NSEASI gains 1.27% Week-on-Week

The bearish run of the equities market came to a swift end in the week ended the 29th of July, as the negative sentiments which pervaded the market over the past few weeks came to an end. The positive return was driven by the banking sector, which witnessed a shift in sentiments given investor expectations that the upward revision in the Monetary Policy Rate (MPR) to 14%, from 12%, would impact the sector positively. Consequently, the NSEASI advanced by 1.27% Week-to-Date (WtD) to peg the Year-to-Date (YtD) return at -2.21%.

There were thirty-five (35) gainers and thirty-one (31) decliners during the week (ended the 29th of July), to peg the market’s breadth at 1.13x. The gainers for the week were led by MRS, GUARANTY, CUSTODYINS, MANSARD and ZENITHBANK, which recorded respective gains of 21.45%, 14.36%, 10.53%, 10.26% and 10.02%. Conversely, SKYEBANK, NEM,REDSTAREX,FO, andSEPLATwere the largest underperformers after recording value declines of 17.65%, 12.00%, 10.57%, 9.95% and 9.75% accordingly.

The H1:2016 earnings season got fully underway this week, with ninety-four (94) companies, including CUSTODYINS, DANGCEM, FBNH, and MOBIL, releasing results during the week (ended the 29th of July). In general, the results reflected the difficult operating environments for most companies precipitated by the weak macro-economic environment.

We expect this to remain a theme in this earnings season. The results reviews are contained in the sector review section. Also, CUSTODYINS declared an interim dividend of NGN0.07/share, which based on the closing price on the 29th of July, 2016, NGN3.99, represents a dividend yield of 1.75%. The Qualification and Closure dates are scheduled for the 19th and 22nd of August, 2016, respectively.

Also, Transcorp PLC released earnings guidance for Q2:2016, in which the company cited unrealized foreign exchange losses, a significant decline in the generating capacity at its Power subsidiary, as well as receivables from NBET for over NGN28bn, as the reasons for its weak financial position.

We expect the market will return positive this week, supported by gains from the banking sector once more. Although we anticipate that many of the results which will filter in will be weak as most would have been pressured by the depreciation of the currency amongst other challenges.

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

Economic Update: MPC Hikes MPR

The Monetary Policy Committee (MPC) at the end of the fourth meeting for the year elected to hike the Monetary Policy Rate (MPR) by 200bps to 14% and maintain the asymmetric corridor at +200bps & -500bps, while maintaining the Cash Reserve and Liquidity ratio at 22.5% and 30% respectively.

In arriving at the above decision, the MPC considered either to “fight inflation or restart growth within the economy”, while considering the apex bank’s mandate towards price stability.

The committee noted the slow rate of fiscal policy implementation and the impact on the overall economy, while acknowledging that the conditions undermining domestic output were outside the direct influence of monetary policy.

Other key considerations were the currently fragile global and domestic macroeconomic conditions and outlook for the remainder of the year. Considering the MPC’s decisions, we anticipate a northward trend in yields in the medium term, as assets are re-priced.

Also, we highlight the potential negative impact of the more attractive yield environment on the equities market. However, we expect increased buy-side activities within the banking sector due to the anticipated favorable impact of these decisions.

Fixed income: Yields Trend Northwards

The domestic currency declined in value against the US dollar during the week’s trading activities. Consequently, the spot rate closed at NGN322.85/USD (-4.20% WoW) while the average forward quotes pegged at NGN322.62/USD. At the parallel market, Naira pegged closed at NGN378/USD from NGN385/USD.

Money market rates declined, following the inflows from FAAC allocations, OMO repayments and maturity of some Treasury bills during the week. The average money market rate pegged at 4.00% (-13.08% WoW), while the average NIBOR pegged at 14.32% (-3.79% WtD).

Activities in the Nigerian fixed income market seemed bearish, as indicated by 0.98% WoW and 4.41% WtD hike in yields (Average yield across the FGN Bonds and Treasury bills to 16.17% and 17.66% accordingly).

We note, however, that the increase in yield could be credited to re-pricing assets following the recent policy pronouncement by the Monetary Policy Committee (MPC) to hike the MPR by 200bps to 14.00%. We opine that this trend might persist in the coming week, until the instruments are perceived to be appropriately priced by investors.

