Market advances by 0.65% WoW

The week turned out to be a generally good one for the market, as the NSEASI returned positive on four (4) of five (5) trading days. Consequently, the NSEASI advanced by 0.65% Week on Week (WoW) to peg the Year-to-Date (YtD) return at -9.27%. The volume and value of transactions both declined by 24.77% and 6.87% on the back of tempered participation, with only a few earnings reports released during the week.

There were forty (40) gainers and twenty-one (21) decliners to peg the market breadth at 1.90x. TIGERBRANDS once again featured on the top gainers list, advancing by 59.30% WoW to close at NGN2.74. Also, OANDO rallied significantly during the week, advancing by 53.30%. The counters were followed by HONYFLOUR (+25.00%), FIDSON (+19.57%), and FLOURMILL (18.03%) on the gainers list. Conversely, BETAGLAS (-9.00%), AGLEVENT (-5.00%), UNIONDICON (-4.98%), NIG-GERMAN (-4.89%) and IKEJAHOTEL (-4.76%) were the top underperformers in the week.

There were a few earnings releases during the week, the most notable of which was from Wapic Insurance Plc. WAPIC recorded a good performance, as Gross Premium Written grew by 36.45% YoY to NGN7.10bn, while Profit-After-Tax (PAT) advanced by 447.81% to NGN1.30bn. The Company also proposed a dividend of NGN0.03/share, with closure and payment dates of 3rd and 12th March, 2016 correspondingly. Also, Computer Warehouse Group released a profit warning, it’s second since being listed on the mainboard of the NSE, in which the Company detailed the circumstances which led to its depressed performance in the period.           

The National Bureau of Statistics (NBS) released GDP figures for Q4:2014 which revealed that the Nigerian economy shrank Quarter on Quarter (QoQ) and Year-on-Year (YoY) by 0.73% and 3.83% accordingly, to 2.11%. The aggregate real GDP was recorded at NGN69.02tn (vs. NGN67.15tn in 2014), while aggregate real GDP grew by 2.79% YoY (vs. 6.23% in 2014).  The Agric. (23.11%), Trade (16.95%), Services (12.04%) and ICT (11.37%) were the major drivers of the recorded growth, accounting for c.64% of the total real GDP in 2015.

Given the fact that most of the factors which resulted in the contraction witnessed in 2015 are still prevalent, we anticipate that GDP growth for Q1:2016 may remain depressed.

We anticipate that activities will be driven in the coming week by earnings releases and dividend declarations, especially given that it is expected that some banks may release results in the coming week. Given, this, and provided that releases are generally positive, we would expect that market may finish in the green zone next week.

In this report, we review events in the economy, laying emphasis on the performances of different segments of the financial market, while presenting our expectations for the coming week.

Fixed Income: Weak System Liquidity Spurs NIBOR

Following the tempered system liquidity, inter-bank market rates advanced during the week, appreciating by 0.73% WoW across tenors to settle at 8.29%. Money market (MM) rates trended similarly, as the OBB and OVN rates advanced by 1.91% and 2.00% respectively, pushing the average MM rate to 5.33%.

Sell sentiments pervaded the Treasury bills space in the week, as yields advanced across all tenors to peg the average yield at 6.86% (+0.60%). We are of the opinion that rates might hike further in the coming week as system liquidity is pared by investors’ participation in the Primary Market Bond Auction to be held on the 16th of March, 2016.

Investors’ appetite for Treasury bond instruments was seemingly weak during the week, as the average mid-yield climbed by 0.12% WoW to 10.77%. We anticipate that activities might temper at the start of the week due to the Treasury bond auction, before activities pick up at the tail end of the week. The Primary Bond Auction will be for the benchmark 5 and 10-year bonds (15.54% FGN FEB 2020 and 12.50% 22 JAN 2026), while a new 20-year instrument is to be auctioned.

The naira strengthened marginally against the US Dollar at the Inter-bank, appreciating by 0.06% WoW to peg its mid-price at NGN199.16/USD. Also, at the parallel market the local currency was relatively steady, when compared with the recent past, depreciating by 0.63% to peg at NGN322/USD.

