MARKET SENTIMENTS FOR THE WEEK ENDED JULY 6, 2007

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1 Meristem Securities Limited 124 Norman Williams, Ikoyi South/West. Lagos, Nigeria. Tel: , , , Fax: MARKET SENTIMENTS FOR THE WEEK ENDED JULY 6, 2007 SYNOPSIS: The market started the week with the All Share Index gaining 0.15% relative to last Fridays trading statistics. There was a slight increase on Tuesday propelled by huge trades in the banking and insurance stocks before declining again on Wednesday. The decline continued to pervade the market for the rest of the week; however the NSE Index did gain 0.27% over last week s figure. Analysts suggest that the dip in activity may be connected with investors off-loading of stocks so as to meet the deadline for the First Bank of Nigeria Plc Offer which closed on Friday, June 05, Demand was propelled by trading in the shares of Fidelity, Wemabank, Skye bank, Lasaco and Mbenefits The banking sector continued to propel the market accounting for over 60% of overall volume and value. Fidelity and Platinum banks continued to soar based on future prospects, Wemabank received attention in part due to its re-branding and the implementation of better risk management procedures. Access and Oceanic Banks marched on due 1

2 to their impressive quarterly results. GTBank was also sought after as speculation is rife that the Bank will be coming to the capital market to raise funds Continental Re and Custodian Insurance surged higher this week reaching new all time highs. Mutual Benefits, Lasaco, NEM insurance and Unic traded large volumes remaining relatively static or dipping slightly. Crusader witnessed unusual trades on Wednesday when a total volume of 118m units was exchanged with the most part coming from one strategic trade. The conglomerates sector was very active with AG Leventis and John Holt experiencing renewed attention. UACN was temporarily on bid during the week while the resurgence of Unilever is complete as it almost hit the N19 mark which was its level of trading before being hit by the scandal of irregular accounting practices. AshakaCem and BCC witnessed reduction in volume traded as investors switched temporarily to other stocks with short term returns. The same occurred to WAPCO which closed the week at N64.71 dropping slightly lower than its long running support level of N65/N66. Other stocks of note were Japaul, Nampak and C&I Leasing. Japaul was on offer for greater part of the week but quickly went on bid towards the close of the market on Friday July 6, 2007 following the filtering of the news of its impending Offer. Nampak and C & I Leasing continued to be recipients of investor favour while Footwear was the delight of its 2

3 few shareholders who continued to receive value as the stock has doubled in value in the last month. 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. GUARANTY TRUST BANK PLC (GTBANK): Market is rife with the information on a new strategic initiative of GTBank seeking to raise US$750m to fund its various growth and expansion programmes. About US$500m is expected to be raised internationally through Global Depository Receipts (GDR) while US$250m (N33bn) will come via Offer for Subscription in the Nigerian Capital Market. It will be recalled that GTBank successfully raised global investment to the tune of US$350m earlier in the year. It is reported that the team of JP Morgan Chase & Co. and Morgan Stanley will be handling the international aspect while Afrinvest (West Africa) will be responsible for the raising funds locally. Analysts have rated the stock as a good buy based on GTBank performance indices and future capital appreciation. GTBank recent Q1-2007/2008 shows a 66% leap in Profit after Tax (PAT) from N2.08bn to N3.44bn. The Bank is in the top 3 of E-commerce transactions and is currently second in Point Of Sales (POS) transactions. GTBank also enjoys investors confidence both at home and abroad. The Bank s conservative nature, quiet growth strategy and excellent customer service has won it praise in the investment community. With over 108 3

