• Saturday, February 24, 2024
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Meristem Investment Guide: Market slides further


Market mood was bearish for most of the week, as the market lost for three of five trading days to end the week in the negative territory. The NSEASI declined significantly by -1.18 percent WoW (Week on Week), to peg YtD (Year-to-Date) return at -1.59 percent. Volume and value traded soared by 101.50 percent and 232.57 percent (vs. 12.68% and 8.41% in the previous week) due to major off-market trades on ASHAKACEM (1.3bn shares traded) and DANGCEM (243.54bn during the week).

The DANCEM trade was the largest trade since 1997, and was executed by Meristem Securities.

IKEJAHOTEL topped the gainers’ chart with a week-on-week (W-o-W) return of 42 percent, while PREMBREW, VONO, UBN and FTNCOCOA followed suit with gains of 33.12 percent, 20.69 percent, 19.98 percent and 9.62 percent, in that order.

On the converse CONOIL, RTBRISCOE, MAYBAKER, FIDSON, and REDSTAREX led the losers’ chart, shedding 12.85 percent, 11 percent, 9.80 percent, 9.49 percent and 9.39 percent, respectively.

We expect performance next week to be largely driven by the expectations and actual outcomes of the FOMC and MPC meetings scheduled for September 16 to 17 and 18 to 19, 2014, accordingly.

Banking Sector: Rebounds WoW… as UBN surges

A positive wind of change swept across the banking sector this week as eight out of 15 stocks traded positive, six stocks traded negative, while UNITYBNK traded flat. UBN blazed the trail with a stunning 19.98 percent gain, while ETI, SKYEBANK, ACCESS, STERLNBANK, DIAMONDBNK, FIDELITYBK, and ZENITHBANK followed suit, returning 8.17 percent, 3.60 percent, 2.79 percent, 2.68 percent, 2.44 percent, 2.04 percent, and 1.44 percent. Losers for the week were WEMABANK, UBA, STANBIC, FCMB, GUARANTY, and FBNH, each shedding 1.10 percent, 1.10 percent, 1.32 percent, 1.88 percent, 2.25 percent, and 3.20 percent, respectively.

The major news in the sector for the week was the additional stake purchased by the global investment company Atlas Mara Co-Nvest Limited in Union Bank of Nigeria plc, raising its stake from 9 percent to 29.9 percent for $270 million. This was a strategic move by the investment company to deepen its interests in sub-Saharan Africa. This news caused a substantial rally on UBN stock as noted above, trading as high as N10.89 on Wednesday, before retracting to close the week at N10.27.

It is not surprising that the sector returned positive this week, as the highly correlated sector stocks usually follow trend. We expect that sector gains will continue to be sluggish leading up to the MPC meeting next week and October 1, when new CBN guidelines regarding Basel II compliance is expected. We expect that the sector might shed some of the gains of this week owing to the activities of profit-takers.

Industrial Goods Sector: Meristem Securities executes largest trade since 1997

The industrial goods sector witnessed improved sentiments during the week, with three stocks recording increases in share price against only one price gainer in the previous week. The Meri- IND index however depreciated by 3.81 percent, dragged by DANGCEM.

WAPCO reversed last week’s loss with a 1.3 percent upward swing in price to top the sectors gainers list. CAP and CCNN also advanced by 0.90 percent and 0.69 percent, accordingly.

ASHAKACEM was the major sector laggard for the week, having shed 0.58 percent to close at N32.31. In the course of the week, 1.312 billion ordinary shares of Ashaka Cement plc was crossed in an off-market transaction between Lafarge Nigeria (UK) plc. and Lafarge Africa plc. at N30.95 per share. This transaction is part of Lafarge Africa’s efforts at consolidating its Nigerian and South African assets.

In another off-market transaction on Monday, September 8, 2014, Dangote Industries Limited sold 243,540,000 units of DANGCEM shares (1.43% of total shares outstanding) at N200 per share to the Investment Corporation of Dubai, with Meristem Securities executing both the buy and sell side of the transaction. This transaction thus takes DANGCEM’s float deficiency to 5.7 percent. Subsequent to this major transaction, DANGCEM shed 4.4 percent during the week to close the week at N215.10.

We do not see the sector faring much better compared with general market mood in the coming weeks, as most institutional and foreign investments continue to trade cautiously due to concerns regarding potential headwinds ahead of the general elections in 2015.

Consumer Goods and Conglomerates Sector: GUINNESS 2014FY turnover declines 11%

Performance of the consumer goods basket was negative for the week, in line with the overall trend in the market as the NSEFB10 shed 0.49 percent. Performance distribution showed that seven stocks closed positive compared with 11 decliners, even as 11 traded flat.

GUINNESS released its long awaited FY2014 result, which revealed a 10.83 percent drop in revenue reported, which is consistent with the last four consecutive quarterly releases. Profit before tax, and after tax profit slipped by 31.32 percent and 19.30 percent, accordingly, while dividend per share was slashed to N3.20 (compared with N7 in 2013FY) translating to a payout ratio of 50 percent (vs. 80% 3-year average). The result was met with negative reactions from investors, as market price declined by 4.98 percent for the week.

PREMBREW retained its position as the best performer in the sector for the week, appreciating by 33.12 percent. Other gainers in the sector for the week include DANGSUGAR, 7UP and NB with returns of 7.98 percent, 5 percent and 0.63 percent, respectively.

PZ (-5.65%) and GUINNESS (-4.43%) led the losers list, while other decliners included UNIONDICON, NASCON, HONYFLOUR, FLOURMILL and NESTLE, which declined by 4.96 percent, 2.79 percent, 2.17 percent, 1.17 percent, and 0.88 percent WtD, respectively.

HONYFLOUR’s register closed today (Sept, 12, 2014) for the dividend payment (17 kobo/share) due on September 17, 2014.

