Equities market: The bear slows down

The equities market witnessed further moderation of selling pressure last week and the market shifted generally to the side of price advances. Equities on the side of price gains measured from year to date declined and those on the side of losses equally declined, leaving the outlook a bit dicey. With more stocks staying well below their year’s opening levels than those above, the technical outlook indicates the bearish run is likely to sustain in the weeks ahead.

Full year corporate earnings reports have begun trickling in and this seems to be drawing out investors hungry for income. Companies expected to post impressive full year results or to pay reasonable dividends are getting some attention. This isn’t however considered strong enough to sustain the moderate price gains.

The general share price drop isn’t a function of earnings performance or expectations. It could therefore be misleading to expect that the earnings season will welcome the bull back into the market. The demand and supply functions of equities remain out of balance due to foreign portfolio outflow.

The fortunes of the market hang critically around foreign portfolio traders that run in and out, meaning that the current high level of volatility is bound to continue. Until a balance is attained, the market isn’t likely to have a chance to respect good corporate fundamentals.

Once the equilibrium is disturbed, it takes a long time to stablilise the market at a new equilibrium point. The cost and consequence of letting that happen are enormous. Over the past five months or so, the equities market has lost more money than the entire federal government budgeted spending in 2014.

Most of the actively traded equities closed well below their year’s openings last week. Agric stocks came on strong to now lead the few prices advances. Banking stocks also reduced the presence on the top losers’ chart but remained in the negative territory all the same.

Among the 30 actively traded equities monitored last week, only 6 closed higher than their opening levels for the year, down from 12 in the preceding week. Julius Berger is leading share price drop for the year at 37.2%, taking over from Diamond Bank. Guinness follows with 26.7% and Fidelity Bank is next on the chart of share price losses with a loss of 26.5%. Transcorp closed 24.6% down from January opening, Skye Bank follows with a loss of 24.4% while Dangote Cement and Dangote Flour rank next with losses of 23.9% and 23.7% respectively.

The market is expected to remain unstable in the weeks ahead, as the foreign exchange market remains under pressure. Some confidence could however flicker through the market from the crude oil market.

Latest results reaching the market include Nigeria Breweries’ full year report for 2014, which shows marginal declines in both sales revenue and profit. The company has declared a cash dividend of N3.50 per share and stated a closure date of 5^th March and payment date of 14^th May 2015. Forte Oil released its full year result for 2014, showing an increase of about 33% in turnover to N170.13 billion, a decline of 11% in after tax profit to N4.46 billion but a drop of 49% in earnings per share to N2.20. It has announced a bonus of 1 for 5 and a cash dividend of N2.50 per share.

Honeywell Flour posted its third quarter report in which sales revenue declined by 8.3% to N37.64 billion and after tax profit fell by 52.2% to N968 million. African Alliance Insurance lifted net underwriting income by 75.2% to N7.79 billion in the third quarter and improved after tax profit by 14.7% to N871 million.