Investment Guide for the Week

Transcription

1 October 23, 2015 Investment Guide for the Week Earnings releases drive market returns as NSEASI advances by 0.60% WoW 1

2 USD'bn Nigeria I Investment Guide I October 23, 2015 Earnings releases drive market returns as NSEASI advances by 0.60% WoW The Nigerian Stock Exchange All Share Index (NSEASI) advanced by 0.60% this week, after waning on three (3) out of the five (5) trading days. Market capitalization at the close of the week was NGN10.31tn, as the Year-to-Date return of the bourse pegged at %. Volume of transactions, and market turnover advanced by 4.53% and 27.64% WoW accordingly, while 27 stocks appreciated in prices against 38 decliners. HONYFLOUR advanced the most, after appreciating by 9.41% WoW to NGN2.79. NEM (+8.82%), GLAXOSMITH (+8.20%), TRANSEXPR (+7.96%), and OANDO (+7.10%) followed suit accordingly. On the flip side, OKOMUOIL, RTBRISCOE, ACADEMY, CADBURY, and COSTAIN topped the laggards chart, after recording respective declines of %, %, -9.23%, -9.09%, and -8.93%. As expected, a flurry of 9M2015 performance scorecards were released in the week, triggering differing reactions from investors. Amongst notable releases in the week were that of ACCESS, GUARANTY, NB, NEM, BERGER, GUINNESS, MOBIL, and WAPCO. NB declared an interim dividend of NGN1.20k per share (0.84% yield based on today s closing price), with 11 th of November 2015 as the qualification date. The closure date is between the 12 th -18 th of November, while payment is scheduled for the 19 th of November Chart 1: Movement in FX reserves, NGN/USD pairing & Brent crude oil price Foreign Reserves (RHS) NGN/USD BRENT NSEASI Source: CBN, Bloomberg, Meristem research 2

3 We expect that the equities market in the approaching week will trade in line with the performances of most companies in their earnings releases, as they continue to trickle in. In this report, we review events in the economy, laying emphasis on the performance of different segments of the financial market, while presenting our expectations for the coming week. Fixed Income: Lower yields pressure demand The impact of the strained liquidity in the financial system was quickly felt in the market, as NIBOR advanced during the week. Average NIBOR grew by 1.37% WoW to settle at 13.11%. There was a similar trend witnessed in the money market space, as the OBB and OVN rates advanced by 4.25% and 4.67% WoW to peg average money market rate at 5.46% at the end of the week (vs. 1.00% in the prior week). Investors appetite for Treasury bills instruments waned during the week, as the average yield across tenors advanced by 0.39% WoW to peg at 8.44% at the end of the trading week. We attribute the weak appetite to the unattractiveness of the yield environment. However, in line with our expectations, the T-bills auction for instruments worth NGN138.18bn during the week was oversubscribed, with the bid-tocover ratio measured at 2.91x. The Treasury bond market also witnessed hike in yields, as the average bond yield advanced by 0.23% to settle at 13.72%. Investors bias for bond instrument was largely skewed towards the longer end of the yield curve. The Naira remained pressured during the week, as the local currency depreciated by 0.50% WoW to settle its mid-point at NGN198.44/USD at the end of the week. Agric Sector: YtD drags to % The Week-to-Date return of the sector, as measured by our MERI-AGR index was %, which dragged the YtD return to %. Sector breadth (1.00x) remained at equilibrium, as one stock advanced relative to a stock that pared in share price during the week. LIVESTOCK emerged as the only gainer for the week as it advanced by 3.03%. Conversely, OKOMUOIL failed to sustain its impressive run from the prior week, as it declined by 14.23% while PRESCO, ELLAHLAKES and FTNCOCOA traded flat. Juxtaposing the relative lull in the agric sector this week with the anticipated corporate releases, we opine that investors are being cautious, which is largely 3

