Equities market upturns prior week’s gains

In spite of three (3) trading days of gains during the week, the Nigerian equities market closed the week in the negative zone, as the NSE All Share Index pared by 1.31% week on week (WoW), pegging the year to date return at -21.32%. Volume traded and market turnover depreciated marginally by 3.60% and 5.71% respectively, as the market breadth (0.68x) skewed in favour of decliners, with 37 counters recording value declines, as against 25 advancers.

LAWUNION emerged the top performer during the week, after the counter appreciated by 21.82% to close at NGN0.67. The counter was trailed by LEARNAFRCA (+18.18%), ETERNA (+17.76%), FLOURMILL (+7.17%) and STERLNBANK (+5.88%). On the flip side, HONYFLOUR (-11.60%), FIDSON (-9.76%), UNITYBNK (-9.46%), TIGERBRANDS (-9.45%) and CUTIX (-9.30%), all featured as the top underperformers during the week.

The Federal government submitted its Medium Term Expenditure Framework (MTEF) for 2016 to 2018, to the Senate for further amendment during the week. The budget was based on underlying assumptions of daily oil production of 2.20mbpd (vs. 2.28mbpd in 2015), benchmarked oil price of USD38pb (vs. USD53pb in 2015), and FX rate of NGN197/USD (vs. NGN190/USD in 2015). Expected total revenue and expenditure advanced by 11.68% and 35.26% respectively to NGN3.85tn and NGN6.07tn accordingly (vs. NGN3.45tn and NGN4.49tn in 2015). The government intends to finance c.83% of the fiscal deficit (NGN2.22tn) through domestic (NGN1.20tn) and external (NGN636bn) debt funding. Subsequently, capital and recurrent expenditure is estimated to advance and decline by 121.87% and 9.43% to NGN1.60tn and NGN2.34tn respectively.

While we believe that this news inflow provides a clearer policy direction, we are not optimistic that the news inflow is sufficient enough to temper investors’ skepticism towards the country and the financial market in general. Hence, we do not envisage a resurgence in the market over the short-term. In this report, we review events in the economy, laying emphasis on the performance of different segments of the financial market, while presenting our expectations for the coming week.

Fixed Income: Bullish sentiments ensues T-bill instruments

As measured by our liquidity gauge, financial system liquidity recorded a significant haircut during the week, trimming by 31.67% to NGN0.72tn, down from NGN1.05tn in the prior week. Nevertheless, rates in the inter-bank market trimmed by 0.21% on the average, to settle at 8.56%. Similarly, average money market rates advanced to 0.86% (+0.05%), after the OBB rate advanced by 0.11% WoW.

The Treasury bills market was characterized by bullish investor sentiments throughout the week, as yields trended southwards across all tenors. Consequently, the average yield across tenors waned by 2.19% to 3.95%. We do not expect the current trend to subsist in the coming week due to the reduced system liquidity, amidst the unattractiveness of the current yield environment.

Activities in the Treasury bond market closely mirrored the Treasury bills market, as the yields across the bond instruments pared by 0.75% WoW, settling at 9.52%. The Debt Management Office (DMO) held an auction during the week, for instruments worth a combined total of NGN50bn. The auction ended with stop rates of 10.95% and 11.00% on the 15.54 FEB 2020 and 14.20 MAR 2024instruments respectively. The auction was oversubscribed as expected, as the bid to cover ratio pegged at 2.92x.

The Naira staggered marginally against the US Dollar, depreciating by 20bps to peg its mid-point at NGN199.05/USD. So far in 2015, the Naira has depreciated by 7.28% against the greenback.

Agric. Sector: Sector advances by 0.17% WtD

The Agric. sector performance was upbeat during the week, as two (2) counters closed positive, while other (5) stocks traded flat. The MERI-AGRI index returned +0.17% WtD, pushing the index’s Year-to-Date return to 24.19%.

LIVESTOCK and PRESCO were the only two advancers, gaining 2.92% and 0.31% WoW to settle at NGN1.41 and NGN32.30 accordingly.

We advise investors to trade with caution in the coming week, as we do not anticipate sector specific news capable of pushing activities in the week.

Banking sector: MER-BNK index pares for 4th consecutive week

The sector’s index pared by 4.78% WoW to bring the YtD return of the stock to –25.50%, in a week which saw a few of the sector’s stocks record new Year- lows. There were three (3) gainers and eleven (11) decliners, as the sector’s breadth pegged at 0.27x.

The Central Bank of Nigeria (CBN) reiterated its position that the reduction of the Cash Reserve Ratio (CRR) was predicated on DMBs filtering funds towards predetermined sectors of the economy which could boost growth. This buttresses our position that any effects from the reduction will be witnessed on banks’ operations over the medium term, as disbursements of such funds by the DMBs would have to be undertaken prudently, especially given the risk inherent due to the impaired state of the economy.

While we do not anticipate a resurgence in the market or sector over the short-term, we opine that the significant pressure which resulted in many stocks paring during the week might spur some buy activities over the next few trading sessions. However, we do not expect this to persist, and would expect some profit-taking thereafter, and so we advise investors to trade cautiously.

Consumer Goods: HONYFLOUR pares by 11.60% WtD

During the week ended, the Consumer goods sector performance pegged at -0.15% WtD as measured by NSEFBT10 sector index. Sector breadth closed at 0.63x, with five (5) gainers and eight (8) decliners. PZ, PREMBREW, NNFM, VITAFOAM and VONO maintained their previous week’s position.

