NSEASI dips by 1.13% WoW

The Nigerian Stock Exchange All Share Index declined by 1.13% Week-on-Week, bringing the Year-to-Date return to -10.29%. Volume of transactions in the equities market declined by 2.80% WoW, while value of transactions during the week advanced by 22.65%. Last  week’s performance suggests that Investors may not have been impressed with the flood of scorecards and corporate action propositions that were announced, especially from the Banking sector, which recorded the worst sector performance (NSEBNK10: -4.80% WoW).

The market breadth pegged at 0.45x following nineteen (19) gainers and forty-two (42) decliners during the week. CONOIL was the highest gainer for the week, advancing by 21.38% WoW to close at NGN20.10. While OANDO recorded the highest value loss, paring by 25.23% WoW to close at NGN4.00.

We opine that the drab reactions to the earnings releases and dividend proposals of most Banking counters might not be unrelated to investor’s expectations on the possible outcomes of the Monetary Policy Committee meeting scheduled for next week (21st – 22nd March, 2016). We anticipate that the committee will consider the current situations in the banking sector, the existing spread in the FX rate between the interbank and parallel markets, rising inflation figures, and slowing GDP growth amongst other domestic shocks.  We opine that the MPC’s decisions will influence how market activities will fare during the coming four-day trading 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 week.

Economic Update: Inflation hikes to 11.40%

The National Bureau of Statistics (NBS) recently released the February inflation figures which indicated that Headline inflation hiked by 1.76% in comparison to January’s 9.6% to peg at 11.4%. Food index (11.3%), Core sub-index (11.0%) and Headline index (2.3%) increased by 0.71%, 2.2% and 1.4% respectively in comparison to January 2016 figures.

The 2.2% hike in core inflation (All items less farm produce) could be credited to the increase in imported items (both food and production inputs) amidst other domestic shocks.  We opine that the rise in imported food and core inflation to 13.2% and 11.1% respectively (vs. 8.9% & 6.9% for Feb 2015) may be adduced to the fuel scarcity witnessed in the period as well as hike in electricity tariff.

Notwithstanding the profit growths recorded by the banks that have released their FY2015 results, profit warnings by others, vis-à-vis rising Non Performing Loan (NPL) formation, huge loan impairments, weak asset quality, and over trading among some banks are potential signs of some anomalies which needs to be checked to avoid the possible of crystallization of a systemic crisis. Considering the current toolbox of macro prudential policies (capital, liquidity and credit-related tools), we are of the view that it is provident to maintain the various thresholds at their current levels while fast-traking the implementation of the Basel II/III framework, instituting stricter asset creation benchmarks and ensuring greater regulatory oversight and stricter adherence to set limits.

Fixed Income Update: Tight liquidity pressures rates upwards

Consequent on the significantly low liquidity levels at the Nigerian financial market in the week, interbank rates hiked across board, as financial institutions funded obligations from the market. Average NIBOR advanced by 0.56% Week-on-Week to peg at 8.85%. The OBB and OVN rates declined by 0.25% and 0.33% WoW to close at 4.83% and 5.25% in that order.

Demand for the fixed income instruments at the secondary market was frail during the week, however, recording a brief resurgence at the tail end of the week. Average yields on the Nigerian Treasury bills and bonds closed at 6.88% (+0.02% WtD) and 11.07% (+2.75% WtD) across the respective instruments.

During the week, Treasury bills worth NGN166.60bn on the 91-day (NGN60bn), 182-day (NGN23.55bn) and 364-day (NGN83.05bn) instruments were auctioned, with respective stop rates of 5.75%, 7.95% and 9.15%. Also, Treasury bonds worth NGN100bn were auctioned with re-openings of the FEB-2020 (NGN20bn) and JAN-2026 (NGN40bn) bonds, and new issue of the JAN-2036 (NGN40bn) bond, with respective stop rates of 11.33%, 12.09%, and 12.40%.

The domestic currency closed the week at a mid-price of NGN198.77/USD at the Inter-bank market, representing year-to-date depreciation of 0.27%.

Agric. Sector: Bull sentiments sustained

Measuring with the performance of our MERI-AGRI index, the Agric. Sector advanced by 2.29% WoW, bringing its Year-to-Date return to 6.21%. The sector’s performance in the week was based on one (1) gainer, one (1) decliner, and three (3) counters trading flat over the period.

OKOMUOIL led the sector with a gain of 4.98% WoW, closing the week at NGN33.07, while LIVESTOCK (-3.39%) closed the week in the negative territory. Similar to the prior week’s outing, ELLAHLAKES, FTNCOCOA and PRESCO, retained last week’s market prices.

We anticipate that the sector index might sustain this uptrend as driven by key sector counters in the short to medium term, owing to the recent attention the Agric. sector is enjoying from the government. Investors are however advised to balance optimism with caution.

