Meristem Investment Guide: NSEASI wanes by 1.52% WtD

The Nigerian equities market advanced on two (2) out of the four (4) trading days last week. Despite the even split between days of gains and losses, the index waned by 1.52% WtD as the magnitude of the losses far outweighed the gains on the positive days. Consequently, the Year-to-Date return of the index pared to -10.95%.

The equities market breadth settled at 0.72x, as twenty-six (26) counters appreciated in value against thirty-six (36) stocks that pared. Total market volume and value of transactions subsequently plummeted by 18.66% and 38.52% WtD respectively.

VITAFOAM outperformed its peers in the week, advancing by 14.83% WtD to close at NGN5.42. Other top advancers in the week were OANDO, FCMB, TOTAL, and INTBREW, which appreciated by 14.50%, 11.25%, 9.86%, and 8.99% WtD. UCAP steered the laggards in the week, plummeting by 35.00% WtD to settle at NGN1.30, and was trailed by TRANSCORP (-15.97%), UBA (-15.87%), ZENITHBANK (-15.54%), and TIGERBRANDS (-13.33%) accordingly.

Investor sentiments were largely negative in the week, despite an influx of earnings releases (over 40 performance scorecards released) into the market. Trading activities were largely bearish as declared corporate actions were insufficient to cause significant rallies on the equities of some of the Company’s that released results. We envisage that the sell down witnessed during the week will persist in the coming week, especially on counters with their closure dates elapsing in the new week.

This report reviews events in the current week, with emphasis on different segments of the financial market, while presenting our expectations for the coming week.

Fixed Income Update: Weak Demand Pressures Yield Northwards

Rates at the interbank waned in the week, as average NIBOR across tenors declined by 2.96% WoW to peg at 9.24%. Also, OBB and OVN rates declined by 8.92% and 9.00% WoW accordingly to close the week at 3.83% and 4.33% correspondingly.

Demand for the Nigerian Treasury bills instruments were weak in the week, resulting in a hike in average yield across instruments by 0.93% WoW to 8.60%. Yields on the 1M, 2M, 3M, 6M, 9M and 12M instruments pegged at 6.99%, 7.24%, 8.08%, 9.21%, 9.59% and 10.50% accordingly.

The seemingly weak demand was also displayed in the Treasury bond space, with the average yield on FGN Bonds instruments advancing by 0.14% WoW to close at 11.43%.  We anticipate this trend may be sustained in the coming week as system liquidity wanes further, following the Treasury Bills auction scheduled for 6th of April, 2016.

At the Inter-bank market, the Naira sustained a mid-price of NGN198.06/USD for most of the trading days in the week, but subsequentlty closed the week at NGN199.19/USD. This represents a WoW and YtD return of -0.35% and +0.06% accordingly. The domestic currency pegged at NGN324.00/USD at the parallel market.

We anticipate that the relatively higher yield environment will bolster investment activities in the coming week, while we opine that the pressured system liquidity remains a threat to interbank rates.

Agric. Sector: Yet another somber week

Consolidating on previous week’s losses, our MERI-AGRI index pared by 1.76% WtD, resulting in a year-to-date return of 1.87% for the Agric. Sector. Based on week-to-Date performances, the sector recorded a lone gainer, while two (2) counters pared, pegging the sector breadth at 0.5x.

PRESCO advanced by 1.02%WtD, settling at NGN34.60 at the close of the week. LIVESTOCK and OKOMUOIL recorded respective declines of 6.25% and 5.00%, closing the week at NGN1.05 and NGN29.85 in that order. ELLAHLAKES and FTNCOCOA recorded no week-on-week price changes.

During the week, LIVESTOCK released its FY2015 performance scorecard which revealed that the company’s revenue appreciated by 13.25%. Profit-before-taxes and profit-after-taxes however waned by 25.37% and 26.07% YoY respectively. OKOMUOIL reported YoY growths of 12.50%, 52.20% and 97.84% in turnover, profit-before-tax and profit-after-tax respectively. FTNCOCOA also released its FY2015 audited results which saw revenue grow by 453.10%, while profit-before-tax and profit-after-tax both declined by 65.14% YoY apiece.

We maintain our position that the sector has the potential to deliver attractive returns to investors, as the sector is expected to enjoy key focus in the current government’s economic development agenda, both in the short and medium term. Investors are however advised to make decisions based on company fundamentals.

Banking Sector: Sector Continues To Fall Despite Attractive Corporate Actions

The banking sector closed down for this week, paring by 9.64% WoW to peg the YtD return at –21.03%, as the certain sector heavyweights shed points after the closure dates for dividends passed

There were four (4) gainers and eleven (11) decliners, pegging the sector’s breadth at 6.63x. FCMB led the advancers, after appreciating by 11.25%. The ticker was closely followed by ETI, UNITYBNK, and WEMABANK which recorded respective price gains of 3.12%, 2.86%, and 1.32%. On the flip side, the decliners list was populated by UBA (-15.87%), ZENITHBANK (-15.54%), GUARANTY (-10.59%), and SKYEBANK (-8.08%).