Agric Sector: Impressive Scorecards Spur Sector’s Performance

The sector performance, as measured by the MERI-AGRI Index, reflected a 1.19% WoW appreciation, thus pushing the sector’s YtD return to +14.55%. The Week-on-Week gain was propelled by the impressive earnings releases of the sector’s companies.

PRESCO topped the gainers chart with a 7.92% WoW appreciation followed by OKOMUOIL and LIVESTOCK which recorded respective gains of 6.82% and 3.41%.

PRESCO, OKOMUOIL and LIVESTOCK released their H1:2016 financial scorecards during the week. PRESCO (Revenue: +60.46% YoY; PAT: +152.93% YoY) and OKOMUOIL (Revenue: +51.16% YoY; PAT: +95.17% YoY) recorded strong financial performances, while LIVESTOCK grew its top-line by 14.17% YoY while its bottom-line declined by 33.18% YoY. We expect bargain hunting activities to dictate the sector’s performance in the coming week, though we anticipate pockets of profit taking on PRESCO, as the counter currently trades at its year-high.

Banking Sector: Boosted by MPC Decision

The banking sector returned positive during the week ended the 29th of July,as investors factored in the positive impact of the MPC’s decision (200bps hike in the benchmark interest rate) on the future financial performances of banks. Consequently, the sector returned 10.12% WoW, bringing the YtDreturn to 14.55%, according to our MERI-BNK index.

GUARANTY led the gainers in the week, after recording a +14.36% return. The ticker was followed by ZENITHBANK (+10.02%), UNITYBNK (+9.68%), ACCESS (+8.14%), and ETI (+7.97%). On the flip side, the laggards list was populated by SKYEBANK (-17.65%), UBN (-7.11%), WEMABANK (-5.13%), and STERLNBANK (-3.10%).

There were a few results releases from banks during the week. In general, the impact of the depreciation of the currency was reflected, as most of the banks, which released results, recorded significant revaluation gains, while capital ratios were pressured.

FCMB’s H1:2016 numbers showed increases in Gross earnings, Profit-Before-tax and Profit-after-tax by 14.13%, 70.28%, and 88.77% YoY, respectively, while Sterling bank’s H1:2016 numbers showed that the bank recorded a marginal increase in Gross earnings (+0.02% YoY), while Profit-Before-Tax and Profit-After-tax declined by 27.66% and 25.89% YoY accordingly.

Also, FBN Holdings PLC (FBNH) released its H1:2016 result during the week, which showed that the Holdco recorded 1.2%, 11.9%, and 10.5% YoY declines in Gross earnings, Profit-Before-Tax and Profit-After-Tax accordingly. Similarly, Diamond Bank’s H1:2016 numbers showed declines in Gross earnings (-6.50%), Profit-Before-Tax (-26.12%) and Profit-After-Tax (-25.51%). We expect some more gains in the sector over the coming week, as more results filter into the market.

Consumer Goods Sector: Earnings release sways sentiments

The Consumer Goods sector declined by 0.38% WoW to push the Year-to-Date performance to -3.51%, measuring with the NSE FBT10 index. Market breadth pegged at 0.67x, with six (6) advancers and nine (9) decliners. DANGFLOUR (+12.86% WoW) was the week’s highest advancer, while PZ (-9.71% WoW) led the laggards’ chart.

Nascon Allied Industries PLC (NASCON) Q2:2016 result showed an impressive 30.0% Year-on-Year increase in revenue to NGN8.59bn, while Cost of Sales and operating expenses hiked by 23.0% and 69.0% accordingly. Despite the increases in costs (including finance cost), Profit-Before-Tax and Profit-After-Tax advanced by 23.40% YoY apiece to NGN1.873bn and NGN1.274bn in the same order. NASCON returned +1.13% WoW.

Dangote Sugar Refinery PLC’s (DANGSUGAR) Q2:2016 result showed a jump in revenue of 37.85% YoY to NGN70.472bn, with 47.21% YoY increase in Cost of Sales, Earnings-Before-Tax and Earnings-After-Tax advanced by 13.81% and 16.95% Year-on-Year to NGN11.156bn and NGN7.382bn in the same order. DANGSUGAR returned +2.94% WoW.

