Exit position in these stocks, nervous investors urged

No doubt, more investors in Nigeria’s equities market are becoming nervous every day as the bears continue to claw back gains recorded in the previous month.

Equity investors became worse off in the first trading week of February after they booked over N368 billion loss and the All-Share Index (ASI) decreased by -1.66 percent.

Though the bears still show little sign of retreating as evidenced in the negative take-off this week, some market analysts expect to see some stability, noting that better-than-expected financial scorecards could be a catalyst for the market returning to positive territory. On the other side, there are stocks they feel investors should SELL to reduce losses.

While investors look to ways of reducing their losses, Meristem research analysts, for instance, have asked them to sell FCMB, Wema Bank, Honeywell Flour Mills, BUA Cement, Lafarge Africa, Berger Paints, Ardova, and Total. Meristem wants investors to SELL these stocks because they believe that their Target Prices (TP) are more than 10 percent below their current market prices.

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In the same vein, GTI Research has asked investors to sell GTBank, Nigerian Breweries, Vitafoam, MTNN, United Capital, Africa Prudential, Total, and Eterna because the “upward potential of the stocks, when their current prices are compared to our fair value, is less than 5 percent. Hence, investors may choose to exit position on the stock.”

Guy Czartoryski-led team of analysts at Coronation Research says they find the market somewhat pricey at these levels and will take a degree of profits in some of the largest stocks by index weight, “as we did during the first week of January.”

Accordingly, Coronation analysts say they will make small notional sales in Airtel Africa, MTN Nigeria, Dangote Cement and BUA Cement this week “with a view to raising our notional cash position by between one and three percentage points.”

For United Capital analysts, investors should sell International Breweries, Nigerian Breweries, BUA Cement, while Afrinvest wants investors to sell Conoil.

As at Friday, February 5, the benchmark performance index and market capitalisation decreased to 41,709.09 points and N21.819 trillion, respectively, from month open high of 42,412.66 points and N22.187 trillion. Also, the market’s year-to-date (ytd) return printed lower at +3.60 percent.

The record downtrend in the first week of February was impacted by losses in medium-large cap stocks, which include: Japaul Gold (-17.58%), Mutual Benefit (-11.63%), Lafarge Africa (-11.17%), Champion Breweries (-10.93%), Vitafoam (-10.45%), Flourmill (-9.37%), and Oando (-9.15%).

Other top laggards are: Access Bank (-8.06%), UBA (-6.63%), Dangote Sugar (-5.88%), FCMB (-5.33%), Union Bank (-4.92%), FBN Holdings (-4.61%), Zenith Bank (-4.41%), Nestle (-3.65%), Nigerian Breweries (-3.17%), Wema Bank (-2.82%), United Capital (-2.71%), Dangote Cement (-2.54%), Transcorp (-1.96%), UAC of Nigeria (-1.20%), Total (-0.70%), and MTNN (-0.55%).
“We expect trading sessions to be a mix of bargain hunting and sustained profit-taking activities. The direction of yields in the fixed income market would also influence trades, especially given the increase in marginal rates at the OMO auction this week,” Afrinvest research analysts note in their February 8 note.

“The reaction to the Central Bank of Nigeria (CBN) policy affecting all bank accounts with affiliations to cryptocurrency trading might have had an indirect impact on the performance of the market on Friday (February 5), in our view,” say Coronation Research analysts.

“It is also possible that investors are reacting to the trend in market interest rates, even though bond yields remain well below inflation,” Coronation Research adds.

“Ultimately, we expect that the market would be positive this week,” according to Lagos-based Meristem research analysts in their February 8 note.

The equities market, in Meristem analysts’ view, will continue to benefit from robust system liquidity levels and depressed fixed income yields as investors continue the search for more attractive returns. They expect investors’ decisions to feed off from expected audited earnings results and dividend announcements.

In their outlook for this week ending February 12, GTI Research analysts say they anticipate moderate bargain-hunting by investors “as some stocks are relatively low in price.”
However, they do not rule out the recent bullish sentiment in the Fixed-Income market to impact on the equity market.

Likewise, United Capital research analysts expect the direction of corporate releases to drive the performance of the equity market. “The recent hike in stop rates in the NTB and OMO posed a system risk, as we expect some investors’ pullback in the market. However, we imagine that dividend income should sustain interest in stocks,” they note.