Investment Guide for the Week

Transcription

1 September 04, 2015 Investment Guide for the Week Market sustains prior week s rally as NSEASI advances by 2.42 WoW 1

2 USD'bn Nigeria I Investment Guide I September 04, 2015 Market sustains prior week s rally as NSEASI advances by 2.42 WoW After three (3) consecutive weeks of negative week-on-week (WoW) returns, the equities market rebounded this week, following 3 trading days of gains. Although the NSEASI advanced by 2.42% WoW, this was not enough to push the index level above the 30,000pts mark, as it closed at 29,511pts. The extended rally from the last two trading days in the prior week, may be attributed to bargain hunting activities buoyed by the attractive prices at which most fundamentally justified stocks were trading in the course of the week. Volume traded and market capitalization appreciated by 18.94% and 17.92% respectively, just as 57 stocks increased in value against 21 price decliners. IKEJAHOTEL with a 26.57% price movement emerged the top gainer during the week, closing at NGN3.43 (vs. NGN2.71 in previous week). TRANSEXPR (+24.42%), STANBIC (+24.00%), OKOMUOIL (+21.17%) and UBA (+20.57%) also featured on the top gainers chart. On the flip side, NEIMETH, ETRANZACT, CONOIL, CADBURY and CWG declined the most in value during the week, after the stocks waned in value by 17.07%, 13.65%, 9.71%, 9.70% and 9.49% correspondingly. Following impressive top and bottom-line growths, UBA declared an interim dividend of NGN0.20/share, implying a dividend yield of 5.78% as at the date of declaration. GUINNESS, posted its FY2015 audited results, showing revenue growth of 8.51% YoY, while Earnings-After-Tax declined by 18.58% YoY to NGN7.79bn, down from 9.57bn in the corresponding period of Chart 1.1: Month-on-Month returns of the NSEASI in 2015 Chart 1.2: Trend of NSEASI, foreign Reserve, FX and BRENT 15.00% 10.00% 5.00% 0.00% -5.00% % 9.33% 5.45% 1.83% January February March April May June August -1.15% -2.49% -4.52% Foreign Reserves NGN/USD BRENT NSEASI % % % Source: NSE, Bloomberg, Meristem research 2

3 While we expect investors to react to news flows to the market, we are not optimistic that the bullish trend will be sustained in the coming week, as we anticipate that profit taking activities will dictate the market s direction. In this report, we review events in the economy, laying emphasis on the performance of different segments of the financial market, while presenting our expectation for the coming week. Fixed Income: Central Bank continues intervention The Nigerian Treasury Bills secondary market witnessed strong buy sentiments this week, with a large amount of interest aimed at the shorter-termed instruments. Consequently, average yields on T-bill instruments declined by 0.93% WoW to settle at 14.87%. Activities in the bond market were tempered with investors interest seemingly focused at the shorter end of the yield curve, consequently the average offer yields for both the Benchmark and Off-the-run bonds advanced by 0.15% and 0.07% accordingly, to close at 15.78% and 15.65% respectively. The relatively robust market liquidity ensured the preservation of the money market and interbank rates at low ranges, as the average rate for both instruments declined by 0.12% and 1.77% week-to-date, to close at 8.46% and 14.84% accordingly. The domestic currency recorded a week-to-date return of -0.36%, against the dollar to close at a mid-price of NGN on the last trading day of the week. During the week, there were two unsuccessful OMO auctions, as investors demanded higher yields to take positions. Also, the Central Bank auctioned Treasury Bills instruments worth NGN172.85bn, while instruments worth the same value matured. The current FX policy continues to limit funds availability in the system, while institutional investors continue to demand higher yields, which led to the failed OMO sales during the week. We anticipate continued demand for the shorter term instruments given the system liquidity and attractive yields, while we expect participation at the longer end of the curve to remain tempered in the build up to the Primary Market Auction (PMA), scheduled for the 16 th of September, Agric sector: YtD settles at 10.21% On the back of spirited trading activities in the week, the MERIAGRI index advanced by 7.84% to drive the Year-to-Date return to 10.21%. Two stocks gained while three stocks traded flat during the week. 3