Nestle Nigeria PLC’s (NESTLE) Q2:2016 showed a 22.02% increase in Revenue, however, owing to the increases in costs; Cost of sales, operating expenses and net financial charges by 28.07%, 17.58% and 375.77% accordingly, the trickle down to the bottom line was decimated. Consequently, Earnings-Before-Tax and Earnings-After-Tax declined by 91.55% and 93.97% YoY accordingly. NESTLE traded flat week-on-week.

Honeywell Flour PLC’s (HONYFLOUR) first quarter results showed a 22.01% decline in revenue, with corresponding Year-on-Year declines of 27.55% and 19.79% in cost of sales and operating expenses, while net finance cost surged by 250.39% YoY. Consequently, Profit-Before-Tax and Profit-After-Tax for the period pegged at NGN0.124bn and NGN0.101bn representing declines of 68.53% YoY and 64.31% YoY respectively. HONYFLOUR returned +5.56% WoW.

We opine that performance was largely swayed by the anticipated earnings releases. We anticipate that investors will react appropriately to the unimpressive scorecards in the coming week, especially companies that released practically at the close of trading activities for the week.

Healthcare Sector: NEIMETH Posts 305.97% YoY Growth in PAT

The Healthcare sector declined by 0.26% WoW, as measured by our MERI-HLTH index, to peg the YtD return at -45.16%.  Also, the Market breath (0.5x) reflected the direction of activities in the sector, as two (2) stocks recorded declines, as against one (1) stock which appreciated in value.

PHARMADEKO was the only price gainer in the week, after appreciating by 1.76% to settle at NGN1.73. Conversely, NEIMETH and GLAXOSMITH were the only laggards in the week, after depreciating in value by 4.84% and 0.27% correspondingly, to NGN1.18 and NGN18.45 respectively.

GLAXOSMITH released its H1:2016 result, which showed declines in Revenue, PBT, and PAT of 9.58%, 952.34% and 1346.08% YoY respectively. Also, FIDSON recorded a decline in both Revenue and Earnings-After-Tax of 35.29% and 87.79% YoY in that order.

NEIMETH released its Q3:2016 result, which showed that Turnover grew by 20.44% YoY to NGN1.201bn. Similarly PBT and PAT came in at NGN0.117bn, representing 305.97% YoY growths apiece.

We attribute the weak investor mood on the sector to the weak performance scorecards released by the sector’s companies. In the coming week, we expect a spillover of this negative mood.

Industrial Goods: DANGCEM Rebounds Marginally By 28bps

Gaining 0.06% WoW, the YtD return of the Industrial Goods sector settled at 1.77%. Market breadth (0.75x) for the week was skewed in favour of the 4 declining stocks against the three (3) advancers.

DNMEYER (9.64%) emerged as the highest gaining ticker this week closing at NGN0.91. CAP and DANGCEM advanced by 2.78% and 0.28% accordingly to make up the gainers list. WAPCO steered the decliners, falling further by 6.12% to NGN56.00. BERGER (-4.98%), AVONCROWN (-4.83%) and CUTIX (-1.23%) also declined in the course of the week. The week was dominated by numerous earnings releases; some of which include: CAP, CCNN, DANGCEM, PREMPAINTS and FIRSTALUM.

Dangote Cement PLC released its H1:2016 result during the week. Revenue came in at NGN292.19bn, representing a 20.63% growth from H1:2015 numbers. Profit-after-Tax (PAT), however, declined year-on-year by 15.10% to NGN103.42bn, owing to increases in production cost (+64.72%YoY), operating costs (+52.18%YoY), finance cost (+384.32%YoY) and tax (+210.35%YoY).

The unimpressive scorecards released by most industrial goods companies may douse the optimism initially stirred as a result of the injection of funds from the Federal Government. In this regard, we expect mixed reactions from investors in the near term.

Insurance Sector: CUSTODYINS Declares NGN0.07/share Interim Dividend

The insurance sector, as measured by the NSEINS10, advanced by 1.94% week on week, thus settling the YtD return to -6.96%. Sector breadth pegged at 5.00x, reflecting five (5) advancers, and a single decliner.