In the conglomerate sector, UACN and AGLEVENT advanced by -1.08 percent and 8.57 perceny for the week. AGLEVENT’s dividend payment of 16 kobo per share is expected on September 19, 2014.

Sector performance for the coming week is expected to be tempered in line with the overall market, given concerns about the outcome of the FOMC and the MPC meetings.

Oil and Gas Sector: Price reversal commences on CONOIL

The oil and gas sector returned positive for the week as the sector’s index advanced by 3.27 percent. The gains were majorly driven by FO, TOTAL and MOBIL which returned 7.58 percent, 4.62 percent and 3.45 percent to close the week at N235.60, N180 and N180 in that order.

Investors took profit on CONOIL as the register of members was reopened after the September 5 closure. The counter led the industry losers’ chart, declining by 12.85 percent to close at N53.16. Other laggards in the industry during the week included OANDO, SEPLAT and ETERNA with declines of 2.48 percent, 1.47 percent and 0.77 percent, respectively.

Despite the decline by CONOIL we still maintain our position that the stock is overvalued. A view we also share on FO and MRS, while we believe that TOTAL and ETERNA are fairly valued at their current prices.

Insurance Sector: Sector’s performance rebounds

Subsequent to the sell pressures that caused a dip in the Insurance index level in the preceding week, the sector’s performance improved marginally by 0.04 percent week-on-week (WoW).

The sector breadth improved in the week, favouring advancers as four stocks appreciated in prices against two that declined. NEM emerged as the highest loser for the week, shedding 5 percent. CORNERST also declined by 1.96 percent as price settled back at its nominal value (N0.50) following the price appreciation that greeted its recent financial scorecards.

The top gainers in the week in descending order were INTENEGINS, ROYALEX, AIICO, ROYALEX and CONTINSURE as each appreciated in price by 6 percent, 3.75 percent, 1.75 percent and 1.03 percent in that order.

We expect the sector to sustain the positive momentum in the near term given its low level of volatility. From fundamentals stance, we expect the positive drivers to include AIICO, CONTINSURE and NEM. We expect market sentiments to favour CUSTODYINS and MANSARD even as they currently trade around their respective fundamentally justified prices.

Agric Sector: Negative sentiments persist, as sector YtD returns peg at -14.56%

Negative sentiments which have persisted for the past three weeks, reoccurred in this week as the sector closed on a negative note, shedding 0.25 percent to peg YtD returns at -14.56 percent.

OKOMUOIL and LIVESTOCK shed 3.62 percent and 3.44 percent, respectively, to drag the sector’s performance. Even though activity on FTNCOCOA continued through the week, it appeared to have halted its gaining streak as it shed 5 percent on Friday to put WtD return at 9.62 percent. PRESCO gained 2.78 percent on Friday to close at N37. ELLAHLAKES, however, remained flat.

We expect sector counters to continue to gravitate towards fundamentally justified prices in the coming weeks. Our valuation puts the fair values for OKOMUOIL, PRESCO and LIVESTOCK at N32.40, N29.90 and N1.73, respectively.

Healthcare Sector: Value in murky waters

The Health sector, as measured by the MERI-HEALTH index, closed the week on a negative note as it shed -1.51 percent to peg MtD, QtD and YtD returns at -0.02 percent, 1.52 percent and -4.47 percent in that order. Trading activities on the sector stocks has been muted, with the pendulum swinging more to the negative axis with only NEIMETH (2.86%) and EVANSMED (7.69%) gaining during the week.

FIDSON and PHARMDEKO are the only sector stocks that have recorded positive YtD returns of 19.71 percent and 28.65 percent in that order, as all other counters have posted negative YtD returns so far.

Despite the negative sentiments on the stocks in the sector, we still see value as the companies strive towards aligning their operations with ‘Good Manufacturing Practice,’ which will give them the opportunity to play in the global market. This will also present to them the opportunity to bid for the supply of bulk purchases during international health intervention programs on anti-malaria, anti-retroviral (ARVs) and tuberculosis. The ongoing restructuring in the sector has necessitated the need for increase in capacity, which in turn is expected to generate more revenue for the concerned companies in form of royalty for contract manufacturing.

Services Sector: Trudges forward despite market downturn

The Services sector closed the week on a positive note as Ikeja Hotels plc. (IKEJAHOTEL) remained the best performer in the sector and market for the week, gaining 42 percent. Other gainers for the week were NAHCO, ABCTRANS and LEARNAFRICA 3.8 percent, 1.45 percent, and 1.26 percent.

The laggards for the week were RTBRISCOE, REDSTAREX, TRANSCORP, CAVERTON and UPL as the stocks shed 11 percent, 9.39 percent, 5.47 percent, 2.2 percent and 0.48 percent in that order, while ACADEMY, AIRSERVICE, CILEASING, LENNARDS and TANTALIZER all traded flat.

Major news in the sector came in the form of news concerning Caverton RK, a joint venture between RK Singapore and Caverton Marine Limited (one of the subsidiaries of Caverton Offshore Support Group) was recently awarded a contract to supply two drilling vessels to Shebah Exploration and Production Company Limited (SEPCOL) in support of Rig Trident VIII SEPCOL’s offshore drilling operations. We see the company’s moves to diversify its income base as positive, although we do not expect this deal to start to markedly impact the company’s bottom-line in the near term.

Also, TRANSCORP Group (TRANSCORP) has filed for permission to list the Hospitality and Tourism arm, Transcorp Hotel plc. (which generates 70% of the Group’s revenue) on the Nigerian Stock Exchange, and if successful an IPO of 800 million ordinary shares of 50 kobo at a market value of N10 per share (8.30% higher than the all-time high price of TRANSCORP is N9.17).