4 OKOMUOIL led the outperformers in the week with a market price appreciation of 21.17% WoW to close at NGN LIVESTOCK (5.59%) also made the list of gainers while ELLAHLAKES, FTNCOCOA and PRESCO all traded flat. The positive sentiment on sector stocks in the week, comes on the heels of predominantly bearish trading session in the previous week, hence indicating a possible oscillatory pattern. We therefore advise investors to trade with caution in the coming week as profit taking may ensue. Banking sector: Price levels keep investors vested The performance of the banking sector was positive during the week, with our MERI- BNK index recording a progressive Week-on-Week performance. The index advanced by 10.63%, to peg the YtD return at %. There were 13 gainers and 1 decliner while UNITYBNK traded flat. The gainers were led by STANBIC, after the ticker recorded a price appreciation of 24.00% to peg at NGN The ticker was closely followed by UBA, DIAMONDBNK, and FCMB, which recorded respective gains of 20.57%, 17.82%, and 14.55% accordingly. Conversely, UBN was the sole decliner, paring in value by 3.02% to leave its trading price at NGN6.11 at the close of the week s trading. UBA released its H1:2015 result today, which showed that the bank recorded Yearon-Year Gross earnings, Profit-Before-Tax, and Profit-After-Tax growths of 20.78%, 35.14%, and 40.00% accordingly, to NGN166.94bn, NGN39.05bn, and NGN32.00bn respectively. Also, the bank announced an interim dividend of NGN0.20/share which implies a dividend yield of 5.78%, with closure and payment dates of September 11 th and 16 th respectively. The banking sector survived the profit-taking activities which depressed the general market mood in the week after the gains recorded on the first two trading days. We attribute this to the value inherent in the sector, given the current levels of prices. Heading into the coming week, we expect investors to continue to bid up the prices on the fundamentally justified stocks before interests of profit-takers become triggered. Consumer Goods: HONYFLOUR earnings down 38.74%YoY The component companies in the Consumer good basket of the Nigerian Equities market had a better showing during the week, to kick start the month of September with a month-to-date of -0.17%. The Consumer Goods and Conglomerate sectors recorded 3.44% and 10.34% week-to-date retirns as measured by our Meri- Consumer Goods and Meri-Conglomerate sector indices respectively. 4

5 VONO, PZ, NASCON, HONYFLOUR, UNILEVER and CHAMPION were the outperformers for the week, with respective gains of 17.78%, 15.38%, 11.72%, 11.59%, 10.25% and 10.02%. On the flip side, CADBURY, DANGSUGAR, NNFM and FLOURMILL recorded the highest price declines of 9.70%, 8.82%, 4.97% and 4.35% in that order. Honeywell Flour Mills Plc released its Q1:2016 result, which showed a 2.99% decline in revenue, 2.5% increase in gross profit and 12.79% decline in operating profit from prior period. Profit before and after tax for the period declined by 32.65% and 38.74% accordingly. Net margin consequently pegged lower at 2.21% (vs. 3.50% Q1:2015). PZ Cussons concluded a three year deal with Manchester City, in a bid to drive the company s Premier, Olympic and Robb products. It also provides the opportunity for loyal customers of the company to win VIP tickets and access to private training sessions. This may not be unconnected to the rally witnessed on the stock this week. We believe that the relatively attractive market prices at which some of the listed companies closed the previous week was responsible for the rally seen this week. Subsequently, we anticipate profit-taking in the coming week, due to lack of positive sector specific news to drive a more sustainable rally. Healthcare Sector: Bears on Recess The sector reversed previous week s bearish trend as it advanced by 1.40% WoW as measured by MERI-HLTH, thus pegging the YtD return at %. Sector breadth skewed in favour of advancers as four (4) stocks advanced against a lone decliner. Other counters traded flat. EVANSMED reversed part of the previously week s price decline, advancing by 4.92% WoW, trailed by MAYBAKER, GLAXOSMITH and FIDSON which recorded price appreciations of 2.44%, 1.45% and 0.63% to settle prices at NGN1.26, NGN35.00 and NGN3.20 correspondingly. Conversely, NEIMETH continued to shed points during the week, declining by 17.07% to emerge the only price loser for the week. We attribute the positive sentiment witnessed on sector stocks this week to bargain hunting on relatively low stock prices following weeks of bearish run. We advise investor to trade with caution, especially in stocks with weak fundamentals. Industrial goods: DANGCEM dampens sector mood Measuring with our Meri-Industrial sector index, the Industrial goods sector closed 3.03% down at the end of the week, despite four stocks closing in the positive zone. 5

6 The decline recorded in the index was largely as a result of DANGCEM s poor outing, as the stock s value depreciated by 3.47% WoW. CCNN also closed the week down at NGN8.43 due to the 3.44% price decline recorded during the review period. In a change of fortune from last week s pattern, CUTIX emerged as the top gainer for the week having appreciated by 14.81% WoW to NGN Other gainers were BERGER, PORTPAINT and ASHAKACEM with respective gains of 8.51%, 5.00% and 1.82%. During the week, Dangote Cement announced a NGN300 cut in cement price, as well as capacity expansions plans totaling 26.5Mtpa across Africa over the next 30months. We believe the company s new pricing strategy is necessary, considering the recent slowdown in demand following modest economic growth and reduced infrastructural development drive by the government. We also opine that the continued expansions into other parts of Africa will aid revenue and risk diversification, away from Nigeria. While we expect initial negative market reactions following the price reduction announcement, our long term outlook for the stock remains positive. Insurance sector: NAICOM signs MOU with Anglophone countries MANSARD attracted the most investor interest in the sector during the week, as the counter almost reversed prior week s losses of 10.50%, after advancing by 10.05% to close at NGN2.41. MANSARD s performance alongside the 3.70% and 3.13% Weekon-Week (WoW) gains recorded by AIICO and NEM positioned the sector s WoW return index in the green zone, given that all other counters traded flat in the week. Measuring the sector s performance by the NSEINS10 index, the sector gained 2.89% WoW to peg the year to date return at %. However, considering the current market outlook, we believe the sector s performance in the coming week will be largely determined by speculative and bargain hunting activities. During the week, the Nigerian Insurance Commission (NAICOM) signed a Memorandum of Understanding (MOU) with some Anglophone countries, in order to strengthen the cross border insurance supervision in West African Countries. According to Mr. Mohammed Kari Nigerian Commissioner for Insurance - the MOU underlines NAICOM s goal to build effective working relationships with regulators in the West African region and beyond. We believe this should augur well for the insurance sector and further boost insurance penetration in Nigeria and other West African countries. 6