Three banks released results this week, all of which were relatively weak when compared with the results previously released. The banks which released results were FCMB, FIDELITYBK and UBN.

First City Monument Bank Holdco (FCMB) FY2015 numbers revealed that the Holdco recorded a growth in Gross earnings (+2.60% YoY), while earnings declined significantly, with Profit-After-Tax coming in 78.49% lower YoY. Also, the Holdco declared a dividend of NGN0.10/share, which at the current price implies a dividend yield of 11.24%.

Fidelity Bank Plc (FIDELITYBK) recorded a good growth in Gross earnings, while Profit-Before Taxes declined by 9.61%. The bank was however, able to record a marginal growth of 0.78% in Profit-After-Tax, by utilizing warehoused tax benefits.

Also, the bank declared a dividend of NGN0.16/share which represents a dividend yield of 12.12% based on the closing price at the end of the trading week.

Union Bank of Nigeria Plc’s (UBN) result showed that the bank recorded a growth in Gross earnings of 14% YoY, while Profit-Before-Tax and Profit-After-Tax declined by 47% and 48% accordingly; and no dividend was declared.

In line with expectations, the results released in the week were unable to drive the sector’s performance, as significant offer volumes permeates the market. We expect this to persist in the coming week as sell side volumes still significantly outweigh the buy-side.

Consumer Goods: Sector heavyweights drag performance

Reversing some of the gains recorded in the previous week, the Consumer Goods sector recorded a negative week-to-date performance of -4.16%, pushing the year-to-date return to -17.89% as measured by the NSEFBT10 sector index.

In the week concluded, VITAFOAM led the gainers’ chart with 14.83% gain WtD. The counter was trailed by INTBREW, NASCON, DANGSUGAR, CHAMPION, PZ, FLOURMILL and 7UP with respective WtD returns of +8.99%, +5.98%, +5.26%, +4.76%, +3.12%, +2.89% and +1.59%. The decliners’ chart on the contrary featured TIGERBRANDS, NB, GUINNESS and UNILEVER, with respective WtD returns of -13.33%, -9.61%, -8.20%, and -4.59%.

NASCON Allied Industries released its FY2015 financial scorecard which showed 43.80% year-on-year increase in revenue to peg at NGN16.18bn. Similarly profit before taxes and profit after taxes advanced by 5.64% and 12.78% YoY accordingly. The company declared a dividend of NGN0.55/share, which implies a dividend yield of 2.81% at today’s close price.

We do not anticipate a change in the oscillatory performance trend in the sector, as investors continue profit taking activities on sector counters. A development which was further aggravated by unimpressive earnings releases, coupled with heightened skepticism on future performance amidst current unfavourable macro-economic fundamentals.

Health Sector: Sector breadth settles at 0.5x

The sector breadth (0.5x) favoured the decliners in the week, as two (2) counters pared against a lone advancer. Consequently, the MERI-HLTH index pared by 0.09% WtD.

NEIMETH was the lone advancer in the week, advancing by 4.55% WtD to settle at NGN0.69. Conversely, NIG-GERMAN (-9.64% WtD) and FIDSON (-2.37% WtD) were the two laggards in the week.

Fidson Healthcare Plc. (FIDSON) released its FY2015 result, recording revenue and PAT of NGN8.21bn (-15.52% YoY) and NGN744.38mn (+17.81% YoY) respectively. A dividend of NGN0.05k/share was proposed, implying a dividend yield of 2.02% at the closing price for the week.

We are not optimistic of a positive sector return in the coming week, save for positive news inflows capable of spurring positivity towards the sector stocks.

Industrial goods:  DANGCEM Emerges as Sole Gainer for the Week

The month of March was a good one for the industrial goods sector, as it returned 15.16% during the month. This strong performance, which was mostly driven by DANGCEM (+18.38% MoM return), drove the sector return for Q1:2016 to -3.13%.

In furtherance to the rally on DANGCEM, the industrial goods sector closed the week positive as measured by the Meri-IND index which appreciated by 3.26% WtD. There were 6 price losers during the week as against DANGCEM the only price gainer. 

WAPCO recorded the highest decline during the week ended, following a 5.48% decline in share price to NGN76.41. ASHAKACEM, CCNN, BERGER, PORTPAINT and CUTIX shed 5.00%, 5.00% 4.97%, 4.76% and 4.61% respectively to make up the list of decliners.