4 branches located nationwide providing on line retail banking services, expansion plans involving Liberia, Sierra Leone and the UK, as well as an ever growing deposit base is a further evidence of the Bank s quality and investment potential. What stand-out a bank such as GTBank are its versatility, flexibility and innovation. GTBank is quick to realise that as the Banking terrain becomes more and more competitive, service delivery and product differentiation shall be the selling points in the war for deposits and fee based income. Market rumour has it that the Bank has set out strategic moves to ensure that by the conclusion of the Offer, it would have amassed US$1b which it needs to actively participate in the management of Nigeria s foreign reserves. The price appreciation of the stock post - Offer is expected to be substantial; therefore we recommend the stock for both traders and long-term investors. LASACO ASSURANCE PLC (Lasaco): Lasaco Assurance Plc was incorporated in 1979 as Lagos State Assurance Company limited and was quoted on the Exchange in After scaling through the NAICOM deadline, the firm is now licensed to conduct life and non life businesses. The stock has experienced considerable price appreciation over the past 12 months, moving from N0.90k to N4.00 representing a capital appreciation of 330%. The shares of the company have witnessed large volume of transactions in the past few weeks and have gradually dipped to N3.40. Analysts have attributed this to the scramble for shares due to sale of the Lagos State Government stake driving up demand and then profit-taking by investors who bought large 4

5 volume during the public Offer putting a downward pressure on the share price. Analysts assert that the company is a good buy based on its prospects. Lasaco is well grounded in the Oil & Gas sector with a client portfolio of companies such as Mobil & Chevron and thus is expected to benefit from the Local content policy. The compulsory life insurance of Government workers is an avenue for the company which is primed to increase its Life portfolio from the Lagos State Government. The Life and Pension business of the company is expected to thrive as Lasaco has partnered with Alexander Forbes (International Group of Actuaries) to fine tune its life and pension business. Lasaco is presently re-branding as part of its transformation and growth strategy aimed at making it a stronger and more prosperous company. Market sources revealed that the company plans to expand its business to give the best financial advisory services and proffer quality insurance solutions. OCEANIC BANK PLC: Oceanic released an impressive Q results which were well received on the floor of the Exchange last week. Gross earnings rose by 53% from N29.4bn to N42bn while PAT also increased by 54% from N8.7bn to N13.4bn. This has put the Bank in a favourable position to surpass its year end 2007 projections of N14bn PAT in its recently concluded 2007 Offer document. Analysts reiterate that Oceanic Bank is the fastest growing Bank of 2006 and the trend is continuing in Industry observers commend the Bank on its corporate strategy of strong market penetration, sound risk management and effective cost control. Oceanic 5

6 has continued to bring about increased returns to its shareholders evidenced by its PAT of N13.4bn in Q which is greater than its 2007 full year of N13.19bn and Intercontinental s Q3 2006/7 (N10.1bn) and UBN s 2006/7 Q3 (N13.28bn). Oceanic Bank has proven itself to be a medium of wealth accumulation to its shareholders and is on course of reaching its strategic objective of being the most profitable Nigerian Bank by The Bank also announced recently that it would be increasing its authorized share capital from N9bnto N12bn. Six (6) billion new shares of 50k will be created as a means of absorbing funds from the Banks 2007 Offer for subscription which is said to have been considerably oversubscribed. ACCESS BANK PLC: Access Bank Plc will be coming to the capital market to raise N70bn to perpetuate its growth strategies. The Offer is set to propel the Bank and act as a catalyst to its objective of becoming a top three bank in Nigeria. The Bank recently released its full year 2007 results which showed a tremendous increase in PAT from N737m to N6.08bn representing a 725% increase in profitability with a declaration of 40k dividend per share. However, 80% of the Offer is to be underwritten by a consortium of 8 issuing firms. It is said that 2 international investors have already shown their willingness to invest in the Offer and have made available N31.8bn to purchase the Bank s shares. Analysts note that the Bank has been very active in the past few months, joining up with a consortium of Banks to float the Nigerian Credit Bureau. Access has also been certified to accept 6

7 VISA transactions on its ATMs and POS terminals. Industry observers opine that the discount of N4.42k (i.e. 23%) is delectable as it is speculated that Access Bank shares will witness significant price appreciation in the medium to long term. Another set of analysts are skeptical about the Bank s ability to grow earnings as well as its current share price. It is believe by some that the current price of the stock of N19.36 is artificially created due to the mopping up of the Bank s shares pre-offer. It is feared that the shares are thus over-priced. On the contrary, market watchers dispel these fears saying that some investors are apprehensive due to lack of knowledge of the intricate workings of the market and the Nigerian investors psyche. This same concern was raised during other high profile Offers of Zenith Bank Plc and Intercontinental Bank Plc. Zenith has almost quadrupled its Offer price of N16.90 while Intercontinental has doubled its Offer price of N They therefore warn investors not to under rate the potentials of the Access Bank Offer. LAW UNION & ROCK PLC: Law Union & Rock Plc is another emerging insurance company full of prospects for the future. The company is licensed to conduct Life and Non Life insurance businesses. In the past 12 months the company s share price has experienced incredible appreciation. It has moved from N1.10 to reach its all time price high of N5.44, an appreciation of 400%. Though the share price has been on the decline (closed the week at N4.70), many market observers are of the opinion that this marks an opportunity to add the stock to their portfolios as many believe the stock 7

