Market sentiments negative

The index returned 0.45 percent for the week to bring the Ytd return to 0.57 percent, as the volume and value of transactions declined by 25 percent and 8 percent, respectively. Though the Nigerian equities market returned positive for the week, it was a topsy-turvy ride as the index gained significantly by midweek before paring at week’s end.

The major gainers for the week were PREMBREW, CORNERST, and FIDSON, which gained 43.64 percent, 13.46 percent and 10.63 percent, while the major decliners included FLOURMILL, EVANSMED, and FORTISMFB which pared by 15.81 percent, 11.50 percent, and 9.67 percent, respectively.

With the earnings season winding down, the generally weak earnings performances have failed to drive the index upwards as the NSEASI has pared by 2.22 percent Qtd. There were nine companies that released earnings results this week including financial sector notables MANSARD and GUARANTY. The Tier-1 bank, GUARANTY, released an uninspiring H1:2014 result this week. With only a few more tickers yet to release results, we expect that the negative sentiment might persist next week.

Banking Sector: STERLNBANK leads gainers

The sector traded positive during the week as the MERI-BNK index closed 0.01 percent higher than it did in the previous week. Six of the 15 banking stocks closed positive, while seven shed points and UNITYBNK and WEMABANK traded flat. The gainers for the week were STERLNBANK, ZENITHBANK, STANBIC, FCMB, UBN and UBA, which appreciated by 8.57 percent, 3.35 percent, 2.92 percent, 1.18 percent, 0.74 percent and 0.28 percent in that order.

Conversely, price losers for the week were SKYEBANK, ETI, FIDELITYBK, GUARANTY, FBNH, ACCESS and DIAMONDBNK, which posted respective losses of 7.05 percent, 4.18 percent, 3.45 percent, 1.96 percent, 1.62 percent, 1.03 percent and 0.16 percent.

Guaranty Trust Bank plc released its half year audited result during the week, which showed a 7.07 percent increase in gross earnings, while profit after tax declined by 10.21 percent in the same period. The drag in profitability was largely due to the 305.4 percent increase in loan impairment charges driven by the growth in specific impairment charges, which was mildly offset by the 95.1 percent decline in collective impairment charges and N1.63 billion reversal in collective impairment.

Also, the company declared a N0.25 kobo interim dividend, which resulted in a yield of 0.83 percent on the day of declaration. Sector’s activity is expected to remain calm in the following week.

Industrial Goods Sector: Cement stocks continue to drive sector gains

The industrial goods sector returned to positive zone this week as the MERI-IND index gained 1.58 percent, largely driven by trading activities on DANGCEM.

CCNN advanced by 1.95 percent to N14.61. DANGCEM gained 1.76 percent to drive share price up to N229.97 and 2014 returns to date to 5.01 percent as the ticker recovered from weeks of negative sentiments worsened by the release of its half year numbers, which showed 11 percent decline in PAT following the end of tax holiday on its Obajana and Gboko plants. BERGER also recorded a 2.2 percent increase in share value to close the week at N9.20.

PORTPAINT, CAP and PAINTCOM shed 1.57 percent, 1.19 percent and 0.62 percent, respectively, during the week due to what appeared to be profit-taking activities by investors, as they all had recorded significant price gains in recent times. WAPCO and ASHAKACEM however traded flat.

We believe that the mood in the sector is motivated not just by impressive half year scorecards from most of the players in the sector, but also due to renewed interest of investors in building materials’ stocks (especially cement stocks) on the back of expectations of increased building and construction activities in the run-up to the 2015 elections.

While we expect investors to continue to price industrial goods stocks upwards due to their positive earnings releases, we note the possibility of profit taking activities by investors in the coming week, as most of the stocks have recorded significant gains in the past 2-3weeks.

Consumer Goods Sector: Sector records marginal gains

The consumer goods sector recorded a marginal gain as the NSE-FB10 posted 0.58 percent return for the week. Ahead of the pack in terms of price appreciation is PREMBREW with a 43.64 percent return for the week. We note the sustained demand pressure on the stock which may not be unconnected with possible acquisition bid in the pipeline, in line with recent trends in the industry.

Data available to us indicated that the brewer is currently non-operational as its last filing with the exchange shows zero turnover in 2012 and 2011 financial year.

Other top performers in the sector include 7UP, NB, GUINNESS and HONYFLOUR with 10.24 percent, 4.47 percent, 0.53 percent and 0.24 percent returns, respectively. On the contrary, sector performance was dragged by losses recorded by sector heavy weights NESTLE (-2.70%) and FLOURMILL (-5.51%). Other losers include, INTBREW (-1.82%),VITAFOAM (-2.35%) and NNFM (-1.78%) moving with overall market’s bearish mood.

Champion Breweries plc’s offer to raise N11.65 billion by way of right issue (6.3bn ordinary share at N1.85 per share) is still on-going with the right characterised by relative illiquidity. The proceeds will be used to fund the company’s huge financial obligations and optimise its operating capacity. The rights opened earlier this month (August 4, 2014) and will close September 10, 2014. The stock traded flat in the week.

