• Friday, June 14, 2024
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Equity market on negative path as investors anticipate weaker H1 earning

Amid companies’ increasing releases of earnings guidance for the half-year (H1) period to June 30, 2016, stock investors are beginning to price-in this concern with corresponding impact on market performance.

For most listed companies, the impact of the ‘tactical’ devaluation of naira by the Central Bank of Nigeria (CBN) is expected to amount to an unrealized foreign exchange loss arising from dollar denominated liabilities.

Early this month, the Board of Directors of Lafarge Africa Plc informed the investing public at the Nigerian Stock Exchange (NSE) that the company’s second-quarter (Q2) 2016 results are expected to be affected by the impact of the naira devaluation against the US Dollar resulting in an unrealised exchange loss.

Lafarge Africa plc said the impact of the naira devaluation is expected to be a N28 billion unrealised exchange loss arising from USD borrowings, “which at the first time of the devaluation consisted of $310million shareholder loans and $85million external loans.

Amongst major companies, Nigerian Breweries was first to report its H1 result with net earnings down 11% year-on-year after reporting FX losses following the Naira devaluation.

Early this week, Oando plc, Nigeria’s leading indigenous energy group listed on both the Nigerian and Johannesburg Stock Exchange announced earnings guidance for half-year (H1) 2016.

The company expects to report materially lower earnings for the second quarter (Q2) of 2016 due to the impact of the Naira devaluation against the US dollar (USD), resulting in unrealized foreign exchange losses.

After losing N17billion last week on choppy trade, the Nigerian equities market remained on the negative path in early trading days of this week.

The market became worse-off following the release of inflation figure for the month of June. Inflation continued its relentless climb to hit a year-on-year (y/y) increase of 16.5% in June, well above the 15.6% print in May.

“We expect the negative sentiment to persist in the course of the week, as investors respond to rising inflation (June 2016: Headline inflation 16.5%) coupled with uncertainties around the FX policy by possibly shifting capital to safety. Nevertheless, expectations around H1-16 earnings may drive some demand in the near term,” according to research analysts at Lagos-based United Capital plc.

“We expect mixed trading pattern with bearish bias in the coming sessions given expectations of a lackluster earnings season,” said analysts at Vetiva Capital. They had noted that thin market volumes and the widely negative market breadth continue to suggest that market sentiment remains weak. This, analysts said presents a case for another likely bearish close in the sessions ahead.   

Week-on-week (wow), the Nigerian Stock Exchange (NSE) All-Share Index (NSE) depreciated by 0.17% to close last week at 28,805.45 points from 28,854.98 points recorded the preceding trading weekend. Also, the market capitalisation stood low at N9.893 trillion from N9.910 trillion.

Twenty-two (22) equities appreciated in price last week, higher than nine (9) equities in the preceding week. Thirty-eight (38) equities depreciated in price, lower than 48 equities in the preceding week, while 120 equities remained unchanged lower than 123 equities recorded in the preceding week.

“Buoyed by deterioration in market sentiment and lack of incentives for domestic equities, most of the major sectoral indices showed weak moves, contributing to the relatively lacklustre performance of the broader market”, said research analysts at Lagos-based Investment House, Dunn Loren Merrifield.

“Market activities appeared tempered during the week ended July 15, as earnings releases began to trickle in, with investors reacting accordingly. We expect more quarterly results and therefore do not anticipate strong positive investor sentiments, given our expectations of weaker company performances in 2016 relative to the prior year,” said research analysts at Meristem Securities.

Iheanyi Nwachukwu