MARKET SENTIMENTS FOR THE WEEK ENDED JUNE 1, 2007

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1 MARKET SENTIMENTS FOR THE WEEK ENDED JUNE 1, 2007 SYNOPSIS: Market activity soared during the week despite a 4-day trading week. This came on the heels of the much awaited lifting of technical suspension on the shares of Oceanic Bank, United Bank for Africa, Diamond Bank and African Petroleum (AP). Market indices soared to record new historic highs as the All Share Index (ASI) closed at 50, points, while Market Capitalisation stood at N7.508 trillion. The Banking sector dominated the market, accounting for over 66 percent of the aggregate turnover. This performance was attributed to activity in shares of Diamond Bank, Oceanic Bank, UBA, as these stocks became investors delight soon technical suspension was lifted. Access Bank shares were placed on technical suspension following its application to the Exchange to raise N70bn. The Bank recorded unusual volume of transactions with 500million shares worth N20bn traded in four days. The Bank is the second after First Bank to enjoy the recently reviewed cost of raising funds from the market. Similar trades were also recorded in Intercontinental Bank s shares with a turnover of 162,109,005 shares valued at N3,131,945,977 exchanged in 217 trades. Renewed activity in shares of Intercontinental Bank was linked to a speculation of an impressive full year results of the Bank. However, this was later muted at the close of the market when the results of the Bank were released with a slim final dividend of 35k despite the outstanding performance. In the same vein, the insurance sector recorded a new intake as 10.3bn Ordinary shares of Continental Re-insurance Plc were listed on the floor 1

2 of the Exchange by way of introduction at N1.26 per share. This brings the number of quoted equities on the Nigerian Stock Exchange to 203. Trading resumed on the floor of the Stock Exchange last week Friday after some months of remote trading as a result of the modernisation of the trading floor. The Exchange also announced a review of the trading hours from between 10am and 12 noon to 9.30am and 12.30pm with effect from Monday, May 28, We present below brief highlights of market events and sentiments for the week and some of the stocks that investors should watch closely for investment decisions in the week ahead. OCEANIC BANK INTERNATIONAL PLC The stock s price soared immediately it was lifted from technical suspension to record a new all time price high of N23.71 with capital appreciation of 21.4 percent in 4 days. Market watchers opine that the trend may be sustained given the shallowness of the market and the prevalent liquidity level. Others maintain that Oceanic Bank s shares also qualify as good pick for value investors as the Bank has done creditably well as evidenced by its financials and technical performances. The Bank s Q results recently released show that Gross Earnings and Profit After Tax (PAT) grew by 56 percent. Gross Earnings rose to N27.82bn in 2007 from N17.86bn recorded in the corresponding period of prior year while PAT grew from N5.11bn to N7.85bn over the same period. Its Earnings Per Share currently stands at N1.06k with a P/E ratio of 25.23xs. Given a forecast EPS of N1.27 by the year-end September 30, 2007 as contained in its just-concluded Offer document, analysts posit that the 2

3 Bank s share will trade in the price region of N30 before the release of its full year results in the last quarter of the year We therefore rate the stock a good buy for both speculators and value investors taking long-term position. (For a comprehensive analysis on the Bank:visit http/ analysis). UNITED BANK FOR AFRICA PLC (UBA) UBA has finally established itself as a dominant player in the Nigerian financial services industry. It has just concluded arrangement for acquisition of the physical assets and private sector deposit liabilities of Metropolitan Bank Limited (in liquidation) making it the second of its kind under the Purchase & Assumption arrangement of the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation(NDIC). The Bank had earlier acquired Trade Bank Plc. This is in line with the Bank s expansion strategy, which is expected to further help to boost its branch network. Analysts maintain that this will further enhance the Bank s retail and wholesale banking, enlarge its market share as well as impact positively on its performance indices. UBA has the highest EPS of N2.02 and the largest bank by asset portfolio in the banking industry according to the most recent Fitch Ratings, affirming its A+ long term rating. Market watchers posit that the current trend in price movement will be sustained given the Bank s quest for leadership in the industry, which is also supported by its strong fundamentals and technical indices,. They project a price range of N55- N60 in the next couple of months before the year-end in September 31, The stock recorded a capital appreciation of 22 percent in 4 days after it was lifted from technical suspension on Monday May 28, 2007, to 3