4 anticipated, as the impressive Q3:2015 results thus far have failed to swing investors apathy. Banking sector: Sector index returns positive for 2nd consecutive week The banking sector index returned +1.91% this week to bring the YtD return of our MERI-BNK index to -7.79%, as the sector s stocks consolidated on a strong performance in the preceding week. There were 6 advancers and 7 decliners, which pegged the sector s breadth at 0.86x. ACCESS led the advancers after recording a price gain of 6.36%, with the ticker trailed by GUARANTY (+4.21%), UNITYBNK (+2.67%), and ZENITHBANK (+1.09%) on the gainers list. On the other side, SKYEBANK recorded the largest price decline, after paring by 6.64%. WEMABANK, UBA, and FIDELITYBK also featured on the losers list, after recording declines in value of -5.00%, -4.71%, and -2.00% accordingly. Access Bank Plc. and Guaranty Trust Bank Plc. released their 9M2015 results during the week, with both banks recording good results. ACCESS recorded growths in Gross earnings, Profit-Before-Taxes, and Profit-After-Taxes of 42%, 45%, and 38% accordingly. GUARANTY recorded Gross earnings growth of 15%, with PBT and PAT also appreciating by 14% and 13% respectively. The current state of the market has meant that even as these banks have released good numbers, there has been marginal reaction in their respective share prices, and we expect this to be consistent across banks regardless of the results, although the downside risk is not. Consumer Goods: Earnings continue to flood in Sector performance for the week returned lower, as the sector s index declined by 0.50%, as measured by the NSEFBT10 sector index. HONYFLOUR, PZ, DANGFLOUR, CHAMPION, and UACN recorded the highest week-onweek gains in the sector, as they recorded respective price increases of 9.41%, 4.17%, 3.85%, 3.37% and 3.39%. CADBURY, UNILEVER, GUNNESS, NNFM, and NASCON endured the brunt of investor s negative sentiments, as their respective market prices declined by 9.09%, 8.83%, 5.20%, 4.97%, and 4.14%. As the earnings continue to flood the market, Guinness Nigeria Plc (GUINNESS) released it 3M2016 numbers which showed an increase of 3.30% in revenue, while PAT declined by 75.60%. 4

5 Nigerian Breweries Plc s (NB) 9M2015 earnings, also trended similarly, with a growth of 10.36% in revenue, while PAT declined by 12.24%. Also, the company declared an interim dividend of NGN1.20/share, which represents a dividend yield of 0.84% at today s closing price. The 9M2016 result of Northern Nigeria Flour Mills (NNFM) showed significant declines in earnings and PAT by 90.45% and 85.69% accordingly. These earnings releases do not come as a shock, given the current economic fundamentals which have adversely affected the consumer spending power and the cost of production of companies, and consequently, the component companies revenue and earnings. We anticipate that investors will react suitably given expectations, and thus opine that the impact of the releases might be significant on the sector. Healthcare Sector: Performance Scorecards to drive Sentiment The sector closed the week on a positive note, reversing previous week s negative outing. The sector index advanced by 7.99% Week-to-Date to drag Year-to-Date return to -0.41%. Market breadth (1.00x) stayed neutral, as equal number of stocks advanced and declined in the week. GLAXOSMITH recorded the largest gain, as the stock advanced by 8.20% to emerge as the top gainer for the week. MAYBAKER followed with a 4.27% Week-on-Week gain to partly reverse its two weeks of bearish run. Conversely, EVANSMED and MAYBAKER declined by 3.28% and 3.23% to close at NGN0.59 and NGN3.00 respectively. Other counters traded flat. As the market awaits the sector s component companies to release their Q3:2015 results, we expect some reactions from investors in anticipation of the companies scorecards. Given that we remain modest about the earnings performances of the companies in the sector, we advise value seeking investors to balance their optimism with caution. Industrial Goods: Sector sheds 0.08% WtD The Meri-Industrial Sector Index declined marginally by 0.08% WtD this week, with just 2 advancers against 4 laggards. CCNN rebounded this week to top the gainers chart with a return of +3.65% WoW, to settle the price at NGN7.96. DANGCEM also advanced by 1.24% this week to peg its price at NGN

6 The losers were led by DNMEYER which shed 4.11% to close at NGN0.70. Other laggards included; CUTIX, WAPCO, and BERGER with returns of -1.75%, -1.37%, and -0.19%, respectively. Lafarge Africa Plc. (WAPCO) released its 9M2015 result today, showing growth in Revenue of 5.49% YoY, while Profit-Before-Taxes, and Profit-After-Taxes moderated by 11.61% and 7.05% YoY respectively. The sector s performance this week remained pressured due to uncertainties surrounding 9M2015 results, and also investor s reaction to WAPCO s result. We are equally not optimistic on other company s scorecard, thus, we advise investors to balance their optimism with caution in the coming week. Insurance Sector: Impressive 9M2015 scorecards Measuring the sector s weekly performance by the NSEINS10 Index, the sector recorded a 0.81% WoW loss to peg the Year-to-Date return at -6.86%. Sector breadth (0.33x) skewed in favour of decliners, as 3 stocks waned in value, while a lone stock recorded price appreciation. Riding on the release of an impressive 9M2015 scorecard, NEM enjoyed a positive rally, and thus emerged the sole advancer for the week. The counter gained 8.82% WoW to close at NGN0.74. On the flip side MANSARD, AIICO, and CONTINSURE led the underperformers table, after the respective counters recorded WoW losses of -1.12%, -4.44%, and -5.00%. All other counter traded flat. NEM grew its Gross Premium Earned (GPE) by 9.46% YoY to NGN7.43bn vs. NGN6.79bn in 9M2014. Subsequently, Earning after Taxes (EAT) soared significantly by 32.04% to NGN2.11bn, from NGN1.60bn in 9M2014. NEM s bottom-line returns can be attributed to the significant decline in the company s expense ratio, which came down from % in 9M2014 to 49.86% in 9M2015. Similarly, LASACO recorded 21.33% YoY and 14.38% YoY growth in GPE and EAT respectively. While we expect more earnings releases to filter into the market in the coming week, we anticipate a short-lived market reaction on only regularly traded insurance stocks. On this note, we advise investors to trade cautiously. 6

