Positive investor sentiment hold

The Nigerian equities market consolidated on prior week’s gains, as the All Share Index (NSEASI) advanced by 0.38% WoW, to trim Year-to-Date loss to -16.50%. The upbeat performance was largely as a result of sustained bargain hunting activities initiated in the prior week, as 39 stocks appreciated in value relative to the 29 stocks that recorded price declines during the week ended. Volume traded and market turnover pared by 47.95% and 11.99% respectively WoW.

CADBURY outperformed other stocks in the week, gaining 36.79% WoW to close at NGN19.00. Other top gainers were SEPLAT (+23.96%), TRANSEXPR (+13.64%), GUINNESS (+13.40%), and AGLEVENT (+13.11%). On the flip side, CAVERTON (-16.96%) nosedived the most, trailed by UNILEVER (-14.24%), FBNH (-12.67%), LIVESTOCK (-10.00%), and BERGER (-9.63%).

In the course of the week also, the Monetary Policy Committee (MPC) at the end of its first meeting in the year, elected to maintain status quo on all policy variables. We expect mixed reactions from capital market participants in the short-term, while we also expect the Naira to remain seemingly pressured in the parallel market.

Nevertheless, we expect the equities market to sustain the current trend in the coming week, on the back of attractive stock prices and anticipation of high yielding corporate actions that might accompany some earnings releases.

In this report, we review events in the economy, laying emphasis on the performances of different segments of the financial market, while presenting our expectations for the coming week.

Fixed Income: Naira continues descent at parallel market

The Nigeria Inter-Bank Offered Rate (NIBOR) declined by 1.63% WoW to close at 7.09%, despite the depressed system liquidity. The system’s opening balance at the start of the week pegged at NGN547.05bn, and depressed significantly to NGN57.12bn owing to funding of accounts for the FX intervention by the CBN.

Money market rates also trended similar to the NIBOR, as the OBB and OVN rates declined by 2.50% apiece WoW to close at 0.75% and 1.17% respectively.

Demand for Nigerian Treasury Bills was low during the week, reflected by the 0.61% WoW increase in average yield across instruments to 5.94% at the end of the week. Buy sentiments are expected to depress yields in the coming week, as the inflows of FAAC allocation and funds from unsuccessful FX bids drive demand.

In the same vein, investors’ activities in the Bonds market resulted in the average offer yield across instruments closing the week at 10.94% (+0.66% WoW). We expect demand levels to remain buoyed at the start of the coming week, and tail off as market liquidity tempers due to the Treasury Bills auction scheduled for Tuesday 3rd of February.

The domestic currency depreciated in value against the greenback on most of the trading days in the week, to peg at a mid-rate of NGN199.31/USD (-1.05% WoW). However, the naira remained pressured at the parallel market, after losing 2.33% during the week to close at a mid-rate of NGN307.00/USD.

Agric. Sector: LIVESTOCK drags sector returns

Analyzing the WoW performance based on MERI-AGRI index, the Agric Sector advanced by 1.15%, with two (2) gainers and a lone decliner, pegging the sector breadth at 2.00x.

LIVESTOCK shed a portion of the prior week’s gains, after paring by 10.00% WoW to settle at NGN1.26. OKOMUOIL and PRESCO advanced by 1.67% and 0.76% WoW to close at NGN30.50 and NGN33.25 respectively, steering the MERI-AGRI index into the positive territory. ELLAHLAKES and FTNCOCOA stayed flat over the week; a position held from the start of the year.

While we maintain that the Agric. sector will benefit from the economic diversification drive of the current administration, we advise that investments in the constituent companies be based on proper assessment of stock fundamentals.

Banking sector: Picking up as we head into the Earnings Season

The banking sector recorded a second week of appreciation, advancing by 5.85% to peg the YtD return at -11.69%, as measured by our MERI-BNK index. The returns were primarily driven by GUARANTY (9.31%) and ZENITHBANK (11.59%), with the sector benefitting from the alleviation of uncertainties regarding the naira after the last MPC meeting. The gainers’ list also included STERLNBNK (+4.94%), DIAMONDBNK (+4.07%), and STANBIC (+3.03%).

On the other side, the decliners were led by FBNH, after the ticker recorded a WoW decline of 12.67%. The ticker was closely followed by UBN (-3.68%), UBA (-3.34%), ACCESS (-1.19%), and FCMB (-1.01%).

Much in line with our expectations, after no material decision was taken regarding the exchange rate, the performance of the sector has been on the uptick, with most of the stocks which shed substantially in the lead up to the MPC meeting, racking up gains. We expect this pace to be maintained into next week, as investors’ take positions ahead of the earnings season, and dividend declarations.

Consumer Goods: Earnings Season Begins

The Consumer goods sector reversed part of the prior week’s performance after paring by 0.44% WtD, as measured by the NSEFBT10 index. CADBURY was the highest gainer for the week, while UNILEVER recorded the highest value loss. Sector breadth for the week pegged at 1.71x, reflecting the twelve (12) advancers and seven (7) decliners.

During the week ended, Honeywell Flour Mills released its 9M2016 result, which showed significant improvement in performance from the previous quarter, and corresponding period in 2015. Revenue and earnings advanced by 5.68% YoY and 53.25% YoY respectively, resulting in a Net margin of 3.73% (vs. 2.57% in 9M2015). There was also a devaluation loss of NGN0.438bn recorded.

