Meristem Investment Guide: Equities market tilts positive

The Nigerian equities market started the week on a positive note, gaining on the first three trading days vs. losses on the preceding 11 trading days. This generally positive mood saw the NSEASI surge by 2.33 percent WoW (week on week) to bring the YtD (year to date) return to -5.42 percent, as market cap pegged at N12.906 trillion.

Despite the positive week, volume traded and market turnover dipped by 25.04 percent and 28.21 percent, respectively, WoW.

COSTAIN led the gainers’ chart with a week on week return of 16.25 percent to close at N0.93 (vs. N0.80 in previous week). NEIMETH, LEARNAFRCA, NASCON and NEM followed suit with gains of 13.27 percent, 10.69 percent, 10.43 percent and 10.14 percent in that order.

On the flip side, UNILEVER was the largest decliner, with 12.76 percent loss WoW to close at N40.00 (vs. N45.85 in previous week). PZ, PRESCO, CUTIX and RTBRISCOE followed suit with 11.01 percent, 9.72 percent, 6.91 percent and 5.62 percent losses accordingly.

We expect the market to maintain the positive sentiment as all sector records gains for the week. More investors are expected to take position to benefit from the current low prices.

Banking Sector: Positive trading in line with market mood

There was a remarkable turnaround in the banking sector in the week as positive sentiments in the market seeped into the sector, resulting in a 3.64 percent gain for the week. Overall, there were only three price losers for the week, (STERLNBANK -5.11%, FCMB -2.62% and WEMABANK -1.05%), while the 11 gainers were led by DIAMONDBNK (+7.88%), UBA (+6.99%) and ZENITHBANK (+5.56%), with UNITYBNK trading flat. The gains in this week were largely on the back of attractive entry prices following weeks of persistent losses recorded in the sector.

GUARANTY released their Q3:2014 results during the week, in which the bank posted a 9.48 percent increase in its gross earnings, as interest and non-interest income grew by 8.19 percent and 11.88 percent in that order. The bank retained its industry cost leadership position as its cost-to-income ratio pegged at 43.99 percent for the period, albeit weaker than the 41.86 percent recorded in the previous year owing to an 11.30 percent increase in operating expenses. The effect of the provision taken in the Q2:2014 was still evident in the bank’s result, with loan loss expenses recorded at 128.10 percent over the corresponding period of 2013, acting to depress earnings after tax by 3.61 percent YoY.

We expect a level of cautious trading in coming weeks, as well as minimal profit taking as sentiments towards banking sector stocks remain uncertain as investors’ price in the effects of regulatory reforms.

Industrial Goods: Reign of the bulls

Reversing the WoW losing streak, the sector treaded in the positive as six stocks closed positive, two closed negative and others traded flat. CAP led the gainers advancing by 5.13 percent following three weeks of calm activities on the counter. ASHAKA, WAPCO, PORTPAINT, CCNN, and DANGCEMfollowed suit gaining 5.12 percent, 4.39 percent, 3.51 percent, 3.50 percent, and 1.42 percent, respectively. Losers for the week were CUTIX and BERGERdipping 6.91 percent and 4.94 percent in that other.

First Aluminum Nigeria plc. (FIRSTALUM) released Q3:2014 results, declaring 0.41 percent dip in Cost of Sales, 53.23 percent dip in OPEX, and 34.46 percent decline in Finance Expense. Operating Profit grew by 111.56 percent, as Turnover and Profit After Tax increased by 0.02 percent and 118.91 percent, respectively.

In line with our expectations, buy-rally on CAP on the heels of its strong Q3:2014 figures was witnessed during the week. Though coming late in the week, it was enough to drive the stock to the top of the sector’s gainers chart. We expect positive results from the remaining sector stocks to further trend returns on the sector high.

Consumer Good Sector: NB declared N194.73bn 9 month turnover

The sector experienced a positive turn around as the NSEFB10 appreciated by 0.75 percent. NASCON took a surprising lead of the sector’s gainers chart with 10.43 percent WoW appreciation, other advancers for the week include DANGSUGAR, HONYFLOUR, NESTLE, NB, GUINNESS and INTBREW with 9.22 percent, 3.64 percent, 2.75 percent, 1.94 percent, 1.11 percent and 1.02 percent gains, respectively. PZ and UNILEVER were the only counters in the losers chart declining by 11.01 percent and 12.76 percent WoW in that order.

Nigerian Breweries plc (NB) posted N194.73 billion turnover for 2014:Q3 in the course of the week, implying a revenue growth to 2.33 percent (compared with N190.30bn in 2013:Q3). Cost of sales inched up slightly by 1.89 percent to peg cost to sales ratio at 51.24 percent. Driven by a 35.17 percent significant decline in finance charges, profit before tax (PBT) and profit after tax (PAT) expanded by 10.52 percent and 11.29 percent, accordingly. The premium beer maker declared an interim dividend of N9.5 billion translating into N1.25 dividend per share and a dividend yield of 0.74 percent. We believe this weak top-line expansion may be linked to the keen competition within the sector and the sustained slowing growth in the Nigerian beer market.

