.
The direction and trending ability of the market on a daily time frame is strong as ADX is above 20 and also trading above it 20 and 50-Day moving average.
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Stocks To Trade
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By Ifreke Inyang
The House of Representatives on Monday, critized the current pricing system of premium motor spirit by the Petroleum Products Price Regulatory Agency (PPPRA), describing it as “fraudulent”.
The lawmakers insisted that Nigerians should not buy petrol for more than N70 per litre.
The arguments were canvassed when an ad hoc committee of the House on the Review of Pump Price of Petrol, opened a public hearing at the National Assembly in Abuja.
The PPPRA, Nigerian Ports Authority and Nigerian Customs Service officials were all quizzed by the committee.
“In the 2017 budget, which is before us, PPPRA has a proposal of another N500m for regulation, monitoring and supply of petrol,” Chairman of the committee, Nnana Igbokwe said.
“This budgetary provisions have already taken care of the purpose for which you charge 30k on the template, yet Nigerians continue to bear the burden by paying N145 per litre,” Igbokwe added
Edward C. Baig, USA TODAY ,
BERTRAND GUAY, This content is subject to copyright.
A photo taken on October 11, 2016 shows the Samsung store in Paris. Samsung on October 11 pulled the final plug o
NEW YORK—Following an investigation that took months, Samsung Electronics has revealed the root causes behind those exploding Note 7 phones: design and manufacturing flaws associated with the lithium-ion batteries used in the phones, which were produced by Samsung’s battery suppliers.
The company released the findings at a press conference in Seoul late Sunday.
Samsung conducted its own internal investigation to determine why some of the devices caught fire, and hired the UL safety consulting firm and the Exponent engineering and scientific consulting firm to conduct their own independent tests. Another independent firm, Germany’s TUV Rheinland, was brought on to assess Samsung’s factories and logistics.
The Note 7 debacle has been a black eye for Samsung. The phones had to be recalled not once, but twice, before ultimately being put out to pasture. The episode damaged the Samsung brand and cost the company at least $5.3 billion.
Samsung certainly doesn’t want any hangover effect as it readies its next big flagship phone, likely the Galaxy S8 that is expected to be released in the spring.
“It was a very tough several months for us. Clearly its impact to the consumers, its impact on channel partners and impact on our employees is not insignificant and we embrace that and we own that,” Tim Baxter, President and Chief Operating Officer of Samsung Electronics America told USA TODAY in an interview. “We’ve learned quite a bit about crisis management in the past few months.”
Added Samsung’s Korea-based mobile chief DJ Koh, who also spoke to USA TODAY, “We are working around the clock to get back our business, to deliver the best product and get our customers’ trust back.”
Samsung has been successful in getting the faulty phones back — the company says 97% of the Note 7 phones have been returned, with more than half of the remaining 3% off the network. That’s far above typical product recall return rates.
As part of its investigation, Samsung assigned more than 700 R&D engineers to try to replicate the Note 7 failures, along the way testing more than 200,000 Note 7 phones, and more than 30,000 standalone batteries.
Samsung uncovered separate design and manufacturing flaws within the batteries, and placed blame on two suppliers that make them. Samsung wouldn’t identify those companies, though the Wall Street Journal named Samsung SDI (a different company within the Samsung universe) and ATL, a Chinese supplier.
Some Note 7s used what is being identified as Battery A, and some used Battery B. While Samsung dictates the basic battery requirements — energy capacity, voltages, currents, external dimensions, etc. — the battery partners themselves have leeway in the materials they use and in the way they apply their own intellectual property.
That not only meant that Battery A and Battery B were different from one another, but that the problems that surfaced in each also proved to be distinct.
In simple terms, lithium-ion batteries are made by taking two electrodes, one positive, one negative, and placing a separator in between to keep them from touching and causing a short circuit.
Samsung concluded that the defect associated with Battery A was a design flaw with the battery manufacturer in question not supplying sufficient space in the battery’s pouch to allow electrodes to remain straight. Instead they were bent, resulting in an electrode “deflection” in the upper right corner of the battery that was considered the main cause of the problem. The deflection can stress or weaken the separators, leading to a failure.
Battery B, on the other hand, was blamed on a manufacturing defect, related to an abnormal welding process that led to improper contact between a positive tab or terminal and a negative electrode.
There were other contributing factors that some of the independent testing firms uncovered. On Battery B, for example, there was supposed to be an insulation tape that covers the weld; in some instances, the tape was missing.
The initial Note 7 recall involved phones with Battery A. Since Battery B didn’t have the same issues as Battery A, Samsung thought it was in the clear when the replacement Notes had Battery B. Of course, the problems inherent to Battery B surfaced soon enough and it turned out that this second battery producer couldn’t handle the demands that being the sole Note 7 supplier put on them.