7 Oil & Gas Sector: Sector sheds 2.22% WtD Activities within the sector were tempered, as the NSEOILG5 index pared by 2.22% WtD. There were two (2) advancers and four (4) decliners in the week, while other counters traded flat. OANDO and ETERNA featured on the gainers list, appreciating by 13.35%, and 2.86% WoW to close at NGN11.55 and NGN1.80 respectively. On the flip side, CONOIL led the laggards, shedding 9.71% to settle at NGN Other decliners in the week were; SEPLAT (-7.63%), FO (-5.96%), and TOTAL (-0.98%). During the week, Conoil Plc s management announced the intention to convene its 45 th Annual General Meeting on Friday 23 rd October 2015, with the day s agenda being presentation of the 2014 audited accounts and proposal for the payment of dividends to shareholders in the register at close of business 25 th September, We opine that market anticipation of the dividend payment by Conoil Plc. will result in a rally on the stock in the coming weeks, however we expect positive trading activities on sector stocks to remain moderate. Services sector IKEJAHOTEL tops with 26.57% WoW The MERISERV INDEX peaked on the second trading day of the week, having returned 3.05%. Profit taking activities however ensued on the last three trading days to drag overall WoW gain to 1.43%. The sectoral breadth (4.00x) was strongly in favor of the advancers, as 8 stocks advanced against 2 stock that waned in value, while others traded flat. IKEJAHOTEL was the week s strongest performer having closed the week at NGN3.43, following a 26.57% WoW growth in share price. The counter was closely followed by TRANSEXPR which rose by 24.42% WoW. Other gainers were NAHCO (4.71%), CAVERTON (4.68%), AIRSERVICE (4.62%), LEARNAFRCA (4.40%), RTBRISCOE (1.89%), and UPL which gained marginally by 0.39%. The underperformers were, ACADEMY and ABCTRANS which fell by 4.11% and 1.85% WoW respectively. In the coming week, we expect profit taking on most stocks that recorded price gains this week. Hence, we advise investors to trade with caution. 7

8 Top 10 Outperformers Ticker Current valuation metrics and statistics WTD Return YtD Return Price (NGN) MCap [NGN'bn] P/E -TTM P/BV RoE Dividend Yield IKEJAHOTEL 26.57% -7.30% x 0.29 x 5.57% 0.00% TRANSEXPR 24.42% % x 0.89 x 20.27% 9.35% STANBIC 24.00% % x 2.67 x 14.15% 0.65% OKOMUOIL 21.17% -6.31% x 1.33 x 2.84% 1.05% UBA 20.57% % x 0.99 x 9.57% 2.62% DIAMONDBNK 17.82% % x 0.60 x 9.28% 2.80% VONO 17.78% 0.00% x 0.65 x -0.68% 0.00% TRANSCORP 15.64% % x 4.16 x 11.95% 0.00% PZ 15.38% 6.22% x 2.99 x 8.33% 0.79% CUTIX 14.81% 19.23% x 1.42 x 17.79% 7.74% Top 10 Underperformers Ticker Current valuation metrics and statistics WTD Return YtD Return Price (NGN) MCap [NGN'bn] P/E -TTM P/BV RoE Dividend Yield NEIMETH % 30.77% x 0.74 x -0.72% 0.00% ETRANZACT % % x 3.47 x 1.20% 2.14% CONOIL -9.71% % x 2.16 x 12.24% 0.00% CADBURY -9.70% % x 2.87 x 25.10% 2.52% CWG -9.49% % x 2.50 x 0.20% 0.75% DANGSUGAR -8.82% 4.25% x 2.22 x 14.59% 6.04% SEPLAT -7.63% % % FO -5.96% 3.11% x 5.74 x 11.82% 1.06% BETAGLAS -5.00% 47.05% x 0.71 x 7.45% 1.52% NNFM -4.97% % x 2.33 x 7.38% 3.02% 8

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