Also, CADBURY posted N23.31 billion revenue for the 3rd quarter of the year 2014, compared to previous period this figure represent a 12.18 percent decline in turnover. PBT and PAT contracted significantly by 56.62 percent and 57.35 percent, accordingly. We think this unimpressive performance may be attributed to the competitive operating environment and the security concerns in the north. The Conglomerates sector also enjoyed the positive market mood, with AGLEVENT and UACN gaining 9.02 percent and 5.4 percent, respectively, during the week’s trading session.

We expect more earnings releases to drive sector performance in the coming week, though the overall market trend will go a longer way in shaping returns in the coming week.

Oil and Gas: Oando rebounds

The oil and gas sector rebound from the previous week decline advancing by 1.79 percent to peg the YtD return at 20.94 percent. Investors took advantage of the low prices as positive sentiment spread across the sectors counters.

OANDO reversed its previous week position by topping the gainers’ chart in the industry with 10.09 percent return WoW. SEPLAT also recoup some of the previous weeks’ loses, advancing by 4.69 percent to close at N574.00 still below its N576.00 listing price, the decline is not unconnected with the global drop in crude oil prices. MOBIL, FO, ETERNA and TOTAL also returned positive with gains of 2.08 percent, 1.44 percent, 1.33 percent and 1.17 percent, respectively, while MRS and CONOIL closed flat.

Base on the current price obtainable in the market, OANDO topped our recommendation list for the sector. We also believe there are upside potentials in ETERNA and TOTAL and maintain our overvalued position on FO and MRS.

Insurance Sector: Bullish investment in the insurance sector

The insurance sector consolidated on recent gains, as the MERI-INS Index indicates that the sector surged marginally by 0.65 percent week on week to peg the YtD return for the sector at 16.14 percent.

The sector breadth (4.00x) titled in favour of gainers as four stocks appreciated in price against one decliners, while other counters remain flat for the week. NEM led the gainers chart in the sector with a 10.14 percent gain, to peg its price at N0.76 (vs. N0.69 in the previous week).

AIICO, CUSTODYINS and CONTINSURE joined the gainers list by appreciating by 3.85 percent, 2.30 percent and 1.10 percent in that order. On the flip side, MANSARD was the only counter that shed points, declining by 0.33 percent WoW as it closed at N2.98 (vs. N2.99 in the previous week). All other counters traded flat.

We expect the positive sentiment for the sector to persist as the low volatility in the sector might appeal to investors looking to preserve capital. NEM and AIICO remain our top picks, just as we expect MANSARD to enjoy favourable market sentiment even as it trades at its fair price.

Healthcare Sector: NEIMETH gains 13.27% in three trading days

The MERI-HLTH index reduced its loss momentum in the week, shedding 3.50 percent compared with 8.05 percent loss posted the previous week to peg the YtD return at 20.36 percent, even as most of the counters in the sector closed flat. The sector breadth favoured the profit takers at 0.5x as one stock advanced against two stocks that shed points.

NEIMETH posted gains three out of the five trading days to return 13.27 percent WoW, while MAYBAKER and GSK declined by 5 percent and 3.57 percent, respectively.

The companies in the sector are yet to release their Q3:2014 numbers, but we expect these results to drive activities in the sector in subsequent weeks. Whilst we await Q3 earnings releases, FIDSON and GLAXOSMITH remain our top picks at their current levels.

Services Sector: Hospitality stocks drives the bull north…as LEARN AFRICA dips in earnings.

The services sector ended the week on a positive note with a market breadth of 4.0X WoW as eight stocks gained as against two stock that lost, while seven stocks traded flat.

LEARN AFRICA came tops with 10.69 percent followed by IKEJAHOTEL,TRANSCORP, ABCTRANS, REDSTAREX, UPL, CAVERTON and NAHCO with7.96 percent, 6.61 percent, 6.15 percent, 3.75 percent, 3.50 percent, 0.72 percent, 0.20 percent in that order. Conversely, RT BRISCOE topped the losers chartwith 5.62 percent, followed by ASL with 4.19 percent, while ACADEMY, C&ILEASING, LENNARDS,NSLTECH, STUDPRESS, TANTALIZER, TRANSEXPR all traded flat.

In another development, LEARN AFRICA and TRANS-NATIONWIDE EXPRESS released their Q3:2014 results. LEARN AFRICA witnessed a positive turnover, cost of sales and gross profit of 24.68 percent, 10.47 percent and 64.80 percent, respectively, but dipped in profit after tax by 6.69 percent as a result of the rise in its operating expenses by 6.10 percent.

TRANS-NATIONWIDE EXPRESS also recorded positives in their turnover, cost of sales and gross profit albeit marginally with 1.44 percent, 2.33 percent and 0.83 percent in that order but declined in profit after tax by 45.39 percent as a result of a combination of increase in OPEX and finance cost, which rose by 10.41 percent and 15.87 percent correspondingly.