Meristem Investment Guide: May begins on a negative note

 

The Nigerian equities market traded negative on all trading days of the week, closing with a WoW loss of 0.92 percent. This brought YtD returns back to a negative of -0.78 percent, from +0.15 percent the prior week. Volume and value of transactions increased by 34.69 percent and 66.03 percent over the previous four-day trading week. Market breadth for the week also indicated the overall negative sentiments, as it pegged at 0.70x, representing 46 losers against 32 gainers.

Top gainers for the week were VITAFOAM, CILEASING, REDSTAREX, HONYFLOUR, and CAP, which posted significant gains of 32.51 percent, 26.92 percent, 24.34 percent, 20.73 percent, and 20.58 percent in that order. On the converse, UNITYBNK once again outperformed other losers with a loss of 32.65 percent, bringing its price down to N2.62. Other top losers for the week were LEARNAFRICA, ABCTRANS, ACADEMY, and CCNN, with losses of 11.19 percent, 9.52 percent, 9.43 percent, and 9.40 percent, respectively.

The negative mood in the market confirms our belief that investors are hesitantabout fullre-entry into the market. The paucity of enticing news, capable of driving “Buy” sentiments from investors, has also contributed greatly to the current negative returns in the market. However, we anticipate a rally in the coming week on lowly priced stocks, just as same is widely expected to accompany the handover to the new government at the end of the month.

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

Tories elections win forces Labour, Lib-Dem and UKIP leaders to resign

Nigerian foreign reserves at the end of April 2015 amounted to $29.54 billion, implying a 14.37 percent decline from $34.49 billion at the beginning of the year. Recent data from April 2015, however, showed a marked improvement in the management of the nation’s external reserves balance as it diminished by only 0.85 percent in the month.

As Britons sought to elect the 56^th parliament of the United Kingdom, during the week, the UK elections took a new dimension with a surprisingly impressive result for the conservatives. With this clean sweep, David Cameron will be coming back to No.10 Downing Street for a second term while the leaders of the opposition parties, the labour party’s Ed Miliband; the Liberal Democrats Nick Clegg, and UKIP’s Nigel Farage, all resigned on the back of poor outings at the polls.

The Federal Government recorded a N1.3 trillion deficit in revenue accruable to the federation in Q1:2015, which is not surprising given the persistent drop in global oil prices, as well as low receipts from non-oil sources. Fuel scarcity persisted in most parts of the country, exerting inflationary pressures on the economy, as independent oil marketers remained aggrieved.

Fixed income brief: Bond auction scheduled for May 13

Yields on treasury bills closed down for the week after recording an average yield decline of 0.48 percent, as the liquid state of the financial system prior to the CRR debit spurred buying activities. OMO auctions for bills worth N508.10 billion were held during the week, as the CBN persisted in its efforts to reduce system liquidity. Also in the week, a Primary Market Auction for TBs worth N150.60 billion was held for the 91-day, 182-day, and 364-day instruments, with stop rates at 10.09 percent, 12.89 percent, and 13.40 percent, respectively.

The buy sentiment also rubbed off on the Bond market, as the WoW change on average offer yield was -0.05 percent. The Meri-Bond index closed 0.42 percent up, with the index level pegging at 785.51. A bond auction has been scheduled for May 13, 2015, where the 15.54 percent February 2020, 14.20 percent March 2024, and 12.15 percent July 2034 bonds worth N20 billion apiece will be offered through re-openings.

Liquidity levels settled at N456.43 billion, down from N638.47 billion at the close of the previous week. Consequently, NIBOR advanced across board by 0.31 percent on the average. In the same vein, OBB and OVN settled at 8.83 percent (+0.58%) and 9.25 percent (+0.46%), accordingly. We expect this trend to be sustained in the coming week, considering the PMA holding in the week.

Naira appreciated 0.19 percent in the week against the dollar at the interbank market, pegging mid-price at N197.56/USD, while the rate at the parallel market held firm at N222.00/USD.

Agric Sector: LIVESTOCK continues 2-week bullish run

The sector breadth (2.00x) for the week tilted in favour of gainers, as two stocks advanced as against one stock that declined. Notwithstanding, the MERIAGR index moved into the negative zone with -0.11 percent WtD return to peg the YtD return of the sector at 15.39 percent.