While Samsung ultimately placed blame on the partners for the design and manufacturing flaws, “Ultimately we take responsibility for this. It’s our product, we set the specifications…and it’s up to us to catch the problem before it leaves in one of our devices,” says Samsung Electronics America senior vice president Justin Denison.
To help prevent a repeat episode from occurring, Samsung is implementing an 8-point battery safety check that will include a durability test, visual inspection, x-ray test and other tests.
“Even with an incident like the Note, the failure rate is low — one out of tens of thousands,” says Dr. Gerbrand Ceder, Professor of Materials Science and Engineering, UC Berkeley, who joined a Samsung battery advisory group. “Most of the time we all carry lithium-ion batteries around and they are safe. But we should remain vigilant to keep on improving that safety and enforcing it….I think there is always awareness that because of their high energy content, one should be cautious with them.”
Samsung says it is sticking with the battery suppliers in question and that no heads have rolled as a result of the Note debacle. “Everybody involved with the Note launch has been involved with the Note crisis,” Baxter says. “That’s where the focus of the organization has been and continues to be.”
The company also insists that the problems that occurred with the Note 7s were isolated to the batteries and wasn’t caused by any decisions to rush to market — the Note 7 having launched a couple of weeks before the iPhone 7. Samsung historically launches its Galaxy S flagship phones in the spring, and its Notes devices in mid-to-late August, just as it was with the Note 7. Bloomberg had written in September that a rush to take advantage of what was expected to be a “dull” iPhone began the Note crisis.
Samsung hasn’t said what the future is for the Note brand itself. But as part of the damage control, Samsung has been reaching out to the Note customers who have been its most loyal; more than 10,000 customers have said they want to learn more about what happened. Samsung plans to run an advertising campaign in the spring that will communicate quality and assurance. And the company plans to apply what it has learned during the Note debacle to the release of the S8 or whatever its new phone turns out to be.
“The recovery process takes time. But we’ve also seen those that do well not only recover but elevate beyond where they were. That’s what we aspire to do,” Baxter says.
Traders’ Watch: Looking To CBN’s MPC Meeting For Direction
The nation’s equity market so far in the 2017 has maintained an up and down trading pattern on daily and weekly basis to reflect the confidence level of traders and investors in the economy and the financial markets.
This has been variously linked to a mix of the January effects, in addition to portfolio rebalancing by fund managers and other market players, which are besides the intermittent profit booking activities. Despite the earnings season that is around the corner, the market awaits the outcome of the two-day meeting of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) which begins on Monday to give direction of flow of funds in the financial market.
Meanwhile, the composite index NSEASI shed 102.39 points to close lower at 26,223.54 points, from an opening figure of 26,325.93 points, representing 0.40% decline on improved volume of trades to reverse its previous week bullish transition on a buying volume of total transactions for the week was 29%, while selling position was 71%. Despite the volatility in the market, the earnings season draws closer for discerning investors and traders to position in fundamentally sound equities with high possibility of dividend payment in the coming earnings season which is expected to drive price in the short and medium term.
Market breadth for the week was weak, but positive as 30 stocks appreciated in value while 27 lost value during the period.
Traders, Investors Fix Gaze On Financial Services, Dividend Stocks
The continued bearish mood and mixed sentiments on the Nigeria Stock Exchange is expected and many factors are responsible for the volatility, especially the January effects as investors sell down some positions to meet one need or another, while seeking to buy into shares with cheaper valuations ahead of the coming earnings season.
Also, there are concerns expressed already by investors about the nation’s economic outlook in the short to medium-term, especially the style of implementation of the 2016 budget which is still running and the manner the government is disbursing funds. There are also concerns about government policies regarding the foreign exchange market with over five different exchange rates existing simultaneously, the Petroleum Industry Bill (PIB) expected to boost activities in the oil and gas sector is still being delay and the power sector still lacks clear cut direction to improve power generation and distribution. These are parts of the structural reforms expected to boost business in the economy, further enhance the ease of doing business, leading to increased national output.
Meanwhile, the composite NSEASI shed 102.39 points to close lower at 26,223.54 points, from an opening figure of 26,325.93 points, representing 0.40% decline on improved volume of trades to reverse its previous week bullish transition on a buying volume of total transactions for the week was 29%, while selling position was 71%. Similarly, market capitalisation for the period closed lower at N9.02 trillion from an opening value of N9.06 trillion representing 0.44% lost in value.
