Equities market halts bullish run

The Nigerian stock market’s WoW positive run was halted this week, as the index depreciated by 0.46 percent to end on42,832.85Pts. With this, YtD return settles at 3.64 percent. Volume and value traded for the week increased by 16.2 percent and 18.93 percent, respectively, while market capitalisation dipped by 0.46 percent.

The best performers for the week included FO, NPFMCRFBK, ASHAKACEM, TRANSCORP and DNMEYER with gains of 16.98 percent, 16.67 percent, 12.24 percent, 10.69 percent and 8.62 percent, respectively, while AIRSERVICE, CUTIX, NEIMETH, CUSTODYINS and FIDSON were the worst performers, declining by -8.98 percent, -8.63 percent, -8.33 percent, -7.94 percent, and -7.69 percent, respectively.

Though we envisaged the influx of Q2 numbers from companies within the financial services and consumer goods space during the week, only a few were released, including: CONTINSURE (Revenue growth; 25.87%, PAT growth; 1.18%), UPL (Revenue growth; 5.43%, PAT growth; -10.27%) and NPFMCRFBK (Revenue growth; 20.41%, PAT growth; 33.93%).

We analyse the performance of market on a sector by sector basis in the rest of this report.

Banking Sector: Returns up 0.59% WtD

The banking sector finished upbeat this week, with seven stocks appreciating against six that declined, while FIDELITYBK and UNITYBNK traded flat. This brings the sector’s return as measured by the MERI-BNK index to 1.29 percent Ytd. The top gainers in the week were WEMABANK (3.16%), FBNH (2.72%), and GUARANTY (1.25%), while the top decliners were FCMB (4.82%), DIAMONDBK (2.50%), and SKYEBANK (2.10%).

Thirteen Nigerian banks were ranked among the top 1,000 lenders in the world, with only UNITYBNK and WEMABANK left off the list. The list of banks were led by ZENITHBNK, GUARANTY, and FBNH, which ranked positions 293, 415, and 424, respectively.

As earnings season has yet to fully kick off as was expected, we are not bullish on the sector’s return potential in the coming week as we expect that position taking will calm down prior to release of new results.

Consumer Goods Sector: VITAFOAM jump 6.83% WoW

Activities on the consumer goods stocks mirrored the recent trend as investors’ sentiment continued to favour the major players within the sector. The NGSEFB10, which tracks the performance of the top 10 capitalised stocks in the sector stayed upbeat, with a 0.55 percent WoW return.

VITAFOAM topped the sector performance chart with a 6.83 percent WoW appreciation, although, the overall performance was driven by gains from sector heavy weights including Guinness, Nestle, PZ and NB, which returned of 5.54 percent, 1.83 percent, 0.55 percent, and 0.54 percent in that order. The likes of INTBREW (0.34 %) and HONYFLOUR (4.15 %) and NASCON (2.61%) were other gainers for the week. In contrast, UNILEVER, DANSUGAR, and DANGFLOUR were drags on the sector index with losses of 6.36 percent, 2.15 percent and 01.34 percent, respectively.

Our expectation for the coming week is positive, as we expect investors to continue to strategically take position ahead of Q2:2014 numbers, as some of the companies in the sector with good dividend payout history (GUINESS and INTBREW) are expected to release the full year results soon.

Insurance Sector: CUSTODYINS finally succumbs

The insurance sector witnessed some sell down this week which caused a decline of 2.06 percent to the MERI-INS index level, which was in contrast to the significant 4.96 percent surge in the preceding week.

There was a switch in performance for some counters in the sector this week, as gainers and losers in the previous week switched positions in this week. Turning out as the sector’s highest gainer, ROYALEX, which dipped 5.66 percent last week recorded a significant 8 percent return this week, while AIICO, which declined 7.14 percent in the previous week closed 5.13 percent up.

The release of FY2013 results by Continental Re-insurance plc in which the company recorded 25.87 percent and 1.18 percent growths in its top and bottomline, and proposed dividend (11k/share) favoured the counter, as position taking precipitated a significant price appreciation of4.59 percent during the week.

After seven consecutive weeks of significant gains, CUSTODYINS tumbled by 7.94 percent this week to peg its YtD return at 78.37 percent. The stock remains of the year’s highest gainers, trailing only FO on the NSE. Other laggards were MANSARD (-6.67%) and NEM (-2.41%).

The sector’s YtD return of 11.19 percent is second only to the oil and gas sector, and we are optimistic of more position taking in the sector before the year ends, driven by our expectation of more positive earnings results from the sector’s companies.

Agric Sector: PRESCO drives sector’s 1.55% gain

Against our expectation of a quiet trading week on PRESCO, the stock posted a solitary 2.86 percent gain (on Tuesday), on weaker traded volumes (22.60% lower than the previous week) to close the week at N38.06. OKOMUOIL, however, remained flat (in line with our expectations) at N33.00, while LIVESTOCK shed 0.65 percent to close at N3.05 as volume traded increased 58.34 percent over the previous week. FTNCOCOA has been sanctioned to pay a fine of N7 million for failure to render their 2012 and 2013 FY results to the exchange as at when due. The company however posted the results last week.

