BusinessDay
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NSE halts 3-day bearish trend, picks marginally as political risk sentiments still wavers

…Dangote cement struggles to reflect strong fundamentals

The Nigerian equities market on Friday rebounded marginally, halting a 3-day bearish movement which led to a whooping loss of N368.99 billion while gains of Dangote Cement struggles to reflect its strong fundamentals on low investors’ market confidence amid recent buy pressure witnessed in the fixed income space.

The Nigerian All share Index (ASI) on Friday was up marginally by 0.33 percent, gaining N4 billion in market value.

This is rather insignificant compared to a loss of N196 billion in the previous trading day after the ASI witnessed a dip by 1.62 percent, biggest fall in within the 3-day bearish movement.

Stocks like CI Leasing (9.98%), Cornerst (8.70%), Fidelity Bank (6.82%), UCAP (5.35%) and Total (5.26%) led the top 5 gainers chart.

Meanwhile, Dangote Cement, the largest company on the exchange by market capitalisation gained marginally 0.67 percent to close at N196.60 as against 1.45 percent gain in the previous trading session.

Since the earnings season begun, companies’ stocks with good performance have seen investors compensate them with higher prices, as some record a growth by almost 10 percent in market cap, day after financial release.

Moreso, we have witnessed companies with like Nigeria breweries fall almost 10 percent in market value due to negative reactions by investors to poor result, day after financial release.

However, this has not been so with Dangote Cement despite the cement maker almost doubled profit after tax (PAT) in 2018.

Net profits of the Africa’s largest cement manufacturer rose 91 percent to N390.33bn from N204.25bn in 2017, making the company’s directors propose a dividend of N16 per share.

Increase in the profit was driven by sales growth, increased operating profit, lower finance costs and high income tax credit to the firm.

On Thursday however, building sell-pressure on the exchange reversed the stock performance to just a 1.45 percent gain after all.

Trends witnessed in the fixed income space have further shown a buy pressure on the federal government 5-year, 7-year and 10-year instruments, respectively.

Last week, the Debt Management Office conducted auctions on three February 2019 Federal Government of Nigeria (FGN) Bonds which saw a sustained trend of oversubscription at FGN Bond Auctions for the year.

The three FGN Bonds, for five, seven and ten-year tenors, were offered at a total value of N150 billion. But the instruments were bid in excess of N84.35 billion with a total subscription level of 156 percent, even as the ten-year bond unsurprisingly attracted more investor bids compared with the other two largely due to its long-term outlook.

Figures obtained from the DMO show that the clearing rates on February 2019 FGN Bonds were 14.52 percent, 14.79 percent and 14.93 percent

According to a report by Reuters, yields on Nigeria’s most liquid 10-year bond fell 40 basis point to 13.9 percent on Thursday as uncertainty eases for foreign investors following the conclusion of national elections.

Yields on the benchmark 2028 paper, which is most traded, have been falling with investors locking in attractive rates.

The bond dropped to 14.3 percent in the previous day’s trade, its lowest in six months, from 14.5 percent the day before and 14.75 percent the day before Saturday’s election.

“The signal from DMO is they are going to be issuing government instruments at lower rates,” Gbolahan Ologunro, an analyst at Lagos-based CSL Stockbrokers Limited, told BusinessDay. “You will expect that by March the rates would also be declared lower for each of those tenors.”

With Brent crude oil hovering around an average of $62 per barrel, slowdown in inflation rate and almost clear political risk and uncertainty, “the federal government bonds have become attractive to foreign investors,” according to Ologunro.

Analysts however anticipate a moderation in the Nigerian yield curve in the short to medium term.

 

David Ibidapo

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