Speculators to bet billions on equities on positive Q3 results

Nigerian equities may witness fresh inflows of billions of naira in investible funds as speculators raise their stake, reacting to positive third-quarter (Q3) numbers released at the local bourse.

Before now, the stock market had traded sideways and lost about N1trillion year-to-date (ytd) as Nigeria’s volatile forex and macroeconomic concerns lured investors into cautious deals on Customs Street.

Analysts said technical readings on Nigerian equities benchmark indicator suggest that careful momentum trading may still offer modest short term rewards, as current rock-bottom valuations remain attractive for longer term positioning.

“The equity market remains attractive for speculative and long term investors. We expect the  market to react to the release of Q3 2015 results. Although oil price is recovering lately, the slowdown in global economic activities will limit the demand for oil. We expect the demand pressure to continue in the foreign exchange market,” said research analysts at Lagos-based merchant bank, FSDH.

Recently, early filers like Cadbury Nigeria Plc; Transcorp Hotels Plc; United Bank for Africa Plc, Trans-Nationwide Express Plc, and Forte Oil Plc released their third-quarter to September 30, 2015 results at the Nigerian Stock Exchange (NSE) with most of their top-to-bottomline figures surpassing analysts’ expectations.

“With no improvement on macroeconomic fundamentals, we believe market direction will be determined by the nine-month (Q3) 2015 earnings season,” research analysts at another Lagos-based investment banking group, Dunn Loren Merrifield, said in their recent equity note.

Amid the early filers, the board of directors of Seplat Petroleum Development Company Plc is meeting this week (Thursday 22, 2015) to approve their Q3’15 results and thereafter the result will be released immediately to the public, the company said in a letter to the Nigerian Stock Exchange.

MRS Oil Nigeria plc also notified the NSE of its forthcoming board meeting on October 30 when the board of directors will be considering its unaudited third quarter results among other issues.

“We expect to see speculative and long term investment activities in the market, as investors take advantage of some oversold positions. We expect more clarity from the FGN on the focus of its economic policy to have a positive impact on the market.

“We expect more Foreign Portfolio Investment (FPIs) to come in as the FGN continues to reveal more of its economic policy. Impressive Q3 numbers may have positive impact on the market”, FSDH analysts added.

The Nigerian Stock Exchange (NSE) benchmark performance indicator –All Share Index (ASI) has retreated from year-open (January 5, 2015) highs of 33,943.29 points to 29,834.21 points, as recorded Friday October 16, 2015. Also, the value of listed Nigerian equities declined from record highs of N11.237 trillion as at January 5, 2015 to N10.253trillion as at Friday, indicating a value loss of about N984billion.

However, analysts see Nigerian equities future looking well for increased liquidity with the expectation of Initial Public Offerings (IPOs) and listing by major brands in Telecoms, Oil & Gas and Aviation sectors.

Also, signs that U.S. interest rates are staying put and that economies like China, the euro zone via the European Central Bank and Japan, could all be about to inject more stimulus into the global economy, may help foreign equities buyers rethink for emerging market stocks.

“The market is convinced that the Fed will not be able to raise interest rates this year,” said Piotr Matys, an emerging markets strategist at Dutch multinational banking and financial services group, Rabobank.

According to United Capital plc research analysts, “By and large, market sentiment still remains largely bearish and we expect this to be sustained in coming sessions. However, reaction to quality third-quarter (Q3) numbers might trigger a rebound in the near-term”.

As at August, foreign portfolio investment (FPI) transactions at the nation’s bourse decreased to N81.13 billion (about $41 million) from N107.47 billion (about $55 million) at the end of July 2015; representing a decrease of 24.51percent.

Domestic investors conceded about 11.38percent of trading to foreign investors compared to the 25.82percent they conceded in the previous month, as domestic transactions increased from 37.09percent to 44.31percent, while FPI transactions decreased from 62.91percent to 55.69percent over the same period.

“The Federal Reserve did not move in September, although domestic economic conditions warranted a hike. It hesitated due to global market choppiness emanating mostly from China. Ultimately it has to tighten, and is likely to raise rates in either December or January. Nigeria will not be among the main losers from the tightening, which, the Fed insists, will be shallower than previous cycles,” said the Gregory Kronsten led team of research analysts at FBN Capital.

Crude oil futures rose on Friday to snap a week-long decline as investors bet falling U.S. production would cut a global surplus –which is positive news for Nigeria’s earnings.

United Bank for Africa plc reported Q3’15 gross earnings of N247.205 billion from Q3’14 level of N210.715 billion. The Q3’15 revenue of Trans-Nationwide Express Plc rose to N589.144 million from N537.007 million in Q3’14. Cadbury Nigeria plc reported 10% decline in Q3 revenue to N21.073 billion from N23.313 billion in Q3’14. Transcorp Hotels plc revenue declined to N10.462 billion from N11.442 billion.

Also, Forte Oil plc revenue for Q3’15 at N91.615billion indicated a decline of 25.26 percent from N122.580 billion in Q3’14.

Iheanyi Nwachukwu