Investors ignore earnings forecast of corporates amid lull in stock market

Companies listed on the Nigerian Stock Exchange (NSE) have been releasing their earnings forecast for Q4 2020, but their share prices have remained flat as investors ignore the stock market.

Forecasts on earnings by companies are meant to provoke some form of reactions from investors as share prices tend to rise when earnings exceed market expectation or fall when earnings forecasted are not encouraging, according to investment experts.

Foreign investors typically are first to react to such information in Nigeria but since they fled the market, there’s been a muted reaction to market moving information like an earnings forecast which helps investors plan their portfolio accordingly.

In the most recent trading report by the NSE, activity in the stock market, which is down some 5 percent year to date, is now dominated by domestic investors who make up 66.5 percent of the total transactions with foreign investors occupying the remaining portion of 33.5 percent.

For the companies that are guiding towards an improved performance, the lack of movement in their share prices may provide bargain hunting opportunity for local investors as foreigners stay away from the market due to Nigeria’s fx crunch.

The accuracy of the forecasts is also crucial in shaping investor behaviour.

MRS Oil Nigeria plc, a downstream oil firm made a positive profit forecast of N775 million for Q4 2020, a 234 percent jump from the N575 million loss earned in Q4 2019.

Nonetheless, their share price has remained unchanged at N12.45.

In the insurance industry, Guinea Insurance plc has also remained flat at N0.2, despite guiding towards a 131 percent jump in profit to N247 million from a loss of N795 million in the same quarter of 2019 and an improvement from N100 million loss in H1 2020.

There have also been some negative forecasts.

Okomu oil palm plc, a producer of crude palm oil, reported an impressive halfyear profit of N4.007 billion but has now forecasted a 75.7 percent decline in profit yearon-year for the last quarter of 2020.

The company’s share price has however remained flat at N78 irrespective of the expected plunge in profit to N227 million by Q4 2020 from N937 million in Q4 2019.

Total Nigeria plc, another downstream oil firm is projecting a year-on-year decline in profit of 40 percent to N1.6 billion in Q4 2020 from N2.6 billion in Q4 2019. However, this is an improvement from the N537 million loss recorded at the end of the first half of 2020.

The share price of Total Nigeria has however remained unchanged at N80, its flat price over the past one month.

“The pangs of COVID-19 pandemic and Nigeria’s current economic situation has made both domestic and remaining foreign investors rather unmoved by the forecasts being made by companies”, said Boboye Olaolu, Sub-saharan African Economist, CSL Stockbrokers.

“The illiquidity in the foreign exchange market has chased foreign investors and there are still uncertainties as we cannot exactly say that the monetary authorities have given a clear-cut policy for the unification of exchange rates,” according to Gbolahan Ologunro, Research Analyst at CSL Stockbrokers.