We expect activities in the sector to stay relatively calm in the coming week, as we do not foresee any major event in the sector save for the expectation of GUINNESS’ full year result.

Oil and Gas Sector: OANDO increases stake in Oando Energy Resources

Oando Energy Resources (OER), a subsidiary of Oando plc that acquired the assets of ConocoPhillips announced during the week that $98 million loan in capital and interest outstanding under its $1.2 billion facility agreement with OANDO Plc. has been converted to equity. The conversion further increased Oando Plc.’s stake in the Toronto listed subsidiary to 93.8 percent from 93.2 percent.

OER also reported increase in production level by 20 percent during the first half of 2014 largely due to improved well optimisation at OML 125 and increase production level at OML 56. Average daily production level during the period was 4,540b/d against 3,800b/d in the corresponding period in 2013. OANDO’s share price declined by 0.90 percent for the week to close at N26.45.

FO is expected to invest $90 million to upgrade its Geregu power plant in order to fully utilise the generating capacity of their installed 414MW plant. The company also increased its fleet of trucks by additional 100 to further boost its distribution efficiency. FO was among the gainers in the industry during the week, returning 2.30 percent to close at N231.20.

MRS, CONOIL, and TOTAL were the other gainers in the industry, advancing by 8.31 percent, 4.98 percent and 0.57 percent, respectively. ETERNA and SEPLAT shed 4.51 percent and 2.16 percent for the week, while MOBIL closed flat. TOTAL remain our top pick in the industry while we maintain our overpriced position on MRS and FO.

Agriculture Sector: Posts -0.98% returns, as PRESCO sheds 1.89%

Increased trading activities was observed on PRESCO during the week as the stock posted -1.89 percent return to drag sector WtD return to -0.98 percent. LIVESTOCK followed same trend as it shed 0.31 percent to close at N3.21. OKOMUOIL, ELLAHLAKES and FTNCOCOA remained flat at their current prices.

At current prices, fundamental valuation of the sector stocks (OKOMUOIL, PRESCO and LIVESTOCK) show they are currently trading above their fair values by 11.16 percent, 17.63 percent and 44.55 percent, respectively. Technical indicators also show that OKOMUOIL is trading in the overbought region and we might see a correction in its price soon. PRESCO on the other hand, appear to have moved into the oversold region due to losses recorded this week. On this basis, our market outlook for the sector in the coming week is negative.

Insurance Sector: Calm trading brings sector to a negative close

It was a serene week for the sector as it lost 0.56 percent during the week. Three stocks (CORNERSTONE, ROYALEX and NEM) gained 18 percent, 7.02 percent and 1.25 percent, while three (WAPIC, CUSTODYINS and CONTINSURE) lost 7.32 percent, 2.03 percent and 2 percent, respectively.

Other insurance stocks traded flat. PRESTIGE, GUINEA, ROYALEX and MANSARD released their FY2013, Q1:2014, H1:2014 and H1:2014 results respectively during the week.

PRESTIGE reported a growth of 2.89 percent in its gross premium earned while its profit declined significantly by 114.82 percent, owing to the 59.55 percent increase in management expenses and the base effect of the N782 million recovered impairment on trade receivables in 2012, which did not re-occur in 2013. GUINEA recorded a 42.89 percent decline in its top-line and its current loss position caused a 134.49 percent decline in bottom-line during the period.

Though MANSARD grew its top line by 27.35 percent, increased claims (+41.73%) during the period caused profit to decline by 55.81 percent. ROYALEX however, posted good numbers, growing top and bottom lines by 41.33 percent and 99.35 percent, respectively.

Healthcare Sector: Improved investors’ appetite causes a rebound

The sector rebounded from its loss position last week, as the MERI-HLTH index increased marginally by 0.02 percent. Gainers for the week were NEIMETH, FIDSON, PHARMADEKO and GLAXOSMITH, which appreciated by 11.11 percent, 11 percent, 4.85 percent and 1.51 percent in that order. There were only two losers for the week, EVANSMED and MAYBAKER, which lost 6.98 percent and 2.47 percent, respectively.

The Nigerian healthcare sector has not enjoyed much of investors’ patronage in the year, which has been fuelled by the generally mediocre results posted by the industry’s players in both FY2013 and quarterly results. This is evident in the Year-to-Date returns which currently stand at -3.02 percent for the sector. In third quarter however, there has been a level of reversal as Month-to-Date and Quarter-to-Date returns are +1.51 percent and +3.06 percent, respectively.

Services Sector: Buy sentiments outweigh sell sentiments

The services sector closed the week upbeat having gained 0.90 percent as measured by the MERI-SER index.

REDSTAREX recorded the most gains as it consolidates on the previous week’s gain as stock price advanced by 4.55 percent to N4.6. AIRSERVICE, TRANSCORP and LEARNAFRICA also gained 2.9 percent, 1.6 percent and 1.3 percent, respectively, to make up the list of price gainers in the sector.

RTBRISCOE (-9.5%), ACADEMY (-9.4%), CAVERTON (5.1%), UPL (-2.9%) and IKEJAHOTEL (-1.3%) contributed to dragging sector gains as they all recorded price declines during the week.