7UP Bottling Co Plc’s 9M2016 scorecard showed a 0.66% YoY increase in revenue, while Profit before Taxes and Profits-After-Taxes declined by 50.47% and 50.89% YoY accordingly, as the trickle down to the bottom line was negated by 13.39% and 41.93% YoY increases in cost of sales and finance costs respectively.

After a long wait, PZ Cusson Nigeria released its 6M2016 financials, indicating 3.29%, 40.64% and 45.92% YoY declines in turnover, Profit-Before-Taxes and Profit-After-Taxes correspondingly. Also noteworthy was the 507.19% YoY increase in finance charges during the period to NGN0.303bn (vs. NGN0.050bn 6M2015).

Further reiterating our earlier assertions on pending scorecards, we anticipate weak financial performances for majority of the companies within the sector. This is premised on economic realities, and performances in recent periods of the year. We therefore advise cautious position taking in the coming weeks.

Health Care: Non-binding offer on GSK Nigeria

The Healthcare sector reversed previous week’s bullish run, declining by 3.52% WtD to peg YtD performance at -20.53%, as measured by our MERI-HLTH index. Two stocks declined in share prices, while other counters traded flat in the week.

The decliners table featured FIDSON and GLAXOSMITH with respective price declines of 5.26% and 3.61% to NGN2.70 and NGN26.99 accordingly.

During the week, Suntory Beverage & Food, a Japanese company, made a non-binding offer to GSK Nigeria to acquire its drink business (Ribena and Lucozade) in Nigeria, including part of its Agbara plant. This offer is still subject to shareholders and board approval. Upon approval, the company’s new business focus will be limited to the pharmaceutical and other consumer healthcare products.

Profit taking permeated the sector in spite of the rally witnessed in the general market this week. Given that the sector heavy weights have witnessed pressure this week, we anticipate bargain hunting to ensue on some sector counters next week. Also, we expect mixed investor reactions on the latest news on the sector’s bigwig in the coming week.

Industrial Goods: Sector closes down despite late rally

The industrial goods sector closed the week in the negative zone, returning -0.89% as measured by our Meri-Industrial index. The market breadth for the sector (0.75x) skewed slightly in favour of the four (4) decliners, as against three (3) gainers.

PORTPAINT ended the week as the top advancer, improving on its trading price by 3.36% to settle at NGN4.00. The stock was followed by ASHAKACEM and CAP which posted respective gains of 3.33% and 0.54%.

BERGER, the week’s worst performing stock, plunged by 9.63% to peg its closing price at NGN9.01. CUTIX trailed with a decline of 4.86%. Also, the bellwether stocks in the sector closed negative, with WAPCO and DANGCEM paring in value by 2.44% and 0.84% accordingly.

The industrial goods sector, which is yet to record positive WoW returns this year, remained pressured owing to the performance of the large cap stocks in the sector. In light of this, we reiterate our advice to investors seeking for value, to focus on the fundamentally justified stocks in the sector.

Insurance Sector: Bears on Rampage

The insurance sector suffered bearish sentiments during the week, as the sector returned -1.60% WoW as measured by the NSEINS10 index, pushing the year to date return to -6.93%. The sector breadth skewed in favour of decliners, with a sole advancer against three (3) stocks pared in value, while other counters closed flat.

AIICO emerged the sole gainer of the week, advancing by 1.18% to NGN0.86. MANSARD consolidated on prior week’s losses to remain the sector’s top underperformer, after the counter pared by 7.98% WoW to close at NGN2.19, down from NGN2.38 in the prior week. The counter was trailed by NEM and CUSTODYINS, as the respective counters waned by 1.45% and 1.04%, to close at NGN0.68 and NGN0.95 accordingly.

We advise investors to trade with caution in the coming week.

Oil & Gas Sector: Bargain hunting activities buoy sector performance

The oil & gas sector was characterized by bargain hunting activities in the week, advancing by 1.36% WtD as measured by the NSEOILG5 index. Four stocks appreciated in value against a lone decliner.

SEPLAT (+23.96% WoW) outperformed other sector stocks as a result of bargain hunting activities to settle at NGN194.25, after plummeting the most in the prior week. It was trailed by OANDO (+8.11%), ETERNA (+5.88%), and MOBIL (+1.81%). FO was the lone decliner, paring by 5.00% WoW to close at NGN297.83. Other stocks traded flat.

Forte Oil Plc. (FO) released its FY2015 earnings scorecard in the week, recording a decline of 26.75% in turnover to NGN124.62bn, while PAT advanced by 30.01% to NGN5.80bn. Also, the company approved a dividend of NGN3.45 per share, implying a dividend yield of 1.16% based on its closing price.

Services: Sector closes positive

The MERISER index closed positive having advanced by 0.66%, despite recording gains on only 2 trading days of the week. This settled year to date return at -1.29%. The sector’s breadth lay at 0.75x, as three stocks gained against four decliners.

TRANSEXPR was the top performer rising by 13.64% to close the week at NGN 1.25, followed by NAHCO, last week’s top gainer, which climbed 5.34%. LEARNAFRCA also appreciated by 3.61%. CAVERTON, lost a notable 16.96% to close the week at NGN 1.86. REDSTAREX (-5.00%), UPL (-5.00%) and AIRSERVICE (-4.57) also appeared on the loser’s chart.

We advise investors to take positions in fundamentally justified stocks, giving particular attention to counters which have thus far withstood the economic downturn.