CUSTODYINS topped the gainers chart, after the counter appreciated by 10.53% WoW to close at NGN3.99. The counter was closely followed by MANSARD (+10.26%), AIICO (+5.71%), LAWUNION (+1.92%) and CONTINSURE (+0.94%). On the flip side, NEM emerged as the worst performed stock, after paring in value by 12.00% WoW to close at NGN0.88.

There were earnings releases (H1:2016) from top players in the industry during the week. While MANSARD (Premium Income: +25.07% YoY; PAT: +110.81% YoY), CUSTODYINS (Premium Income: +27.99% YoY; PAT: +10.27% YoY), CONTINSURE (Premium Income: +9.18% YoY; PAT: 117.40%) and AIICO (Premium Income: +36.48% YoY; PAT: +78.38% YoY) recorded strong financial performances, NEM (Premium Income: -8.31% YoY; PAT: -29.06% YoY)recorded declines in both its top-line and bottom-line.

Other insurers that released H1:2016 numbers included; LASACO (+38.72% YoY; PAT: 24.41% YoY), STACO (Premium Income: -10.63% YoY;PAT: -10.37% YoY), PRESTIGE (Premium Income: +0.35% YoY; PAT:+245.17% YoY), HMARKINS (Premium Income: +1.76% YoY; PAT:-22.35% YoY) and CORNERST (Premium Income: +33.50% YoY; PAT: +438.68% YoY).

Also, Custodian and Allied PLC known for its dividend paying culture, declared an interim dividend of NGN0.07 per share, with closure and payment dates scheduled for the 22nd August, 2016 and 1st of September, 2016 respectively.

We note that the impressive growth in Earnings-After-Taxes reported by most insurance companies was spurred by foreign exchange gains. We expect rallies on some sector stocks (particularly for CUSTODYINS) to be sustained in the coming week.

Oil & Gas Sector: H1:2016 Earnings Releases Flow In

The NSE OILG5 index declined by 0.60% in the week, to settle the Year-to-Date return at -16.15%. Three (3) counters pared in value, compared to four (4) advancers, to peg the sector’s breadth at 1.33x. FO (-9.95% WoW) led the decliners in the week,closing the week with a market price of NGN175.50. SEPLAT (-9.75% WoW) andETERNA(-5.62% WoW) were the other laggards. MRS (+21.45% WoW), OANDO (+9.38% WoW), TOTAL(+0.83% WoW), and MOBIL (+0.28% WoW) were the gainers.

FO, SEPLAT, MOBIL, and MRS released their H1:2016 Financials in the week.

SEPLAT recorded a 39.90% YoY decline in Revenue to NGN29.31bn, which translated to a Loss after Tax position of NGN12.81bn (-256.79% YoY). FO’s Revenueincreased by 38.02% YoY, while Profit-After-Tax (PAT) declined by 11.75% YoY to NGN2.23bn, due to increases in finance costs and income taxes.

MOBIL and MRS recorded Revenue increases of 57.90% and 45.40% YoY, while the PATs for both companies surged by 51.73% and 2,319.60% YoY correspondingly. We anticipate further positive reactions by investors to the released financial scorecards in the coming week, just as we await the inflow of pending earnings releases.

Services sector: Returns -0.60% Week-on-Week

The negative sentiments which pervaded the sector in the previous week persisted in this week, as no stock advanced while four (4) stocks declined. Based on the Meri-Services index, the sector declined by 0.70%WoW, with YtD return settling at -0.60%.

REDSTAREXspearheaded the decliners list after losing10.57% of its value WoW to peg the price to NGN4.23. Also, AIRSERVICE, IKEJAHOTEL and TRANSCORP declined by 5.56%, 4.74% and 2.96% respectively.

TRANSCORP released its H1:2016 result during the week, which highlighted a revenue increase of 22.35% YoYto NGN24.78bn, while the Profit-Before-Tax and Profit-After-Tax declined by 317.111% and 384.55% YoY respectively (–NGN11.21bn and –NGN12.19bn accordingly). The company attributed the weak result to; unrealized foreign exchange loss, significant decline in generating capacity of its subsidiary, Transcorp Power Limited, due to deteriorating gas supply in the country, and receivables of over NGN28bn from the Nigeria Bulk Electricity Trading (NBET)