The Nigerian equities market opened the week on a positive note following the week-on-week (WoW) marginal loss of 0.06 percent in the preceding week. NSE All Share Index (NSE-ASI) returned 1.21 percent for the week as investors’ positive sentiments for stocks seem to have rebounded.
There are feelers from the market that foreign investors and local fund managers, particularly the PFAs, appear to be reconsidering their apathy for local equities, finding their way back into the market.
Banking Sector: On the path to recovery
The banking sector has witnessed a very good week with 12 out of the 15 traded banks returning positive to bring the sector’s return to -8.92 percent. The NSE brought to light that South African Institutional Investors and local Pension Fund Administrators (PFAs) have been active in the Equity market, which explains the upsurge witnessed in the banking index.
“FCMB” gained significantly this week, appreciating by 16.22 percent with YtD return of 16.35 percent, followed closely by “ETI” that appreciated by 7.69 percent. Though there was no significant news in the week concerning these companies, we opine that the increased interest in the banking sector would have brought both companies’ good 2014Q1 results to the fore, and may explain their current price appreciations.
“Skye Bank” suffered the most significant loss in the basket this week (-5.46%), being the highest gainer in the previous week (6.40%). This in our view implies investors participated in profit-taking this week on the ticker.
As investors come to terms with a banking industry without the enormous profit growth (as has been played out in prior years) but with better regulations and controls, confidence in the sector is returning and we expect the market to price these tickers appropriately in the near term.
Insurance Sector: Returned negative week-to-date
Insurance sector did not benefit from the positive market mood during the week as the sector shed 2.01 percent WoW, largely dragged by Custodian and Allied plc that recorded a significant loss of -12.97 percent WoW on the back of the activities of profit-takers after the stock returned a significant 20.58 percent WoW in the preceding trading week.
Mansard received the favour of investors during the week as the counter closed in the green zone returning a marginal +0.43 percent (after initial negative reactions that trailed the decline in its Q1:2014 earnings).
Our outlook for the insurance counters in the coming week remains positive as we expect Custodian and Allied plc to rebound from the week’s sell down, while we see sound fundamentals favouring counters like Mansard, AIICO, NEM and Continental Reinsurance.
Industrial Goods Sector: Bearish mood persists
Recent positive sentiments on the Industrial Goods sector waned slightly during the week as the sector shed 0.24 percent WoW to drag YtD return to 1.15 percent, as measured by our MERI-IND index.
The Cement segment of the sector witnessed mixed investor sentiment in the week following the release of Q1:2014 results. WAPCO continued to benefit from a remarkable first quarter result as it gained 2.27 percent in the week. CCNN on the other hand, traded flat while Dangote Cement and AshakaCem lost 0.45 percent and 1.94 percent, respectively, as against -0.88 percent and 10.51 percent in the previous week.
Negative sentiments on AshakaCem and Dangote Cement can be attributed to profit-taking by investors. Regardless of the downward trend in the basket, the stocks still remain part of our top picks as we believe they portend value for medium- to long-term investors.
Consumer Goods Sector
Food and beverage remains serene
The food and beverage sector stocks remained calm throughout the week with no major swing in prices as sentiments on major counters swung marginally sideways. While Dangote Flour, Union Dicon and NNFM traded flat, 7UP gyrated around the positive territory even as negative sentiments on Flourmill (-1.45%) prevailed in the week.
In anticipation of the full-year result for NASCON, the stock continued the positive momentum in the week returning 6.83 percent WoW, though our expectation for the company’s full-year result is modest.
Brewery stocks sentiments favour NB
Sentiments on brewing stocks swung towards Nigerian Breweries plc (NB) in the week following the announcement of the proposed merger with Consolidation Breweries plc (CB) on Monday.
Prior to now, both entities operate as subsidiaries of Heineken Global (54% stake each), the third largest beer maker in the world. Post merge, both entities are to exist as NB with a wider product portfolio in both the premium (NB) and discount (CB) segment of the market; hence, to control over 70 percent of beer market share (NB currently control over 60%, while CB has 10%).
We see this as a welcomed development given that it would engender cross breeding of the strengths of the two entities and help improve efficiency of the brewing and operational process of NB going forward.
Agric Sector: Negative mood may upturn soon
Technical Indicators on the stocks suggest that Presco and Okomu Oil are oversold and may rebound. We believe this is more likely going to be the case for Presco given the growth recorded in Q1:2014 (Revenue: 5.14%, PAT: 0.88%). However, our fair value estimate for the stock is N35.18, which is at par with the current price of N35.10. Barring any news that will significantly affect trade in Okomu Oil and Livestock, we expect the stocks to continue to trade around their current levels.
Oil and Gas: Forte Oil added to MSCI frontier index
Forte Oil (FO) was added to the list of companies that make up the MSCI-frontier market index in the week joining the likes of Seplat. This recognition further solidifies FO’s continued effort of becoming an industry leader in the Nigerian oil and gas space. The stock gained 4.67 percent for the week to close at N155.95.
Newly listed Seplat felt the impact of oil theft in the Niger-Delta region as the company was forced to shut down its operations for 36 days. Attributed to leakages at the Trans–Forcados loading terminal, the impact of the shutdown is expected to reflect in the company’s Q1 result. To forestall future occurrence, the company is in the process of completing a 10km pipeline to the NNPC refinery in Warri. Other moves include a crude oil swap with NNPC who is also having issues with its 67km pipeline to the aforementioned refinery. The counter shed 6.20 percent for the week to close at N640.00.
Healthcare Sector: Positive outlook hinges on low prices
The negative sentiment we saw the previous week in the healthcare sector took a breather this week as Fidson and May & Baker drove the sector by gaining 8.47 percent and 7.06 percent WoW, respectively.
The positive sentiment on Fidson and May & Baker can be attributed to their low prices in the previous weeks following the release of their unattractive FY2013 result and poor corporate action to the market.
GlaxoSmith shed 2.43 percent, resulting in a sectoral WoW loss of 4.20 percent. The negative sentiment on GlaxoSmith Nigeria may not be unconnected with the news about GSK’s China bribery scandal and its implication on the global brand.
We expect the activities of the speculators to continue on the stocks in the coming week pending when uncertainties and the future of the sector can be ascertained.