Chemical and Allied Products PLC (CAP) recorded a marginal growth of 0.99% in its FY2015 revenue to NGN7.06bn even as Profit after Tax (PAT) settled at NGN1.74bn, up 4.64% from FY2014. The growth in PAT was driven by a 13.85% increase in “other income” coupled with improved operating efficiency evidenced by the 4.39% YoY decline in operating expense.  The company also declared a dividend of NGN1.20 per share implying a dividend yield of 3.12% at current market price.

Berger Paints Nigeria PLC (BERGER) also declared its FY2015 financial scorecard during the week ended. Revenue declined by 1.97% to NGN3.02bn while PAT came in at NGN0.33bn on the back of increases in “other income”, finance income as well as the inclusion of a curtailment gain on retirement benefit obligations. Furthermore, finance expense diminished YoY by 37.11%. The company also declared a dividend of NGN0.75 per share implying a dividend yield of 8.34% at current market price.

The current trend in positive sentiments witnessed during the week can be directly attributed to investor activity on DANGCEM. Our outlook for the coming week is somewhat frail, given our expectation of profit taking activities on DANGCEM.

Insurance Sector: Weak appetite subsists

The insurance sector compounded on the previous week’s losses, as the NSEINS10 index trimmed by 0.53% WoW, further pressuring the sector’s year to date loss to -10.58%. Market breadth pegged at equilibrium, following value appreciations and declines across equal number (2) of stocks.

Succeeding two weeks of consecutive losses, AIICO and NEM recorded gains of 5.00% and 1.33% WoW, to emerge as the top gainers in the week. Conversely, MANSARD (-4.10%) and CUSTODYINS (-2.62%) emerged as the worst performing stocks in the week.

Custodian and Allied Plc (CUSTODYINS) released its FY2015 financial result this week. Gross Premium Earned (GPE) and Profit after Taxes (PAT) respectively advanced by 26.46% and 3.99% to NGN23.60bn and NGN4.20bn accordingly. Consolidated Hallmark Insurance Plc (HMARKINS) also released its FY2015, recording growths in both top-line (+26%) and bottom-line (+183%).

Conversely, Prestige Assurance Plc (PRESTIGE) FY2015 financial scorecard showed declines in both top-line (-15%) and bottom-line (-1124%).

We opine that there will be a shift in sentiment back to the negative region towards the equities market, following the unwinding earnings season. This we anticipate may negatively influence investment activities in the sector in the coming week. As such, we expect the current trend to subsist in the coming week.

Oil & Gas Sector: Sector returns upbeat performance

Investor sentiments’ were positive on the sector counters in the week, as indicated by the NSEOILG5 index which advanced by 2.06% WtD. Three (3) stocks appreciated against a lone decliner, pegging the sector breadth at 3.0x.

OANDO (+14.50%) led the advancers in the week to close at NGN4.58, trailed by TOTAL (+9.86%), and MOBIL (+3.84%). ETERNA was the lone decliner in the week, paring marginally by 0.57% WtD.

Mobil Oil Nigeria Plc. (MOBIL) released its FY2015 result in the week, recording revenue and profit-after-tax of NGN64.22bn (-19.30% YoY) and NGN4.87bn (-23.77% YoY) respectively. The company also proposed a dividend of NGN7.20/share with closure and payment dates scheduled for 28th – 30th April 2016; and 1st June 2016 accordingly.

MRS Oil Plc. reported its FY2015 revenue and PAT at NGN87.09 (-5.66% YoY) and NGN935.63mn (+25.35% YoY). The company also proposed a dividend of NGN1.10/share.

We anticipate a considerable level of cherry-picking by investors in the coming week, as they await the release of other full year performance scorecards in the sector.

Services Sector: Sector Encounters Sell-off

The MERISERV index fell into negative territory (-1.94% WtD) to peg the Year-to-Date return at -1.51%. The sectoral breadth was set at 0.2x, as one (1) gainer emerged, whilst five (5) counters pared in value.

ACADEMY (+3.51% WtD) stood as the sole gainer for the week, closing at NGN 0.59. TRANSEXPR was at the forefront of the loser’s chart, tumbling by 10.34% WtD, to close the week at NGN 1.04. The counter was trailed by NAHCO (-6.77%), CAVERTON (-5.67%), LEARNAFRCA (-4.76%), and AIRSERVICE (-4.55%).

LEARNAFRCA released a statement notifying the NSE, shareholders and stakeholders that they would be unlikely to complete their 2015 audit and issue their “Annual Report as and when due in line with the NSE Rules”, with an aim to file their “2015 Audited Financial Statements with The Exchange on or before 12th April, 2016”.

We believe that investor sentiments will remain tempered into the week ahead, due to the dearth of positive news inflows capable of uplifting the market momentum.