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Investors to price in corporate actions, earnings guidance as H1 season kicks-off

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Dividends and capital gains are the two wealth-building tools of the stock market. Investments either rise in price through capital appreciation, or companies pay out a portion of their own profits to shareholders as dividends.

When the two wealth-building tools lack in the stock market, investors are always on the losing side. No doubt, Covid-19 has eroded earlier gains seen in the market but that has not stopped investors from being hopeful to recoup part of their loss from dividends.

Now that the half-year (H1) 2020 earnings season has fully kicked off, fundamentally sound stocks with consistent records of paying interim dividend will no doubt become investors delight, leading to increased activity on the demand side of the remote trading sessions of the Nigerian Bourse.

Read also: Access Bank provides financing opportunity to Female SMEs across Africa 

“We expect market performance to be driven by corporate actions; Zenith Bank approved the payment of an interim dividend last week, while management of MTN Group guided about a positive earnings expectation this period. We expect these corporate news to spur some positive sentiment on these counters”, said Meristem Research analysts in their July 27 note.

The analysts believe that the cheap valuations of some fundamentally sound tickers present an opportunity for bargain hunting. Ultimately, they expect bullish sentiment to permeate the equities market this week.

The shares of companies with record of dividend payment are topping the list of analysts picks for a “Buy” despite that July is earnings reporting month which spans the April to June period where the Covid-19 pandemic hit the economy and many businesses hard.

While the overall outlook for equities performance in this second half ( H2) remains murky, and companies continue to churn out their half-year results, investors are advised to seek trading opportunities in only fundamentally justified stocks.

Lagos- based United Capital research analysts in their top stocks recommendation for this week want investors to buy Dangote Cement Plc, Gtbank Plc, Nestle Nigeria Plc, Okomu Oil Palm Plc, and Zenith Bank Plc.

In the trading week to July 24, the Nigerian Stock Exchange (NSE) All Share Index (ASI) advanced by +0.58 percent while the negative return year-to- date stood at -8.99 percent. Stock investors had gained N72billion in the review trading week.

The market defied the odds of mixed trading session to close in green zone following gains in largely capitalised stocks (NSE 30 increased most by +0.72 percent).

“We believe the direction of the market this week will largely be dictated by the tone of earnings results released by bellwether stocks”, Vetiva research analysts said.

Vetiva analyst want investors to buy shares of Gtbank, Zenith Bank, UBA, Access Bank, FBN Holdings, FBN Holdings, FCMB, Stanbic IBTC, Nigerian Breweries, Guinness Nigeria, Flourmills Dangote Sugar, Lafarge Africa, Dangote Cement, Julius Berger, Seplat, Total, Mobil and Ardova. The analysts ‘Buy’ rating for these stocks was because they are considered highly undervalued, but with strong fundamentals and where potential return in excess of or equal to 15percent is expected to be realized between their current price and analysts’ target price.

In what seems to be a mixed feeling for equities, Afrinvest research analysts believe that events of the firsthalf (H1) of the year caution against an overly optimistic outlook for the second half.

Though, Afrinvest analysts envisage that the recovery pattern in late H1:2020 would be sustained “due to an improvement in risk appetite mostly from the locals and an improvement in external conditions”, they however noted that the downside risks to their expectation include tightening of the partial economic reopening due to new wave of the COVID-19 spread, lower oil prices, MSCI’S classification of the Nigerian market as a standalone, continued FX illiquidity and weaker than anticipated economic and earnings growth.

“Our view continues to favour cautious trading owing to the fact the gains recorded last week were not broad-based. We reiterate that risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions. Thus, we continue to advise investors to seek trading opportunities in only fundamentally justified stocks”, Cordros Capital research analysts said in their recent note.

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