Agric. Sector: OKOMUOIL Drives Sector Performance

The MERI-AGRI index, which tracks the performance of the Agric. Sector, closed the week on a positive note, after a 2.24% appreciation. This positive showing was driven by gains of one of the sector’s giants; OKOMUOIL. The sector’s WoW gain resulted in a Year-to-Date return of 3.83%.

OKOMUOIL (+5.00%) recorded the only WoW gain to close at NGN31.50, while LIVESTOCK (-2.48%) closed the week as the sector’s lone decliner. ELLAHLAKES, FTNCOCOA and PRESCO all traded flat WoW.

During the week, ELLAHLAKES released it financial scorecard for the 6-month period ended 31st January 2016. The result showed that revenue grew by 32.45%YoY, while Profit-Before-Tax (PBT) and Profit-After-Tax (PAT) both declined by 35.96% YoY.

We are of the opinion that the sector is positioned to benefit from the current administration’s economic diversification drive, and posit that the positive trend within the sector may subsist, albeit on the back of sector members with sound fundamentals.

Banking Sector: Records 2nd Week of gains, for only 2nd time in 2016

The sector recorded its second consecutive week of gains this week, for only the second time this year, after appreciating by 2.37% to push the YtD return to -11.23%.

There were eleven (11) gainers and two (2) decliners to peg the sector’s breadth at 5.50x. FCMB (15.49%), UNITYBNK (11.11%), and UBA (10.61%) led the advancers in a good week for the sector in general, while ETI (-1.37%) and DIAMONDBNK (-0.65%) recorded the only WoW declines.

Diamond Bank Plc. released a profit warning on Friday, 11th March, 2016. The Group noted that due to current macro-economic challenges it has had to take larger than anticipated impairment charges on its Energy and Commercial Business sector assets. Also, it was noted that significant changes would be made to the operating structure of the Group to reduce costs, while confidence in the viability of the Group’s long-term retail-led business strategy was reaffirmed.

Much in line with expectations, investors have seemingly taken position in advance of FY2015 earnings releases, and dividend declarations. We do not anticipate a significant deviation from this trend in the coming week, and so expect to see pockets of gains across the sector.

Consumer Goods: TIGERBRANDS Continues Rally

The Consumer Goods sector’s performance, as measured by the NSEFBT10 index, returned 0.96% WoW, pegging the Month-to-Date return at 0.04%. There were ten (10) advancers against six (6) decliners during the week.

The gainers chart for the week featured TIGERBRANDS, HONYFLOUR, FLOURMILL, PZ, NB, NASCON, UNILEVER, INTBREW, CHAMPION, and DANGSUGAR with respective WoW returns of 59.30%, 25.00%, 18.03%, 3.73%, 2.04%, 2.04%, 2.04%, 1.93%, 1.77%, and 1.69%.

On the other side, BETAGLAS, AGLEVENT, NESTLE, VITAFOAM, UACN, and GUINNESS occupied the week’s decliners chart with respective WoW returns of -9.00%, -5.00%, -3.50%, -1.38%, -0.70%, and -0.44%.

The positive sentiments on, the Dangote Industries owned, Tiger Branded Consumer Goods Plc. continued during the week, pushing the Year-to-Date return of the counter to +120.35%. We opine that the shift in sentiments is due to investors’ positive expectations regarding the change in ownership.

We do not expect significant rally on other counters within the sector in the coming week, however, we foresee some bargain hunting activities as prices remain relatively low. Also, the release of some positive corporate financial results could prompt investors’ interest in the coming week.

Healthcare:  Fidson Gains 19.57% Wow

Activities in the Healthcare sector were tempered, as most counters traded flat, while equal number (2) of counters pared and declined in value. The sector returned 0.03% WoW to push the YtD return to -26.30%, as measured by our Meri- Health Care sector index.

FIDSON and NEIMETH recorded WoW returns of 13.91% and 4.55% accordingly to emerge the only gainers for the week. On the other hand, NIG-GERMAN and MAYBAKER recorded negative returns of -4.89% and -1.00% respectively WoW.

We anticipate some profit taking on the sole gainer, FIDSON, during the coming week considering the bargain hunting activities that have permeated the sector this year. Hence we advise cautious trading on FIDSON. However, generally we still see value in the sector, and so advice investors to take advantage of the significantly low prices at which some of the sector’s fundamentally justified counters are currently trading.

