Profit warnings signpost lower returns to investors

Stock investors’ fears have increased as more companies approached the Nigerian bourse with their earnings warnings, compounding existing worries in an already down-beat market.

Taking a cue from this development, many research analysts now see further bearish trend at the local bourse despite earlier expectation of improved buy momentum ahead of earnings releases by listed companies.

Equities year-to-date (ytd) loss now in excess of N1.4trillion have only exposed widening risks associated to stock investors who set out this year seeking capital appreciation against dividend paying stocks.

Meanwhile, dividend paying companies like Courteville Business Solutions Plc; FCMB Group Plc; and the latest FBN Holdings Plc have issued profit warnings which signpost likely poor outings in the expected financial year numbers.

This development suggests that investors expected returns-on-investment (RoI) in these equities will be somewhat insignificant as some linked it to economic headwinds that took toll on their earnings. Stock investors at the Nigerian Stock Exchange (NSE) lost about N67billion last week as sell pressure weighed equities market capitalisation to N8.336 trillion from N8.403 trillion.

“The weak outlook for corporate earnings and the domestic economy continues to weigh on the equities market. We expect the market to close lower this week as caution ahead of the season continues to drive choppy trades with a bear bias”, research analysts at United Capital analysts said.

“We expect the bearish trend in the market to persist as foreign investors continue to abstain from Nigeria’s financial market due to uncertainties in risk-return expectations as a result of the highly volatile and seemingly ‘mispriced’ Naira”, said analysts at Meristem Securities Limited.

“With safe-haven investment on the rise, domestic equities continues to struggle evidenced by significant sell-offs which often sends the index lower with occasional rallies that develops weak follow-throughs. With current investors’ apathy towards equities amidst amidst the volatility in the market, major equity indices may continue southwards”, said research analysts at Dunn Loren Merrifield.

“Notwithstanding the buying bias witnessed in the market in the later sessions of the previous week, we expect gains to be more modest in the coming sessions as we observed renewed pressure on a number of stocks towards the close of the week”, said analysts at Vetiva Capital Management Limited.

“We expect anticipate that the selling pressure will continue thus, further driving indicators downwards,” according to Rotimi Peters-led team of economic intelligence at Access Bank plc.

The Nigerian Stock Exchange All-Share Index (ASI) depreciated by 0.83percent to close last week at 24,228.79 points, from 24,432.51 points recorded at the beginning of the review week.

All other Indices finished higher last week, with the exception of NSE Premium Index, NSE 30 Index, NSE Banking Index, NSE Insurance Index and NSE Pension Index that depreciated by 0.83percent, 3.01percent, 0.35percent, 2.45percent, 1.25percent and 1.25percent respectively.

Twenty-one (21) equities appreciated in price during the review week, lower than twenty-two (22) equities in the preceding week. Thirty-five (35) equities depreciated in price, lower than thirty-seven (37) equities in the preceding week, while one hundred and thirty four (134) equities remained unchanged, higher than one hundred and thirty one (131) equities recorded in the preceding week.

Also traded during the week were a total of 14,844 units of Exchange Traded Products (ETPs) valued at N14.134 million executed in 29 deals, compared with a total of 93,518 units valued at N1.158million transacted last week in  48  deals.

Iheanyi Nwachukwu