Banking Sector: Earnings flood in, Sector loses

The banking sector lost this week despite the inflow of good results, accompanied by high-yield dividend disbursements. This was due to aggressive traders selling down positions in the companies which released results. Consequently, the MERI-BNK index declined by 2.42% WoW to pare the YtD return to -13.38%.

There were four (4) gainers and ten (10) decliners in the week to peg the sector breadth at 0.4x. The advancers were UBA (+9.59%), ZENITHBANK (+3.56%), STERLNBNK (+1.76%), and STANBIC (+0.33%). ETI (-20.28%), ACCESS (-10.63%), WEMABANK (-8.05%), and DIAMONDBNK (-7.89%) topped the decliners list.

There were four (4) earnings releases this week, from ACCESS, GUARANTY, UBA, and ZENITHBANK. All earnings releases were good and in line with our expectations for these banks, although we expect only a few more positive results from the sector’s banks which are yet to release numbers.

Access bank recorded growths in Gross Earnings, Profit-Before-Tax and Profit-After-Tax of 38%, 44%, and 53% YoY accordingly, and also proposed a final dividend of NGN0.30/share. Also, Guaranty Trust Bank Plc result showed that the Bank recorded growths in Gross Earnings, Profit-Before-Tax, and Profit-After-Tax of 14.27%, 3.70%, and 5.30% YoY respectively. The bank proposed a final dividend of NGN1.52/share.

UBA Plc’s recently released FY2015 numbers showed that the bank recorded growths in Gross Earnings, Profit-Before-Tax and Profit-After-Tax of 10%, 22%, and 25% accordingly. The bank proposed a final dividend of NGN0.40/share. Finally, Zenith Bank Plc’s result showed that the Bank recorded growths in Gross Earnings, Profit-Before-Tax, and Profit-After-Tax of 7.24%, 4.86%, and 6.24% YoY accordingly. Also, the bank proposed a final dividend of NGN1.55/share.

ETI became the fourth bank to release a profit warning this week. The bank highlighted that macro-economic challenges in African countries, low crude oil prices, depreciating currencies, and fiscal bottlenecks were the major drags to its revenue growth, which is expected to be below FY2015 guidance. The Group also noted that impairment losses recognized in Q4:2014 across its loan portfolio would result in efficiency and asset quality metrics also deviating from guidance.

We do not expect the current trend in trading to be maintained over the coming weeks, and anticipate good price returns on some of the equities of the banks which released good results in the periods up until their closure dates.

Consumer Goods: The scorecards flood in

The flood of earnings releases and dividend proposals during the week boosted performance at the Consumer goods sector of the NSE, albeit marginally, as investors remained cautious and unimpressed. The sector returned 0.78% WoW, as measured by the NSEFBT10 index.

The sector breadth pegged at 0.60x for the week with six (6) counters on the gainers’ chart while ten (10) counters featured on the decliners’ chart. CHAMPION led the week’s gainers with 8.33% WoW, while HONYFLOUR shed the highest, declining by 10.00% WoW.

During the week, Nestle Nigeria Plc released its FY2015 result which showed 5.54% and 6.75% Year-on-Year increases in revenue and Profit-After-Tax. The company also proposed a final dividend of NGN19.00/share, representing a dividend yield of 2.79% at today’s closing price. Dangote Sugar Refinery Plc. grew turnover by 6.54% YoY, while PAT declined marginally by 0.87% YoY. The company proposed a dividend of NGN0.50/share, indicating a dividend yield of 8.47% at today’s closing price.

PZ Cusson’s Nigeria Plc’s 9M2016 scorecard showed 4.22% and 40.89% YoY declines in revenue and PAT accordingly, as finance charge surged by 225.35% YoY. Similarly, Vitafoam Nigeria Plc’s 3M2016 result showed 4.10% and 19.73% YoY declines in turnover and PAT respectively. Consequently, the company’s net margin dipped to 2.40% from 2.86% in 3M2015.

As we anticipate the arrival of more earnings scorecards in the coming week, we are not optimistic of positive investors’ reactions on same, though the dividend yields might seem relatively attractive.

Health Sector: Sector index pares by 0.02% WoW

Negative investor sentiments rocked the sector in the week, as the MERI-HLTH index waned by 0.02% WoW. There was a lone advancer and two (2) decliners, while all other stocks traded flat.

NEIMETH was the only advancer, appreciating by 4.35% WoW to close at NGN0.72, while MAYBAKER and FIDSON were the two laggards, after the counters pared by 4.04% and 3.27% respectively.