4 close the week at N We rate the stock a good buy for traders and long-term investors alike. DIAMOND BANK NIGERIA PLC Diamond Bank s management team is resolute in its determination to build a strong financial services institution that has the capacity to create and deliver superior customer value at all times having established itself as one of the leading financial institutions in the country. The Bank has embarked on strategic initiatives aimed at expanding its reach, growth prospects and entrenching its position on the financial landscape of the country. The Bank shares were lifted off technical suspension following the conclusion of the arrangements with shareholders, board of directors and the regulatory authorities to seal a strategic alliance with an international consortium led by Actis Capital LLP, through an injection of US $130 million (N16.78 bn). Actis has significant investments across Africa, China, South Asia, and South East Asia. It is a leading private equity investor with special focus on emerging markets, having funds under management of US$3.4bn for investors including the British and Canadian Governments as well as 32 other international institutional investors. Industry experts postulate that the partnership is expected to facilitate the Bank s access to long-term debt funding and Tier 2 capital, by leveraging on Actis international alliances and joint ventures. Fitch Ratings, one of the leading global rating agencies, recently affirmed Diamond Bank's national long-term and short-term ratings at 'A' and 'F1' respectively. Meanwhile, Global Credit Rating Company (GCR) had earlier assigned Diamond Bank "AA-"long term and "A1" short-term ratings. These are very high investment grade ratings that 4

5 confirm Diamond bank's short and long-term favourable outlook. The market also applauded the Bank s Q performance results with Gross Earnings of N28.5bn compared to N15.9bn recorded in the preceding period of prior year, representing a 79.2 percent growth. It grew its Profit After Tax by 82.5 percent to N4.6bn against N2.52bn reported over same period in the previous year. A cross-section of the market maintains that Diamond Bank is now well positioned to reward its shareholders with superb dividend payment post-consolidation. It will be recalled that the Bank did not pay dividend in its last financial year ended April 30, 2006 having had to write-off its goodwill arising from its acquisition of Capital Bank and Lion Bank. We recommend the stock a good buy for both short and long-term investment decisions. ZENITH BANK PLC : Investors renewed their interest in the Bank s stock culminating in a new all-time high price of N56.22 on Friday June 1, 2007 with a capital appreciation of percent during the week ended. Market observers argue that investors are taking a proactive decision to re-balance their investment portfolio to include Zenith shares as the bank s year-end draws closer. Analysts postulate that Zenith Bank s EPS for the year ending June 2007 will cross the mark of N2.00 against the current value of N1.90. They argue that the Bank recorded an outstanding performance in Q with Gross Earnings of N62.66bn and PAT of N15bn as against N42.12bn and N8.86 bn recorded in the prior year. However, given the Bank s current shares outstanding of 9.256bn, a forecast EPS of N2.10 and above is easily achievable with a conservative growth rate of 45 5

6 percent in earnings over the third quarter. There is also a strong indication that Zenith will reward investors with twin benefits of dividend and scrip issue as the market is rifle with speculation of the management s intention to declare a landmark reward in Fundamental analysts give an estimate price of N70 and above before the release of the Bank s full year results in July/August Bye and large, we maintain a strong buy recommendation on the stock. INTERCONTINENTAL BANK PLC: Investors hopes were rekindled following a price resurgence ushered in by increased demand for the Bank s shares on the floor of the Exchange during the week ended. The stock returned 6 percent to investors reaching a new all-time price of N29.00 on Thursday May 31, However, the stock shed N1.45 to close at N27.55 on Friday June 1, Intercontinental Bank released it results for year ended February 28, 2007 with a Gross Earnings of N87.36bn and PAT N15.48bn far above its projections of N66.02bn and N12.97bn for Gross Earnings and PAT respectively in its last Public Offer prospectus dated September 15, The management has also proposed a final dividend of 35k per share as promised. FIRST CITY MONUMENT BANK PLC (FCMB): The Bank returned percent in two weeks to close at a new all-time high price of N15.02 on Friday, June 1, It is being rumoured that the recent leaning in price is correlated to the preparedness of the Bank s management to come to the primary market to raise fresh funds. 6