LIVESTOCK led the outperformers this week, advancing by 5.15 percent. OKOMUOIL consolidated on the gains recorded in the lastfour weeks, appreciating by 4.05 percent to further push price to N28.52. On the flip side, PRESCO reversed the prior weeks’ gains, paring by 3.69 percent as profit taking ensued, while ELLAHLAKES and FTNCOCA traded flat.

In the absence of any positive news flows, we advise investors to engage in bargain-hunting in stocks that are fundamentally justified, especially now that the equities market is in the negative zone.

Banking Sector: ETI gains 18.31%WtD

The banking sector closed in the positive realm this week. Correspondingly, the MERI-BNK index recorded a WtD gain of 1.78 percent, as sector breadth pegged at 0.86x with 6 advancers and 7 decliners. SKYEBANK and DIAMONDBNK, however, traded flat during the week.

The top gainer for the week was ETI, advancing by 18.31 percent, followed by UBN, FIDELITYBK, STANBIC and ZENITHBANK, with respective gains of 7.63 percent, 3.23 percent, 1.87 percent and 0.52 percent. Decliners for the week were once again led by UNITYBNK with a loss of 32.65 percent, followed by FBNH, STERLNBANK, UBA and FCMB, which recorded losses of 7.14 percent, 6.11 percent, 5.48 percent and 2.69 percent, respectively.

The sector has shown relative calmness post-earnings releases. We do not envisage a sudden sector-specific rally, especially as the remaining quarters of the year are not expected to be fantastic, given the headwinds in the operating environment. We therefore reiterate that investors should focus on companies with sound strategies and earnings potentials in the near to medium term.

Consumer Goods: VITAFOAM closes at its 4-year high

The Consumer and Conglomerates sector indices were pressured downwards during the week’s trading, recording WoW returns of -2.50 percent and -1.89 percent, respectively, as measured by our MERI-CMG and MERI-CONG sector indices.

VITAFOAM consolidated on the previous week’s gain to emerge the highest gainer for the week (32.51%), trailed by HONYFLOUR (20.73%). Also on the gainers’ chart wereDANGSUGAR (4.75%), NASCON (0.61%) and UNILEVER (1.63%). DANGFLOUR recorded the highest decline in market price (-5.73%), followed by GUINNESS (-5.55%), INTBREW (-4.98%), VONO (-4.85%), UACN (-4.76%), and AGLEVENT (-4.71%) in that order.

VITAFOAM recently released its 2014FY result, which showed 0.57 percent YoY decline in revenue, however, the company was able to grow profit after tax by 11.87 percent YoY. Priorto the release, the company declared a dividend of N0.30/share and a bonus issue of 1 for 5 existing shares, which implied an 11.14 percent total return at the time of release. This, we believe is behind the WtD and MtD returns of32.51 percent and 60.00 percent, respectively, recorded, as the counter closed the week at N6.40.

The current depressed market mood rubbed off on most of the counters in both the Conglomerates and Consumers goods sectors. However, we saw pockets of position-taking amid the generally somber market mood. We anticipate a continuous movement along this path in the coming week, and thus advise cautious activities.

Healthcare Sector: PHARMADEKO releases a striking Q1 result

The Meri-Health index trailed the market, declining by -1.78 percent WtD to settle the YtD return at 7.79 percent. Sector breadth (0.33x) tilted in favour of decliners, as a lone stock appreciated against three decliners, while all other counters closed flat.

MAYBAKER reversed the previous week’s decline, appreciating by 9.82 percent WoW to settle price at N1.79. On the flip side, FIDSON compounded theprevious week’s loss, after paring further by 5.12 percent to close at N3.15, just as the sector giant (GLAXOSMITH) reversed part of its prior week’s gain, after it shed 1.82 percent to depress price to N54.00. NEIMETH also surfaced on this list, recording a price depreciation of 2.93 percent for the week.

PHARMADEKO posted their Q1:2015 scorecard, which showed respective YoY revenue and PAT growths of 103 percent and 119 percent. The marked growth in PAT was primarily due to the significant 3,567 percent YoY growth in other income recorded during the period.

The sector upheld prior week’s negative mood, as speculative trading dominated activities. However, we advise investors to take advantage of fundamentally justified stocks, as some stocks still trade below their fair prices.