GlaxoSmithKline Consumer Nigeria Plc. released its FY2015 result in the week, stating its revenue and Profit-After-Tax at NGN30.63bn (+0.37% YoY) and NGN965.05mn (-47.80% YoY) respectively. The company also proposed a dividend of NGN0.30k/share.

We anticipate that the weak appetite towards sector stocks may be sustained in the coming week.

Industrial goods:  Sector records marginal gains

The industrial goods sector closed the week in the positive zone as measured by our Meri-IND index, which showed 0.10% WoW gain. An equal number (2) of stocks recorded gains and losses during the review period.

DANGCEM emerged as the top gainer during the week, on the back of a 0.61% increase in share price to NGN165.00, while BERGER appreciated by 0.42% to make up the gainers list.

WAPCO, which released a mixed earnings scorecard during the week, shed 5.26% of its share value to close the week at NGN81.00. CCNN continued on a downward trend, declining by 3.15% during the week ended.

Lafarge Africa PLC (WAPCO) released its FY2015 result, with revenue at NGN267.23bn, representing 2.46% growth from FY2014 numbers. However, Profit-After-Tax (PAT) declined by 19.52% YoY, following increases in production (+3.89%) and operating costs (+13.16%) amidst relatively lower investment income (-34.53%).  Lafarge Africa proposed a dividend of NGN3.00/share and a 1 for 10 bonus share.

We expect investors to continue to swiftly react to earnings releases, and opine that the direction of investor sentiments in the coming weeks will be determined by the quality of corporate actions.

Insurance Sector: AXA Mansard releases FY2015 result

Activities on insurance stocks were seemingly weak during the week, with the NSEINS10 declining by 1.01% WoW to peg the YtD loss at 8.60%. Sector breadth (0.25x) skewed in favour of laggards, following four (4) decliners as against one (1) advancer. All other counters traded flat.

LAWUNION was the lone gainer in the week, appreciating by 9.37% WoW to close at NGN0.73. Conversely, AIICO emerged the sector’s worst performer, having pared by 3.70% WoW to close at NGN0.78. CONTINSURE, MANSARD and NEM trailed the losers’ path with losses of 3.26%, 2.73% and 1.30% respectively, to close at NGN0.89, NGN2.14 and NGN0.76 accordingly.

AXA Mansard Insurance Plc released its FY2015 financial result during the week. While Gross Premium Written (GWP) trimmed by 4.74% YoY, Gross Premium Earned (GPE) advanced by 12.69% YoY to NGN16.89bn, up from NGN14.99bn in FY2014. Subsequently, Profit-After-Taxes (PAT) climbed by 8.13% YoY to NGN1.66bn, up from NGN1.53bn in 2014. The Company also proposed a final dividend of NGN0.02/per share, implying a divided yield of 0.93% at a closing price of NGN2.14.

We anticipate that the weak appetite for sector stocks might subsist if corporate actions that accompany earnings releases are not too impressive.

Oil & Gas Sector: OPEC to meet major Oil producers

Mixed sentiments were witnessed on sector counters in the week, as bargain hunting activities were countered by profit taking. The NSEOILG5 index declined by 3.47% WoW, while the sector breadth pegged at 0.33x, following a lone counter advancing and three (3) counters paring in value.

Profit taking activities drove OANDO to the top of the laggards list, plunging by 25.23% WoW to settle at NGN4.00. The counter was trailed by SEPLAT and ETERNA, with respective week-on-week losses of 5.71% and 3.78%. CONOIL was the only advancer, surging by 21.38% WoW to close at NGN20.10. Other counters traded flat.

The price of Brent crude inched up by 5.15% WoW to close at USD42.47pb, following the news inflow of a scheduled meeting between OPEC member states and major oil producers on the 17th April, 2016.

We anticipate that investor’s optimism following the news inflow, will continue to drive global crude oil prices northward in the near term. We also note that this price climb will bode well for the Nigerian economy.

Services Sector: Sustains positivity in spite of headwinds

Following the strong headwinds that permeated the sector at the start of the week, the Meri-SERV Index pared by 0.71% WoW, however, sustaining a positive Year-to-Date return at 0.79%. Two (2) stocks appreciated, whilst four (4) stocks declined in value, placing the sector breadth at 0.50x.

LEARNAFRCA, the sector’s strongest performer in the year (+ 23.94% YtD), led the gainers’ chart to close the week at NGN 0.88 (+7.32% WoW). ACADEMY followed with a gain of 3.64% WoW. Conversely, IKEJAHOTEL steered the underperformers, closing the week at NGN 2.47 (-9.62% WoW). CAVERTON (-4.61% WoW), NAHCO (-2.44% WoW) and TRANSEXPR (-1.69% WoW) also featured on the laggards list.

Considering the existing economic headwinds currently suppressing the stock market performance, we anticipate that the current trend might subsist.