While we still await H1:2014 numbers for the counters in the sector, technical indicators suggest that PRESCO may trade down in the coming week. Positive result expectations may however sustain the stock at its current level. OKOMUOIL will most likely trade flat in the coming week, unless sentiments turn out stronger than in the previous week. We also have positive expectations for the company’s Q2:2014 result. LIVESTOCK currently trades far ahead of its fundamentally justified price even though it appears to have found a support level at around N3.00. For the week, the stock may continue to trade around that level even though expectations are slightly biased upwards.

 Oil and Gas Sector: MRS joins ETERNA on PPPRA exclusion list

The Petroleum Product Pricing Regulatory Agency (PPPRA) has released the list of companies allowed to import petroleum products for the third quarter. Owing to the agency’s plan to clamp down on false subsidy claims, the agency further pruned the number of importers of petroleum products from 40 (in Q2:2014) to 27.

The major omission from the list was MRS Oil, which was hitherto included during the second quarter allocation. The implication of this development is that for the company to maintain its fuel marketing business for the current financial quarter, it will have to go to the secondary market – a situation which will exert significant pressure on the company’s earnings. ETERNA remained on the exclusion list, as has been the case for the company since the subsidy allegation of 2012.

MRS shares closed flat at N63.18 for the week, while ETERNA shed 3.26 percent to close at N4.45. We maintain our position that MRS is overvalued at current market price, and that the shares of ETERNA are fully valued. FO and CONOIL were the only gainers in the sector this week, returning 19.98 percent and 0.31 percent to close at N234.06 and N65.60, respectively. SEPLAT was the penultimate loser declining by 2.50 percent to close at N702.00, while OANDO, MOBIL and TOTAL shed 1.79 percent, 0.04 percent and 0.04 percent, respectively. TOTAL and MOBIL remain our top picks in the sector. Both companies were among the larger volumes winners on the PPPRA list.

Health Sector: YtD return swings positive

Investors’ sentiment has not favoured the healthcare sector since the beginning of the year despite the resurgence in the equities market a few months ago. During this week however, significant position taking increased the MERI-HEALTH index level by 2.87 percent WoW to swing YtD return to the positive region (2.76%). MAYBAKER, which declined in price in the previous week, witnessed some level of renewed interest from investors as position taking played out to bring a price appreciation of 5.99% on the stock. The sector’s most capitalised stock (GLAXOSMITH) also consolidated on its positive performance in the previous week to close 1.47 percent higher.

FIDSON witnessed the highest price depreciation (-7.69%), which may not be unconnected to profit taking as the company closes its books for dividend payment today. Profit taking also featured in NEIMETH, which fell by 8.33 percent after recording a gain of 4.76 percent in the preceding week.

Based on our fundamental prices, we expect FIDSON to bounce back from the loss and GLAXOSMITH to consolidate on its performance in the coming week.

Industrial Goods Sector: Investors cash out gains though still awaiting Q2:2014 numbers

The industrial goods sector lost 3.02 percent as measured by our MERI-IND index. The cement giant, DANGCEM was responsible for the loss as the counter closed the week 3.60 percent lower, which we attribute to profit taking. Lafarge WAPCO held its annual general meeting on June 9, 2014, with the company’s shareholders approving the proposed consolidation of its Nigerian and South African businesses, as well as the increase in its authorised capital to N5 billion. The stock appreciated marginally in the week by 0.93 percent.

However, investors bought in to ASHAKACEM possibly to benefit from consolidation as the stock advanced 12.21 percent WoW. CAP partly regained the loss of the previous week to close 1.3 percent up at N39. BERGER and PAINTCOM traded flat for the week. We expect positive trading in the coming week, which will likely be driven by expectations of, and subsequent release of impressive Q2:2014 results.

Services Sector: Upward trend continues

The services sector sustained the positive mood in the market with six stocks recording price gains against four price decliners. The MERISER index advanced by 6.07 percent to drive returns to 9.13 percent Ytd, largely as a result of positive investors’ sentiments on TRANSCORP and RTBRISCOE.

TRANSCORP continued on its upward trend for the second consecutive week, as the stock gained 10.69 percent to close at N5.80 (highest since September 2007). Other advancers this week included LEARNAFRICA (7.10% to close at N1.66), RTBRISCOE (6.54% to close at N1.14), ABCTRANS (5.88% to close at N0.9), and NAHCO (2.89% to close at N4.99).

CAVERTON’s four-week positive run came to a halt as the stock shed 4.85 percent on Friday to bring its Ytd to -31.89 percent. Also, AIRSERVICE shed -8.98 percent by close of trading to further drag its price down to N2.33, representing a 30.31 percent decline in value since the beginning of the year. Other price losers included IKEJAHOTEL (5.00%) and UPL (-5.16%)

We see the positive mood in the market sustained in the coming weeks driven by expectations of impressive half year results.