7 Oil & Gas Sector: Sector advances on investors expectations The oil & gas sector witnessed positivity in the week, with three (3) stocks advancing, as against two (2) that pared. Consequently, the sector s index advanced by 3.08% WtD, as measured by the NSEOILG5 index. OANDO s share price surged during the week, advancing by 7.10% WoW to close at NGN9.96, followed by MOBIL and FO which advanced by 4.05% and 3.57% respectively. On the other hand, ETERNA and SEPLAT featured on the laggards chart, after both stocks declined by 5.00% and 0.21% correspondingly. Other counters traded flat. Mobil Oil Plc. (MOBIL) released its 9M2015 result, indicating respective declines of 25.35% and 39.13% YoY in revenue and PAT accordingly. Oando Plc. (OANDO) also released a backlog of performance scorecards, with the most recent (Q2:2015) recording revenue growth of 8.35% YoY and PAT decline of % YoY. We note that trading activities on the sector counters in the week were defined by investor s reaction to, and expectations of appreciable performance scorecards from the sector s companies. We however, preach caution to discerning short term investors, while advising long term investment aims on fundamentally justified stocks. Services sector: TRANSEXPR tops with 7.96% rise Sector breadth (0.20x) skewed in favour of the laggards in the week, as only one stock advanced relative to five (5) decliners. Consequently, the MERISER index pared by 0.68% WtD to drag the YtD return to 0.11%. TRANSEXPR emerged as the only advancer for the week with a price gain of +7.96%. On the other hand, RTBRISCOE led the decliners as it shed 11.67%. Other underperformers were ACADEMY (-9.23%), ABCTRANS (-7.27%), LEARNAFRICA (- 3.57%), and NAHCO (-2.22%) in that order, while other counters traded flat. We attribute the performance of most sector stocks in the week to profit taking activities by investors, given that most of the counters closed positive in the prior week. However, we anticipate that the sector counters will trade in line with investors expectations of Q3:2015 earnings releases by the companies in the coming week. 7

8 Top 10 Outperformers Ticker WTD Return YtD Return Price (NGN) Current valuation metrics and statistics MCap [NGN'bn] P/E -TTM P/BV RoE Dividend Yield HONYFLOUR 9.41% % x 1.66 x 10.50% 1.79% NEM 8.82% 13.85% x 0.66 x 32.27% 8.11% GLAXOSMITH 8.20% % x 5.20 x 7.22% 1.88% TRANSEXPR 7.96% -0.81% x 0.89 x 20.27% 8.20% OANDO 7.10% % x 1.09 x 3.86% 0.00% ACCESS 6.36% % x 0.88 x 4.55% 6.97% UAC-PROP 4.90% -9.79% x 0.65 x 5.91% 5.83% MAYBAKER 4.27% % x 0.47 x -3.40% 0.00% GUARANTY 4.21% -2.70% x 2.38 x 6.26% 6.12% PZ 4.17% 5.04% x 2.99 x 8.33% 0.80% Top 10 Underperformers Ticker WTD Return YtD Return Price (NGN) Current valuation metrics and statistics MCap [NGN'bn] P/E -TTM P/BV RoE Dividend Yield OKOMUOIL % 20.55% x 1.33 x 2.84% 0.82% RTBRISCOE % % x 0.50 x 0.40% 0.00% ACADEMY -9.23% % x 1.04 x 7.31% 0.00% CADBURY -9.09% % x 2.87 x 25.10% 3.25% COSTAIN -8.93% % x 0.28 x % 0.00% UNILEVER -8.83% 19.69% x x 22.97% 0.23% ABCTRANS -7.27% -7.27% x 0.47 x 1.74% 0.00% SKYEBANK -6.64% % x 0.33 x 5.01% 0.00% GUINNESS -5.20% % x 5.62 x 21.25% 2.30% CONTINSURE -5.00% -6.86% x 0.65 x 5.82% 11.58% 8

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