Industrial Goods:  Profit Taking Dominates Activities

The industrial goods sector witnessed mild profit taking activities during the week ended, as an equal number (2) of stocks recorded gains and losses. Consequently, the sector’s index declined by 1.83% WoW to pressure the sector’s YtD performance downwards to -4.21%.

WAPCO emerged as the top gainer during the week, on the back of the 3.64% increase in share price to NGN85.50, while CAP appreciated by 2.50% to make up the gainers list.

DANGCEM, which enjoyed overwhelming positive sentiments last week, shed 2.38% of its share value, following profit taking activities by investors. CCNN closed the week at NGN8.88 after a 1.33% decline in price.

We expect more building material companies to release their full year earnings scorecards in the coming weeks, which might aid a resurgence of sector returns, albeit marginally.

Insurance Sector: Mansard Leads Again

The insurance sector trailed the general market direction, as the NSEINS10 Index advanced by 1.78% WoW to peg the sector’s YtD loss at -7.66%. Sector breadth (2.00x) skewed in favour of gainers (4), as against decliners (2).

MANSARD led the sector’s gainers for the second consecutive week, after the counter appreciated by 7.84% WoW to close at NGN2.20. The counter was trailed by CUSTODYINS (+2.70%), NEM (+2.67%) and AIICO (+2.53%). Conversely, LAWUNION and CONTINSURE pared by 4.48% and 1.08% WoW respectively, to emerge as the sector’s top underperformers.

WAPIC Insurance Plc. released its FY2015 financial scorecard during the week, which showed that the Company recorded Gross Premium Earned (GPE) and Profit after Taxes (PAT) growths of 36.45% and 447.80% YoY respectively to NGN7.10bn and NGN1.30bn (vs. NGN5.20bn and NGN236mn in 2014) accordingly. The significant surge in PAT was due to accrued share of profit from associate (Coronation Merchant Bank Limited) estimated at NGN764.44mn. The company also proposed a dividend of NGN0.03 per share, implying a yield of 6.00% at the current market price (NGN0.50).

We maintain our position that anticipations regarding upcoming earnings releases will dictate price movements on insurance stocks in the coming week.

Oil & Gas Sector: OANDO advances by 53.30% WoW

The NSEOILG5 index surged by 4.41% Week-to-Date (WtD), as bargain hunting activities rocked sector stocks in the week. The sector breadth (3.00x) skewed in favour of the advancers, as there were three (3) advancers and a lone decliner. Other counters traded flat.

OANDO (+53.30% WoW) sustained the prior week’s positive performance to settle at NGN5.35, as speculative demand continues to drive returns on the stock. The counter was trailed by TOTAL and MOBIL which both gained 8.89% and 6.91% WoW respectively. On the flip side, ETERNA was the lone decliner in the week, paring by 0.54% WoW to close at NGN1.85.

The NNPC, in the week, announced the appointment of seven (7) Group Executive Directors in its restructuring move. The appointments span across Upstream, Downstream, Refineries, Gas & Power, Ventures, Finance & Accounts, and Corporate Services. We remain positive that the current restructuring should in the long run return the Group to profitability.

We expect that investor sentiments on sector counters in the coming week will continue to be dictated by corporate action expectations.

Services Sector: Index Advances by 0.26%

The Year-to-Date return of our MERISER Index pegged at 1.51% at the close of the week, following a 0.26% WoW appreciation. There were an equal number (3) of counters on the weekly advancers and decliners charts, which settled the sector’s breadth at 1.00x.

REDSTAREX led the gainers chart, after advancing by 4.99% to close the week at NGN4.00. The ticker was closely followed by AIRSERVICE and ACADEMY, which advanced by 4.76% and 3.77% respectively. On the other side, the underperformers included CAVERTON (-5.00%), IKEJAHOTEL (-4.76%) and LEARNAFRCA (-4.65%).

While the sector recorded some good gains during the week, we do not expect this to be sustained going into next week, and anticipate that profit taking might dominate activities. Hence, we advise that investors trade cautiously, while also preaching investment in sector stocks with sound fundamentals.