Last week also, the gainers table was dominated by low and medium cap stocks with strong earnings power and a high possibility of dividend payment, that are equities with low price attraction and high upside potential. The mixed performance of equity prices for the period increased the negative position of the NSEASI’s year-to-date loss to 2.42%, just as capitalisation equally adjusted downward for the same period to N223.87 billion.
Market breadth for last week was weak but positive as the number of advancers outpaced the decliners in the ratio of 30:27 on a mixed sentiment as the bears took charge for the week.
Meanwhile, the unstable global economic outlook for 2017 to 2018 remained, as the Presidency of Donald Trump kicked off in the United States with businesses and investors around the world expecting to be impacted positively and negatively with expected changes in policies under the new administration. The likely political and economic tension between US and China the world’s two largest economies will trickle down to others, especially the emerging markets.
Stock markets around the world were mixed last week, with the US markets closing lower in the week a new president was inaugurated, while international stocks had mixed performance ahead of Trump’s expected reform policy changes and direction.
U.S market indices, Japanese Nikkei and Britain’s FTSE 100 were down, while Germany‘s DAX closed higher for the period.
Still in the U.S, the weather condition has boosted 6.6% increase in utility output and Industrial production growth of 0.8% for December, with manufacturing remaining weak. The housing market was up for December, despite the continued uncertainty in the market and the economy at large.
In Europe, the European Community Bank governor indicated that although the economic climate has improved, structural reforms would be necessary for long term stability in the region.
In Asia, the Bank of Japan chief also suggested that Japan’s economy could improve on the heels of faster U.S growth and a higher dollar valuation as an exporting country.
Back home, the NSE All Share Index opened the week, trading on a positive note as it recorded 0.18% growth, which was short-lived on the second trading day, when it lost 0.36%, which continued at the midweek trading session and Thursday, closing lower at 0.13% and 0.17% respectively. It however reversed on Friday to close marginally up by 0.08%, thereby reducing the week’s loss position to 0.40%.
The NSEASI and all sectoral indices for the period closed lower, except for the NSE Banking Index, NSE-Insurance and NSE Pension that pointed northward at 1.80%, 1.00% and 0.19% respectively, while NSE ASem was flat. This is linked to the fact that investors and traders are positioning in financial services stocks, in anticipation of the coming earnings season.
Market transaction levels for the week, measured by aggregate volume was up by 19.64%, while value of trades for same period dropped marginally by 1.55%. This was in contrast to the closing levels of previous week, reflecting mixed sentiments as investors and market players repositioned trades and profit taking ahead of the earnings season, amidst subsisting low confidence.
In the week under review also, a total of 1.34 billion shares valued at N8.90 billion were traded in 15,733 deals, compared with 1.12 billion shares worth N9.04 billion, exchanged in 16,482 deals in the previous week.
During the week also, Continental Reinsurance and Mobil Oil led the advancers’ table with 10.91% and 10.46% gains respectively, while the flip side was topped by Forte Oil and Guinness Nigeria, which suffered 10.14% and 8.24% decline respectively.
During the week, Tripple Gee released its third quarterly earnings reports with mixed performance. Also Meyer Plc announced a Rights Issue of 291,489,840 Ordinary Shares of 50 Kobo each at 75 kobo per share. Acceptance list opened on Monday, January 9, 2017 and closes on Friday, February 10, 2017. Also, UACN Property Development Company Plc, through its Stockbroker- Stanbic IBTC Stockbrokers Limited, submitted an application to The Exchange for approval and listing of its Rights Issue of 1,718,750,000 Ordinary Shares of 50 Kobo each at N3.00 per share on the basis of one new ordinary share for every one ordinary share held. The Qualification Date for the Rights Issue was Thursday 19 January 2017.
The oscillating trend in the market is likely to continue amidst window dressing or trading account balance by market players and at the same time, the economy and financial markets await a clear economic policy from the government to give direction and guide investment decisions in the New Year. This is just as investors await the outcome of the year’s maiden meeting of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) for guidance in the monetary environment.
However, in our opinion, the volatility in the market may have caused some stocks to trade at valuations lower than their estimated fair values after considering fundamentals
Also, investors should take advantage of January effect on equity prices to jump into dividend paying stocks that have the earnings capacity to grow payout this year as the earnings season beckons.
Economic data and Earnings reports are expected to be very light this season.
Again, the time to combine technical and fundamental analysis for your trading decisions is now, knowing the support and the resistance levels.
Train yourself and study to know the new approach to adopt at this point and going forward.
To join our webinar every Friday 8pm to 9pm, WhatsApp group and get market updates, SMS web*name*email to 08124050850
STOCKS TO WATCH
Eterna Oil, Aiico, Total, Continental Reinsurance, Presco, Zenith Bank, UBA, and FO
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