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Meristem Securities: Financial market activities to slow as stakeholders keep watch of unfolding events

CSCS records impressive 2012 performance

We imagine that activities in the financial market will slow down as stakeholders keep watch of unfolding events in the socio-political space throughout the electioneering process.

This report reviews events in the financial market during the week, and provides our expectations for the week ahead.

Economic round-up: NNPC and NNDP to remit $1.48 billion to Federal Account.

Activities in the global oil space appeared upbeat last week, evidenced by the 10.08 percent appreciation in Brent oil price from $52.99 in previous week to $58.33.

We however do not foresee a continuation in the upward trend in the near term, especially as the OPEC and North American Oil producers have refused to give any indications of imminent reduction in production volumes. We also note that current crude prices are above US Energy Information Administration (EIA) 2015 forecasts for both WTI and Brent crude, which pegged at $54.58 and $57.58, respectively.

Following allegations that the NNPC failed to remit c.$49 billion to the Federal Account, PriceWaterhouseCoopers (PWC) released a forensic audit in which NNPC and NPDC were advised to refund a minimum of $1.48 billion (N274.54bn) to the Federal Account at an FX rate of USD/N185.50.

Electioneering activities continue to intensify in different parts of the country amid uncertainties about the readiness of the national electoral body to conduct elections as scheduled. To this end, a presidential summit was organised on February 5, 2015, by the president and ex-heads of state who voted to retain the election date.

We believe the outcome of the general elections will largely influence the perception of major foreign and domestic investors regarding the safety of investing in the nation’s financial market. As such, we do not anticipate major trading activities or fantastic returns on investments in February.

Fixed income brief: Market rates on the rise

There was a reduction in the level of liquidity in the system for the week, as the opening balance waned to N74.055 billion on Friday from N305.041 billion on Monday. In response, market rates trended up, as NIBOR recorded an average change of +2.14 percent across tenors. The OBB and OVN also closed at 15.92 percent and 16.17 percent, respectively, denoting weekly change of +7.25 percent and +6.92 percent in that order. We expect rates to remain at current levels in the coming week all else equal.

Treasury Bills worth N192.4 billion were auctioned on Wednesday on the 91-day (N45.18bn), 182-day (N30bn), and the 364-day T-Bills (N117.22bn), with stop rates pegging at 10.98 percent, 13.9 percent, and 14.3 percent in that order. In the secondary market, yields at the short end of the curve however dipped in the course of the week by 0.11 percent.

A total of N90 billion FGN bonds (N35bn of FGN FEB 2020 – 5Yr new issue, N30bn of 14.20% FGN MAR 2024 – 10Yr re-opening, and N25bn of 12.1493% FGN JUL 2034 – 20Yr re-opening) is expected on public auction by the Debt Management Office next week Wednesday. The bond market was calm for the week, as average yield across instruments increased by 0.15 percent.

In the currency market, CBN sold a total of $398.704 million at the RDAS auction in the week at the marginal rate of N168, upholding its resolve to continue to defend the local currency. The currency however closed mid-quote at N193.75/USD at the inter-bank market, representing a 3.31 percent depreciation for the week.

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Agric. Sector: … PRESCO reverses positive gains

The Agric Sector reversed the positive mood that pervaded the sector in the previous week, dragging the MERI-AGRI Index in the red zone by -5.07 percent.

No counter gained for the week. PRESCO was calm in the first two days but slightly declined subsequently to settle at N30.45, and the counterled the decliners dipping by 6.77 percent WoW. OKOMUOIL followed suit with a 2.95 percent loss. ELLAHLAKES, LIVESTOCK and FTNCOCOA traded flat.

Despite the positive mood in the market, the sector closed negative. We attribute the sector’s performance to profit-taking after weeks of gains, which left most stock that posted gains in past weeks shedding points this week.

Banking Sector: Resurgent amid heightening risk factors

The banking sector was resurgent last week, with the MERI-BNK index gaining 2.14 percent to bring YtD return to -14.03 percent. The sector’s breadth pegged at 2.5x as 10 stocks appreciated, while 4 stocks declined in value, just as UNITYBNK traded flat.

Leading the gainers were ACCESS, DIAMONDBNK, GUARANTY and ETI with respective gains of 15.83 percent, 8.94 percent, 4.84 percent and 2.60 percent. Price losers for the week included UBN, UBA, FBNH and, STANBIC, which recorded declines of 5.26 percent, 2.29 percent, 1.27 percent, and 0.96 percent, respectively.

The mild recovery witnessed during the week may not be unconnected with a level of bargain hunting, as most of the sector’s stocks are trading well below their fundamentally justified values. We do not expect this to persist, as the risk factors which could pressure on price performance still loom large, and may possibly weighdown market returns in the near future, perhaps until after the presidential elections.

Consumer Goods: GUINNESS grew 2015H1 revenue by 4.76%

The sector saw improved performance last week, shown by the NSEFB10 index which gained 0.29 percent during the week.

DANGFLOUR led the bulls charge with an impressive 33.33 percent week-to-date WtD return, followed by CHAMPION with 16.90 percent returns. They were joined by 7UP, UACN, DANGSUGAR, HONYFLOUR, NASCON, NESTLE, UNILEVER and INTBREW with 0.77 percent, 7.53 percent, 1.17 percent, 4.67 percent, 16.15 percent, 0.59 percent, 1.45 percent and 1.61 percent price appreciation in that order. NNFM and AGLEVENT refused to be swayed by the movements during the week.

