Meristem Investment Guide: NSE ASI hikes by 2.88% WoW

The NSE All Share Index advanced by 2.88% in the week concluded, resulting in a year-to-date performance of -7.69%. In the week ended, there were 55 advancers and 17 decliners representing a market breath of 3.24x. TIGERBRANDS was the week’s highest advancer with a 50.13% WoW return, while UPL recorded the highest loss in value declining by 14.21% WoW. Volume traded and market turnover, in comparison to the preceding week, jumped by 100.49% and 125.75% accordingly.

During the week in review, following the meeting held by the Vice President, Leadership of the Senate and House of Representatives, Governors’ Forum and Labour Unions, the conclusion was reached that any Nigerian entity can import Premium Motor Spirit (PMS) subject to existing quality specifications, and sourcing of forex from the secondary market. Correspondingly, the Petroleum Products Pricing Regulatory Agency announced a new retail price band of NGN135-NGN145 per litre, effective 11th May, 2016.

The Nigerian Stock Exchange implemented its compliance status indicator codes during the week in review, to aid transparency and informed investment activities. The codes are to be displayed on the ticker tape of affected companies.

We anticipate increased position taking on counters perceived to be positively impacted by the recent news inflows (Budget implementation and new fuel price), including companies within the Building material, Construction, and Oil and Gas sectors. We however note the possibility of profit taking on counters that have accumulated gains during the week concluded.

This report reviews events in the concluded week, with emphasis on different segments of the financial market, while presenting our expectations for this week.

Fixed Income: Yields advance on FGN Bonds

The Nigerian Interbank Offered Rate pegged at an average of 9.93% (+1.24% WtD) by Thursday, as the CALL, 1M, 3M and 6M rates pegged at 7.08%, 8.89%, 11.20% and 12.54% respectively. The average money market rate advanced by 3.84%, as the OBB and OVN rates pegged at 7.42% and 8.00% respectively at the close of the week.

At the secondary market, the 1M, 2M, 3M, 6M, 9M and 12M Nigerian Treasury bills instruments closed at 4.28%, 5.67%, 8.09%, 9.80%, 10.89% and 13.02% after the Thursday trading session.

The FGN Bond instruments endured a predominately bearish week, as indicated by the 0.63% week-on-week increase in average offer yield across instruments. The average offer yield pegged at 13.20% at the close of the week’s trading session. The Debt Management Office (DMO) conducted an auction during the week on the FEB 2020, JAN-2026 and MAR-2036 bond re-openings.Marginal rates at the auctions were 13.25%, 13.74% and 13.90% in the same order. Naira remained resilient at the interbank and parallel markets, retaining a mid-price of NGN197.38 and a value of NGN323.00 against the greenback respectively.

We anticipate resumption of demand for FGN Bond instruments in the coming week, considering the relatively attractive current offer yields, while also noting the impact that the scheduled auction had on buying activities in the course of the week.

Agric. Sector: LIVESTOCK appreciates by 25.00% WoW.

The Agric sector closed the week in the negative territory, as measured by our MERI-AGRI index. The index recorded a 1.19% loss week-on-week, thus, settling the year-to-date return at 1.27%. Sector breadth pegged at 0.50x, on the back of a lone gainer and two (2) decliners.

LIVESTOCK closed the week at NGN1.00, following a 25.00% WoW gain. The sector heavyweights, OKOMUOIL (NGN29.01) and PRESCO (NGN35.02) however dragged the sector’s performance with respective declines of 0.34% and 1.90% WoW. ELLAHLAKES and FTNCOCOA recorded no week-on-week movements, closing the week at NGN4.26 and NGN0.50 in that order.

We maintain our position that the Agric. sector will offer good returns to investment portfolios, even in the current bearish market. However, investment decisions concerning sector players should be guided by evaluation of company fundamentals.

Banking Sector: Returns 8.77% WoW

The banking sector advanced strongly during the week, appreciating by 8.77% WoW, according to our MERI-BNK index.

There were thirteen (13) gainers and two (2) decliners to peg the sector’s breadth at 6.50x. DIAMONDBNK led the advancers, after gaining 44.29% WoW. The ticker was closely followed by FCMB (+30.30%), SKYEBANK (+21.21%), UNITYBNK (+16.67%), and ACCESS (+15.00%). On the flip side, the decliners’ list was populated by WEMABANK and STANBIC after the respective counters pared in value by 1.30%and 0.14%.

Unity Bank Plc released it FY2015 and Q1:2016 numbers during the week, which depicted a relatively weak YoY performance. While the bank’s Gross Earnings (GE) grew by 0.12% YoY, Profit-Before-Tax (PBT) and Profit-After-Tax (PAT) declined by 82.82%, and 56.15% respectively. By Q1:2016, GE, PBT, and PAT all declined by 25.90%, 75.22%, and 73.18% YoY.

We anticipate that the gains recorded in the week are just the beginning, as investors return focus to the most fundamentally justified stocks, some of which are in the banking sector.

Consumer Goods:NSEFBT10 returns 4.12% WoW

Measuring with the NSEFBT10 index, the Consumer Goods sector returned 4.12% WoW, pushing the sector’s year to date performance to -11.93%. The sector breadth for the week, pegged at 12.00x, indicating the twelve (12) advancers and one (1) decliner.

The gainers’ chart featured TIGERBRANDS, HONYFLOUR, UNILEVER, PZ and UACN as the highest advancers with 50.13%, 13.33%, 11.66%, 11.54% and 8.55% week-on-week returns accordingly. NASCON was the sole decliner, recording -0.86% WoW return.