HONYFLOUR (-11.60%) and TIGERBRANDS (-9.45%) recorded the highest Week- on Week losses to close at NGN1.60 and NGN1.15 accordingly. The gainers’ chart however featured FLOURMILL, GUINNESS, INTBREW,DANGSUGAR and CADBURY with respective increases of 7.17%, 2.44%, 2.17%, 1.98%, and 1.73%,

The apathy towards the segment’s counters has resulted in huge value declines, with TIGERBRANDS (formerly DANGFLOUR), HONYFLOUR, CADBURY, NNFM and FLOURMILL recording year-to-date declines of -74.73%, -53.76%, -50.00%, -50.19% and -47.78% accordingly. We do not anticipate a sway from this trend in the coming week, however pockets of gains remain possible.

Health Care: Sector mood remains frail

The health care sector sustained the losing streak in the week, shedding 1.80% WoW as measured by our Meri-HLTH index, to Peg YtD return at -10.20%. Three (3) counters recorded declines as against a lone gainer in the week. Other stocks traded flat.

PHARMADEKO marginally consolidated on previous week’s performance by 0.45% to NGN2.25, while FIDSON reversed the prior week’s performance to emerge as the top decliner for the week, declining by 9.76% to settle at NGN2.68. MAYBAKER and GLAXOSMITH trailed with 7.69% and 1.80% depreciation to peg share prices at NGN0.96 and NGN36.00 respectively.

The sector index declined in three out of the five trading days in the week. This depicts the negative mood in the sector and by extension the general market. We expect this mood to persist for the rest of the year, hence we advise value seeking investors to balance their optimism with caution owing to the fragile state of the market.

Industrial goods:  Investors snub bellwether stocks

In line with general market mood, the building materials segment closed the week negative having shed 0.78% WoW. Only two (2) stocks recorded positive WoW returns, while four (4) declined in value, and all others traded flat during the week.

PORTPAINT rebounded from previous week’s depreciation, to emerge as the highest gainer for the week. The stock closed trading at NGN3.95, 4.22% up from its closing price at the close of the previous week’s trading. BERGER alsoappreciated by 1.55% to NGN9.85

CUTIX was the worst laggard in the week ended, as the stock shed 9.30% to close at NGN1.56.  CCNN, WAPCO and DANGCEM also recorded declines of 4.88%, 2.17% and 0.67% accordingly.

As the year winds to a close, investor participation in the equities market appears to be thinning steadily. Although some of the stocks in our coverage continue to trade below intrinsic values, we do not anticipate elongated rallies given the currently poor market sentiments.

Insurance Sector: Sector drifts from the gainers path

The sector was unable to sustain the gains recorded in the prior weeks, as the NSEINS10 index returned -1.98% in the week, further dragging the year to date return to -7.12%. Market breadth (1.00x) pegged at equillibrum, as equal number of counters advanced and declined respectively.

LAWUNION for the 2nd consecutive week emerged as the sector’s top performer, after the counter recorded a significant upsurge of 21.82% WoW to close at NGN0.67. The counter was trailed by CUSTODYINS (+3.20%) and MANSARD (+1.48%). Conversely, CONTINSURE (-4.76%), NEM (-1.45%), and AIICO (-1.09%) featured as the underperformers in the week.

Despite the dearth of positive news inflows to spur general market performance, we expect bargain hunting and speculative activities to influence the sector’s position in the coming week.

Oil & Gas Sector: Brent hits 7-year low

Bargain hunting activities ensued on some sector stocks in the week, as equal number of stocks (3) appreciated and declined in value. The sector index advanced marginally by 0.09% WtD as measured by the NSEOILG5 index, settling the YtD return at -20.46%.

ETERNA (+17.76% WoW) led the advancers after two consecutive weeks of declines, to settle at NGN1.79. SEPLAT and MOBIL were the other gainers in the week, appreciating by 5.00% apiece. OANDO, TOTAL, and FO were the laggards, declining by 8.47%, 1.36%, and 0.26% respectively. Other stocks traded flat.

Activities in the crude oil market was bearish in the week, as the price of crude oil, measured by Brent pared by 8.67% WoW to USD39.27pb (7-year low). This is not unconnected to the resolution of OPEC member countries to keep their production at “current levels”. We also note that as a cautious measure, the federal government proposed a benchmark rate of USD38pb for its 2016 budget in the 2016-2018 Medium Term Expenditure Framework.

We advise investors to trade with caution in the coming week, especially in the light of current market sentiments.

Services Sector: Passive activity as sector loses -1.58%

The week saw the MERISER INDEX lose -1.58% week-on-week, dragging the year to date return of the sector to -6.12%. Trading within the sector was mild, as only one (1) stock gained against two (2) stock that waned in value, pegging the sector breadth at 0.50x.

TRANSEXPR emerged the sole gainer during the week, having appreciated by 5.10% week on week to close at NGN 1.03. Conversely, NAHCO led the sector’s underperformer’s, after the counter pared by -3.57% to close at NGN6.75. The counter was trailed by AIRSERVICE, which trimmed by-2.11% to close at NGN1.86.

Given the negative sentiments permeating the services sector and the equities market in general, we advise investors with long time horizons to invest in fundamentally justified stock, given the relatively low pricing of some stocks in the equities market.