Can recovery in equities be sustained?

Leading stocks have made further shifts to the side of price advances while others have at least stopped the downward trend. This can be read as a reasonable signal for a rebound though not sufficient to conclude that the bull is back. The good news for the market is that oil market is coming out of its miserable outlook and giving some hopes for government revenue. This is in line with our expectation last week that some level of confidence will flicker through the market from the crude oil market.

The bad news is that such a recovery isn’t strengthening the naira in a situation of sustaining capital flight. This isn’t yet letting the naira to stabilize, which is foreign portfolio traders are waiting for to stage a comeback. Equities remain largely below their year’s opening and the technical outlook is indicating that the market hasn’t broken free from the primary bearish trend.

The corporate earnings season is helping to boost investor confidence and dividend expectations from full year reports is clearly attracting investors to buy and to hold. Some price recoveries last week, particularly in the banking sector, can be attributed to dividend expectations and announcements.

Zenith Bank recorded one of the significant price gains last week on account of its dividend announcement of N1.75 per share. This is unchanged from what it paid last year, as growth in profit and earnings per share are quite moderate. At N99.27 billion net profit grew by 8.5% and remains slightly below the 2012 peak record. It is one of the few stocks that are presently trading above their January opening prices.

Guaranty Trust Bank also made good price gains last week with its announcement of a cash dividend of N1.50. Though a drop from the dividend of N1.70 it paid for the preceding year, it is nevertheless a good income in a situation of limited sources of income. The bank grew after tax profit by 10% to N98.69 billion, which is a new peak in its earnings history.

Other major appreciating stocks include Nigerian Breweries, which closed its books for its dividend of N3.40 per share last week. Investors bid to earn the dividend pushed up the company’s share price. Mobil Oil also moved up last week in expectation of a major improvement in earnings from its full year report. By the end of third quarter, the company’s profit was already 72% above the full year figure in 2013.

Union Bank attained a new price high in two years last week in expectation of strong earnings growth from 2014 operations. First Bank also appreciated last week in expectation that its dividend willnot be lower than the N1.10 per share it paid last year.

Lafarge Cement WAPCO was among price gainers last week following investors’ anticipation of a strong profit growth at full year. Stanbic IBTC Bank recovered all it has lost this year, as it is expected to lead profit growth in the banking sector for the second year. Guinness, Julius Berger, Flour Mills and Unilever also recorded price gains after significant losses recently.

The number of actively traded equities trading above their January opening prices for the year doubled from 6 to 12 last week. Banking stocks have improved their performance generally on the share price table with Union Bank now leading the year-to date price advances at 35.3%. It is followed by Presco and Okomu Oil Palm with 25.6% and 21.1% respectively.

Julius Berger is still leading share price drop year to date with a loss of 29.1%. It is followed by Dangote Flour with a loss of 26.6% and then Guinness with 23.8%. Other loss leaders are Dangote Cement, which is down from year’s opening by 23.5%, Fidson 22.3% GlaxoSmithKline with loss of 20% so far this year.