The bears however had CADBURY, FLOURMILL, VITAFOAM, VONO, PZ, GUINNESS and NB with WtD losses of 3.11 percent, 7.69 percent, 9.47 percent, 8.55 percent, 2.83 percent, 0.77 percent and 0.15 percent, respectively. This may not be unrelated to the recently released results by some of these companies (FLOURMILL, PZ and GUINNESS).

FLOURMILL’s Q3:2015 result showed a 1.70 percent rise in revenue coupled with a large increase in finance cost of 45.06 percent, and a 44.46 percent loss in PAT relative to the previous year. GUINNESS Q2: 2015 result revealed an increase in revenue of 4.76 percent, which was negated by increase in costs, depressing PAT by 31.99 percent YoY.

VONO however refused to tow the common trend recording YoY growths in revenue and PAT of 11.38 percent and 92.71 percent. We expect further earning releases to drive performance in the week ahead.

Healthcare Sector: Index in green zone after weeks of losses

Negative sentiments which have surrounded the healthcare sector in the recent past took a breather last week courtesy GLAXOSMITH(+0.25%)and MAYBAKER(+4.17%) which drove the sector through WoW gains. The sector’s index advanced by 0.24 percent WoW to relieve YtD return to -19.45 percent. On the flip side, EVANSMED and FIDSON remained in the red zone, shedding 5.29 percent and 1.84 percent, respectively. All other counters closed flat for the week.

We expect calm trading in the week ahead, as we draw closer to the general elections. However we see resurgence in activities post-elections when some of the uncertainties may have been eliminated.

Industrial goods: Upbeat mood as sector gains 2.06%

The building material sector witnessed a major change in mood, as positive sentiments returned to the general marketlast week. The Meri-industrial index strengthened by 2.06 percent, with one stock closing in the negative zone while four stocks recorded gains during the period.

WAPCO sustained the momentum from the previous week as the ticker appreciated in price by 6.59 percent to top the sector’s gainers.’ PORTPAINT, DANGCEM and CCNN also increased their share prices by 3.60 percent, 2.44 percent and 1.74 percent, respectively.

CUTIX, the only decliner for the week, shed 0.65 percent, dragging share price to N1.54.

We believe that the positive sentimentsseen in the sector during the week was driven by bargain hunting activities on relatively cheap stocks with sound fundamentals. We think current mood in the market may not be sustainable given the prevailing economic and political concerns. Hence, we advise cautious trading.

Insurance Sector: IFC signs a loan deal with AIICO Insurance

The insurance sector index appreciated marginallylast week, as the sector returned 0.06 percent WtD to trim YtD return to -2.35 percent. Market breadth (3.0x) tilted in favour of gainers as 3 stocks appreciated in prices against a lone decliner.

NEM led the gainers’ chart with 11.32 percent gains to close at N0.59 compared with N0.53 in previous week. CUSTODYINSand AIICO followed suit with 2.30 percent and 1.25 percent gains, respectively. Contrarily, MANSARD pared 1.33 percent to close at N2.96 (vs. N3 in previous week) while other counters traded flat.

The International Finance Corporation (IFC), a member of World Bank, signed the sum of $20 million convertible loan agreement with AIICO Insurance plc during the week. The loan facility is expected to be channelled towards expanding the company’s network, retail centers as well as strengthening its Information Technology platform for efficient claims processing and customer services, according to Edwin Igbiti, its managing director.

As earnings releases approach, we anticipate that companies with earnings surprises will enjoy investors’ positive sentiments.

Oil and Gas: SEPLAT sustains positive momentum

The Oil and Gas Sector continued its losing streak, as the sector’s index (NSEOILG5) further declined by 0.04 percent WoW to put year-to-date (YtD) return at -6.10 percent. Sector breadth stayed in favour of decliners as 4 stocks recorded price depreciations while 2 counters advanced.

In spite of the sector’s performance, SEPLAT retained investors’ positive sentiments, appreciating by 9.39 percent following the marginal gain of 1.56 percent recorded in the previous week. We suspect that the partial resurgence in the counter may still be connected to the expectation of its acquisition of Afren plc., as well as SEPLAT’s acquisition of 40 percent working interest in Chevron’s asset, OML 53. Also closing in the green zone for the week was TOTAL, which gained 0.35 percent.

On the contrary, the losers in descending order were CONOIL, ETERNA, FO and OANDO with respective losses of 9.97 percent, 5.62 percent, 4.13 percent and 2.99 percent.

We think SEPLAT may continue its positive momentum in the coming week, partly because of the aforementioned reasons and the slight rebound in global oil prices. However, the fast approaching elections remain a downside to this view.

We believe that counters in the sector have high possibilities of resurging when general market performance improves.

Services Sector: RT BRISCOE soared 34.43% WoW

The Meri-Services index closed the week 3.49 percent down, as the sector mood failed to align with general market sentiments.

RT BRISCOE led the best performers for the week, soaring by 34.43 percent to close at N0.82. IKEJAHOTEL, ABCTRANS, and REDSTAREX followed with 20.72 percent, 7.84 percent and 2.70 percent respective gains.

On the other hand, TRANSEXPR led the decliners, receding by 5 percent to close at N0.95. UPL, CAVERTON, and NAHCO followed suit with 2.02 percent, 1.67 percent, and 1.04 percent price declines, respectively.