Insurance Sector: CONTINSURE reaches year-high price

The profit-taking activities during the week did not weigh heavily on the insurance stocks, as the NSEINS10 index advanced by 0.57 percent WtDto trim the sector’s YtD return to -1.69 percent. Market breadth (1.25x) was in favour of gainers, as 4 stocks advanced against 3 decliners.

INTENEGINS, with an 11.76 percent gain, emerged the top gainer for the week, as it closed at N0.57 (vs. N0.51 in previous week).

The ticker was closely followed by CONTINSURE, AIICO and WAPIC with respective gains of 5.32 percent, 1.96 percent and 1.92 percent. On the flip side, ROYALEX led underperformers, after the counter shed 9.09 percent to close at N0.50 (vs. N0.55 in previous week). Other decliners were NEM and MANSARD, which depreciated by 2.78 percent and 0.33 percent, respectively.

CONTINSURE released its 2014FY and Q1:2015 results during the week. The company recorded 2014FY YoY revenue growth of 7.43 percent to N16.15 billion, up from N15.03 billion in 2013FY. However, the significant increase in expenses resulted in a 51.20 percent decline in Earnings-After-Tax (EAT).

However, CONTINSURE during the week marked its year high price of N1.02, buoyed by an impressive dividend declaration of 11k/per share. ROYALEX and HMARKINS amongst others companies, also released their Q1:2015 financial scorecards during the week.

In the absence of any impending news flows which could sway investors’ decisions in the coming week, we do not envisage any surprising activities on insurance stocks.

Industrial goods: Investors go bullish on CAP

The industrial goods sector closed the week in the negative zone, despite a strong price performance from one of the sector’s stocks. Accordingly, the MERI-INDUSTRIAL index depreciated by 2.63 percent, with three stocks recording positive returns while four stocks declined in value.

CAP, which had been trading at a significant discount to its target price all through the year, finally caught the interest of investors during the week ended, as the ticker gained 20.58 percent WoW to reach its year-high price of N43.00. WAPCO also benefited from strong investor sentiments, gaining 4.79 percent WoW to also close at its year high (NGN98.50). ASHAKACEM completed the list of sector gainers for the week, with a 2.61 percent increase in share price to close at N20.47.

CCNN topped the sector laggards’ list for the week, declining by 9.40 percent WoW. CUTIX, PAINTCOM and DANGCEM also made the list, having waned in value by 4.60 percent, 4.51 percent and 3.52 percent, accordingly.

We attribute the sector performance in theweekto a mix of bargain hunting and profit-taking activities by investors. We expect this trend to continue in the coming week.

Oil and Gas Sector: Brent trades at $64.64pb

The sector traded in tune with the overall equities market for the week, as four stocks appreciated in price, while three stocks traded flat and two declined in value. Sector return, as recorded by the MERIOILG, was -0.31 percent.

TOTAL led the advancers’ pack with a 6.11 percent gain, followed by CONOIL, SEPLAT, and OANDO, which recorded price appreciations of 5.00 percent, 2.65 percent, and 2.22 percent in that order. FO and ETERNA shed 8.24 percent and 0.74 percent, respectively, for the week. Other stocks traded flat.

MRS Oil Nigeria plc announced the rescheduling of its 46^th AGM to August 4, 2015. Also, Brent pared 2.74 percent in the week to settle at $64.64, after it rose to $67.77 on Wednesday (the highest since December 8, 2014).

In the current market mood, we do not expect a massive rally on any counter in the sector in the coming week.

Services Sector: REDSTAREX leads with 24.34%

The MERISERV Index advanced by 2.20 percent WoW to drive the YtD return to 3.30 percent. Sectoral breadth (1.00x) stayed at equilibrium, as 5 stocks advanced and declined apiece.

REDSTAREX topped the gainers for the week, after appreciating by 24.34 percent. CAVERTON (15.00%), UPL (13.46%), NAHCO (6.03%) and IKEJAHOTEL (2.59%) followed suit, in that order.

Conversely, LEARNAFRICA led the underperformers, after shedding 11.19 percent, while ABCTRANS (-9.52%), ACADEMY (-9.43%), TRANSEXPR (-4.92%), and AIRSERVICE (-4.55%) all declined accordingly. All othersector traded flat.

Despite the dearth of specific news flow in the sector, it remained resilient for the week. We opine that the entrance of major news in the coming week might spike-up activity considerably.