International Breweries Plc, released its FY2015 audited financial result, indicating 12.69% YoY increase in revenue to NGN23.269bn.Operating expense advanced by 21.55% YoY, while financial charges declined by 9.94% YoY. Profit before and after tax for the year pegged at NGN3.657bn (+29.88%YoY) and NGN2.653bn (+36.28% YoY) accordingly.

We opine that the positive week-on-week sector return was due to significant buy activities on some heavyweights within the sector, as the sole declinerwas not sufficient to overturn the overall positive sentiments. We anticipate some profit taking in the coming week, considering accumulated gains, though we note that some counters have remained resilient in recent times.

Healthcare Sector: Sector Breadth pegs at 4x

The healthcare sector trailed the general equities market in the week, returning 4.57% Week-to-Date (WtD) as measured by our MERI-HLTH index. The upbeat performance skewed the sector breadth (4x) completely in favour of advancers, as four (4) counters recorded share price appreciations, with no share price decline in the week.

NEIMETH and MAYBAKER consolidated on their prior week’s performance with 28.21% and 20.24% respective price appreciations to settle at NGN1.00 and NGN1.01. FIDSON and GLAXOSMITH reversed their preceding week’s negative performance, advancing by 10.84% and 4.62% WoW to close at NGN2.25 and NGN22.42 in that order. All other counters traded flat.

Given that all the actively traded counters in the basket recorded price appreciations in the week, we opine that the negative investors’ mood triggered by poor performance scorecards has abated. However, we expect profit taking activities to ensue on the sector stocks in the coming week

Industrial Goods: FG to Commence Funds Disbursement

Based on the Meri-Ind index, the industrial goods sector closed the week in the positive zone having pared by 1.63% WoW, as the YtD return settled at -5.40%.. There were four (4) decliners against three (3) advancers, as the sector breadth settled at 1.33x.

CCNN rebounded from the previously negative investor sentiments, with a 5.72% gain in share price to NGN7.39. CUTIX and PAINTCOM were the other advancers with respective gains of 4.64% and 4.21%.

PORTPAINT, again,emerged as the worst laggard for the week, shedding 5.07% WoW to close its share price at NGN2.06.BERGER, DANGCEM and WAPCO made up the decliners’ list with respective losses of 4.92%, 1.79% and 0.42%.

Following the signing to law of the 2016 appropriation bill, the federal government is expected to begin disbursing funds for capital expenditure into the economy in the coming week. We expect building material companies to be key beneficiaries of this largesse, given that they produce required inputs for construction and infrastructure development.

Insurance Sector: Strong showing, as NSEINS10 index advances

The insurance sector recorded a positive showing in the week, as the NSEINS10 Index advanced by 1.33% week on week, thus, trimming the sector’s year to date return to -6.46%. Three (3) stocks recorded price appreciations in the week, while two stocks pared to peg the sector’s breadth at 1.50x.

CUSTODYINS emerged as the worst performed sector stock in the week, after the counter pared by 2.63% WoW to close at NGN3.70. NEM also featured on the laggards chart, trimming by 1.25% WoW to close at NGN0.79. Conversely, AIICO(+7.59%),CONTINSURE(+2.91%) and MANSARD (+2.82%) emerged as the sector’s top gainers.

Standard Alliance Insurance Plc. (STDINSURE) released an unimpressive 3M2016 financial scorecard during the week. Gross Premium Earned, Underwriting Profit, as well as Profit after Tax respectively declined by 7.26%, 43.15%, and 68.56% YoY, to NGN1.45bn, NGN446mn, and NGN116mn accordingly. Respective climb (+89% YoY) and decline (-77% YoY) in Claims and Investment income, were responsible for the company’s weak performance in the period.

We expect the current trend to be sustained in the coming week, following anticipated economic stimulation, as the disbursement of the first tranche of the NGN1.75tn capital expenditure as stated in 2016 budget enters the economy.

Oil & Gas Sector: Subsidy Removal Spurs Positive Sector Performance

News inflow on the removal of subsidy and consequent sale of Premium Motor Spirit (PMS) at a cap of NGN145.00/litre spurred investor sentiments in the week, as the bulk of sector counters gained in the week. There were seven (7) advancers and one (1) decliner in the week, resulting in a 5.12% WoW appreciation of the NSEOILG5 index.

OANDO (+16.26% WoW), MOBIL(+12.84% WoW), ETERNA(+12.22% WoW), CONOIL (+10.36% WoW), TOTAL(+8.28% WoW), SEPLAT (+2.94% WoW), and FO (+2.31% WoW) all featured on the gainers’ chart in the week, while MRS (-9.73%) was the lone laggard.

The price of crude oil as measured by Brent hiked by 5.36% in the week to settle at USD47.80pb, on the back of prolonged supply disruptions in regions such as Nigeria and Canada, amongst other reasons.

We anticipate sideways trading on the sector counters in the coming week, as continued levels of bargain hunting activities by investors is expected to be met with profit taking activities by others.

Services: TRANSCORP gains 22.86% in one week

The mood in the services sector remained positive during the week, as the Meri-Serv index appreciated by 0.45% WoW. This drove YtD return to -0.22%, even as four (4) stocks recorded price gains versus three (3) decliners in the week.

TRANSCORP continued to enjoy positive investor sentiments during the week, gaining 22.86% to close its share price at NGN1.29.  IKEJAHOTEL, TRANSEXPR and AIRSERVICE were the other advancers for the week, with respective WoW gains of 15.02%, 14.56%, and 10.17%.

UPL topped the decliners’ list following a 14.21% plungein share price to NGN4.89. CAVERTON (-8.48%) and ACADEMY (-5.97%) also featured in the decliners’ list.