8 may be trading in the region of N5.50/N5.70 in not too distant future. Industry experts also point to the company s strategic alliance with Royal & Sunalliance Insurance Group UK (one of the world s largest insurance firms) as a additional strength towards improving performance and profitability. Law Union & Rock acts in capacity of network partner to Royal & Sunalliance Group and leverages on the Groups technical competence and benefits from its human capital expertise. Its Q results show a leap in PAT by 460% from N31m to N173m. The company presently has a network of 8 branches and has in place an enviable information communication technology system that connects all branches given it the ability to give superior insurance solutions and service delivery. The company also has a strong affiliation with Skye Bank Plc (a major shareholder in Law Union and Rock Plc). JAPAUL OIL & MARITIME SERVICES PLC : The company has witnessed tremendous turnover and price appreciation over the last six months. It has gone from N1.05 to reach an all time price high of N7.70 on June 12, 2007, representing a 600% price appreciation. The share price soared due to Japaul s audited results for the year ended 2006 which saw an 82% rise in PAT from N104m to N189.94m. Also released were the Q results which highlighted an impressive increase in profitability from N152.85m to N527.6m. This led to a rally for the company s shares. However after the closure of register for the N0.11k dividend declared, the stock started to dip in price as investors are taking profit. Many analysts rate the stock as a hold/buy. They are of the belief that the 8

9 company s share value will soar significantly before the year ending January 2008 and thus provide greater returns to shareholders. Japaul still remains the only quoted company in the maritime sector of the Exchange and is set to benefit from an increase in oil exploration due to signing of Oil Mining Licenses (OML) in deepwater offshore. The entry of many new firms into oil and gas exploration augurs well for the company as these companies will require barges such as those on offer by Japaul. The carbotage laws which put in place the carbotage shipping fund will enable the company acquire more shipping vessels which should translate into greater income and ultimately boost increase returns to shareholders. Market grapevine also has it that Japaul Oil would be coming to the capital market to raise N5bn.The authorized share capital of the company is set to increase from N600m to N1.6bn. The Offer is aimed at helping the company in its expansion programmes and will go a long way in helping to achieve its objective of being a major player in the maritime services market. Though the company has industry heavyweights such as Mobil and Shell as its clients, its present fleet of vessels is dwarfed in comparison to the industry total and Japaul s revenues are minute as the maritime and dredging industry in Nigeria is said to be a US$2b industry. We rate the stock a value stock for both speculators and long-term investors. We recommend the following stocks for investment decisions in the week ahead: BUY RECOMMENDATIONS 9

10 COMPANIES ENTRY PRICE (N) 1. WEST AFRICA PORTLAND CEMENT BENUE CEMENT COMPANY FLOURMILL INTERCONTINENTAL GTB UBA ZENITH BANK IBTC DIAMOND BANK UP JULIUS BERGER RT BRISCOE UN HOMES JAPAULOIL CRUSADER CORNERSTONE 4.10 SELL RECOMMENDATIONS COMPANIES CURRENT PRICE (N) 1. CADBURY NIGERIA PLC NIGERIAN BOTTLING COMPANY DUNLOP 4.11 Meristem Securities Limited weekly market sentiments and its attendant recommendations are prepared based on publicly available information and are meant for general informative purposes. Meristem Securities Limited can neither guarantee the accuracy or completeness of the information as they are an expression of our analysts views and opinions. Meristem Securities Limited cannot be held responsible for any loss suffered by relying on the said information as this information as earlier stated is based on estimates and opinions and is meant for general information purposes and not as solicitation to buy securities and financial instruments Meristem Securities Limited