7 Other market sources however, speculate that the new price trend is associated with the anticipated full year results of the Bank, which market participants believe will be superb. They also maintain that lots of strategic moves recently embarked upon by the Bank are expected to have significant multiplier effects on its performance both in the immediate and future periods. In an attempt to enhance corporate governance and give further confidence to its growing international investor and clientele base, FCMB recently expanded its board of directors to include some internationally acclaimed professionals. Industry experts argue that this will further assist in growing the bank s international image and increase shareholders value. HSBC Bank Plc recently executed a privately placed, non-secured structured debt instrument totalling $100-million (N12.7-billion) with First City Monument Bank (FCMB) Nigeria. This is the first agreement of its kind with an African bank in the international capital market. The facility is part of a deliberate strategy by FCMB to fund growth plans in Nigeria, through a combination of international debt and equity offerings. In addition, the Bank expects to raise over N127-billion ($1- billion) in medium to long-term funding over the next 18 months. FCMB plans to use the facility to contribute towards project financing in the real estate as well as to facilitate further growth in the bank s assets, deposits, and profitability. The Bank s third quarter results for the period ended January 31, 2007 revealed that Gross Earnings increased by 69 percent, from N10.48bn in the corresponding period of prior year to N17.69bn while PAT grew by 97 percent to N3.58 bn from N1.81bn over same period. The Bank s EPS currently stands at N0.48 with a PE ratio of xs. 7

8 AFICAN PETROLEUM PLC (AP): A cumulative turnover of 4,346,209 shares valued at N325, 965, of AP shares traded in 396 deals in four days. Following the conclusion of the strategic divestment from the Nigerian National Petroleum Corporation (NNPC), the shares of the company recently lifted from suspension to record a new all-time high price of N79. AP s turnaround strategy has impacted positively on its performance indices as evidenced by its third quarter results for the period ended September 30, Turnover grew by 70 percent to N56.76bn from N33.35bn posted same period in Profit After Tax rose by 384 percent to stand N2.71bn compared to N55.8m recorded corresponding period of prior year. The NNPC s 27.8 percent shareholding in African Petroleum Plc (AP) sold to Zenon Petroleum and Gas Limited few weeks ago. The sales generated a lot of ripple in the capital market as shareholders across the country expressed their concerns over the sale. The sale was hitherto made to Global Fleet Group but was cancelled for allegedly lacking in transparency and competitive bidding, and directed the Bureau of Public Enterprises (BPE), to take over the shares and dispose them through competitive bidding. The NNPC, in 2005 acquired 28.7m shares in AP through its staff pension fund in a debt-equity swap of over N10bn, which AP owed the corporation. The shares represented debt-equity swap for AP due to its indebtedness to NNPC and the corporation had refused to give credit to AP until it paid the N11bn it owed. The company thereafter created 8

9 special shares for debt-equity swap and gave those shares to NNPC in place of cash after which the NNPC resumed product supply to the AP. This later led to resurgence in the company s share price movement in thestockmarket. JAPAUL OIL AND MARITIME SERVICES PLC The stock has been investors delight having returned 403 percent from the opening price of N1.21 on January 4, 2007 to N6.09. The company s results for the year ended December 31, 2006 and Q were released simultaneously to the floor of the Exchange on Friday June 1, Japauloil recorded an organic growth of 163 percent in turnover to N1.4bn from N533.15m in FY 2005 while PAT rose by 83 percent from N103.99m in 2005 to N189.94m. The company s management has proposed a dividend per share of 11kobo with a closure date on June 6, Similarly, its first quarter results for the period ended March 31, 2007 revealed that turnover grew by 245 percent while PAT rose by 120 percent to N m and N m respectively. However, some analysts opine that though the company s results are outstanding the benefit declaration is rather paltry and may not support the current price of N6.09k in the short- run. The company s proposed dividend of 11k/share puts the yield at about 2 percent. On the other hand, another group of market watchers maintains that the stock remains a good pick for value investors with long-term investment horizon. They suggest a buy-back at an ex-div price when the stock price is adjusted for dividend in a couple of days. 9

10 Our analysis however suggests a sell for traders who are profit-driven while we maintain a buy recommendation for long-term investment decision. We recommend the following stocks for investment decisions in the week ahead: BUY RECOMMENDATION COMPANIES ENTRY PRICE (N) 1. WEST AFRICA PORTLAND CEMENT FLOURMILL GUARANTY TRUST BANK BENUE CEMENT COMPANY NEIMETH PHARMACEUTICALS ZENITH BANK UNION BANK UBA OCEANIC BANK IBTC FCMB BERGER DIAMOND BANK RT BRISCOE UN HOMES CORNERSTONE CRUSADER MUTUAL BENEFITS WAPIC DANGOTE SUGAR REFINERY NAMPAK SELL RECOMMENDATION COMPANIES CURRENT PRICE (N) 1. CADBURY NIGERIA PLC NIGERIAN BOTTLING COMPANY

11 3. OANDO 80 11