Equities index hits 3-month high

The equities market appears to be stripping itself off investors’ domineering perceived sentiments that have encrypted listed stocks since the beginning of the year. The breather in the regulatory space following the MPC decision during the week to retain the major policy variables unchanged and perceived re-entry of foreign fund managers despite the restiveness in the country remain the plausible reasons for the current state of the market.

In an unprecedented outing since the last three months of trading, the bulls resurfaced during the week after the index traded above its three-month high, settling at 39,831.83pts to close the week 2.08 percent northward. The total volume and value of transactions swung positive in the week as they pegged at 1.865 billion units (+12.81%) and N23.666 billion (+19.47%) mainly due to a special trading on Zenith Bank plc.

Given the momentum of gains recorded in the week, we are of the view that the positive trend will most likely be sustained in the coming week given the relative low pricing of some counters and the fact that no major domestic regulatory shock or global uncertainty should crystallise in the near term. We further analyse from a sectoral perspective, specific sentiments on sectors and counters that triggered the general market reaction during the week in the following sections while we also present our outlook for the week ahead.

Banking Sector: “ETI” lists as part of MSCI frontier index

The banking sector’s performance was downbeat in the week’s trading when compared with the previous week (returns last week). There were only eight gainers, bringing the sector’s return to -6.47 percent Ytd. The positive performance from the previous week was partly reversed as investors took their profit on the major gainers from the previous week. The major gainer from last week, FCMB (16.22%) shed 7.91 percent. This was a recurring theme for some of other top gainers from the previous week Access Bank (5.18%), and Sterling Bank (4.55%), which both shed 2.62 percent, and 1.30 percent, respectively, in this week.

The major gainer this week was Ecobank Transnational Incorporated (ETI), which gained 8.07 percent. The stock seems to be benefiting from increased investor awareness and patronage due to its recent addition to the MSCI frontier index which provides a broad representation of the investible opportunities in equities in 34 frontier countries in regions including the Americas, Europe, Africa, Asia, and the Middle East. This recent addition is expected to be followed by additional inflows into the Nigerian financial markets, which will portend a recovery in the banking sector, and the equities market in general.

Insurance Sector: More consolidations expected.

The insurance sector gained 2.59 percent during the week driven largely by Custodian Insurance and Continental Insurance, which recorded gains of 9.8 percent and 4.9 percent, respectively. WAPIC and Oasis Insurance on the other hand lost 3.57 percent and 3.77 percent, respectively, as investors took profits following the appreciation in both tickers’ share prices in previous weeks.

Similar to the increased trading volumes witnessed on African Alliance at the beginning of the month, Universal Insurance (UNIVINSURE) was actively traded during the week. The stock featured as one of the top ten most traded stocks on three of five trading days. We attribute the increased trading volumes on both stocks to the proposed merger between both companies which we expect to conclude before the end of the year.

The increasing need to grow and boost market share leads us to deduce that there will be more propositions of mergers/acquisitions in the insurance sector as the year unfolds. We maintain our positive outlook for the insurance sector as investors are expected to take position in stocks with good fundamentals and technical history such as Custodian Insurance , Mansard, AIICO, NEM and Continental Insurance.

Industrial Goods: Sector heavy weights push returns

Performance of the industrial goods sector in the week (+0.25% WtD return) was a reflection of dominant positive sentiments towards the tail end of the week. The share price appreciation of the heave weights in the cement basket (Dangote Cement and AshakacCem), which gained 0.28 percent and 1.02 percent, respectively, drove returns. While WAPCO remained unchanged WoW, investors seemingly commenced a steady re-entry into Dangote Cement.

Scepticism around the company’s ability to sustain strong profit growth (given the 11.3% decline in profit-after-tax as of Q1:2014 though net margin stayed as the industry’s highest at 45.98%), which dominated investors’ trading decisions in the prior weeks seems to have waned.