The NSE All Share Index closed 0.49 percent down for the week, as the market traded positive on one out of five trading days. Market breadth, however, skewed in favour of the gainers, pegging at 1.15x, as 34 stocks declined while 39 stocks advanced. Volume and value of transactions advanced by 81.18 percent and 11.26 percent in that order.
Top gainers for the week were VONO, NEM, SKYEBANK, MAYBAKER, and AIRSERVICE, after each stock recorded price appreciations of 29.79 percent, 29.41 percent, 18.43 percent, 16.25 percent, and 16.11 percent correspondingly. On the flip side, VITAFOAM led the decliners after paring by 22.41 percent, to peg its price at N4.95. RTBRISCOE, DANGFLOUR, NAHCO, and NCR, followed suit, shedding 13.04 percent, 12.28 percent, 10.59 percent, and 9.60 percent, respectively.
On May 19, the Monetary Policy Committee (MPC) decided amongs other things to harmonise the Cash Reserve Ratio (CRR) on all Deposit Money Bank’s (DMBs) deposits at 31 percent, from 75 percent and 20 percent on public and private sector funds, respectively. The net CRR debit of N160.71 billion on Thursday, shows that the decision did more harm than good to the prevailing system liquidity, given the public-private sector deposit composition, which is at odds with the general market belief.
We attribute the recent lull in the market to the lack of market-driving news capable of spurring investor activities. However, we remain positive in our outlook for the coming week, as the new government gears up to take office.
In this report, we review events in the economy, laying emphasis on performance of different segments of the financial market, while presenting our expectations for the week ahead.
Economic update: MPR stays at 13%
The MPC meeting held on May 18 and 19, 2015, came with a collage of expectations, and a surprise, as the Committee maintained MPR at 13 percent and liquidity ratio at 30 percent, while CRR which was hitherto 75 percent on public deposits and 20 percent on private deposits, were harmonised to 31 percent.
Data from the Central Bank of Nigeria shows that the nation’s foreign reserves rose marginally by 1.05 percent Month-on-Month to $29.80 billion, from $29.49 billion in April 2015. We presume that the recent stability in foreign reserves was largely as a result of the new FX trading system instituted following the shutdown of the official FX trading window (RDAS). While the mild resurgence seen in the global crude oil prices in recent times, as Brent crude touched year-high of $67.77 last week, may also be partly responsible.
Fuel crisis worsened during the week, as Nigerians continued to feel the pang of scarce fuel resources. We expect the resultant impact of this situation to markedly affect the cost of transportation, and prices of goods and services in the near term, until the situation is resolved.
While the impact of the increased CRR varies depending on the exposure of specific banks to public/private sector deposits, the most recent public: private sector deposit mix (27:73), suggests that the general impact of the policy may not be positive for banks.
We note that the harmonisation, which the MPC intends to use to “curb abuses of, and improve the efficacy of monetary policy,” might result in higher-than-anticipated drags in interest income for banks which may have been involved in the said abuses. The consequent impact of this would be a drag in liquidity and eventual spikes in money market rates.
Fixed Income: Bearish sentiments overshadow fixed income space
Financial system liquidity figures showed an increase of 146.66 percent Week on Week (WoW) to settle at N407.60 billion, despite the N160.71 billion debit recorded at the end of the week (Friday 22). This may be ascribed to the Open Market Operation (OMO) maturities worth N191.56 billion, and maturing Treasury Bills worth N110.94 billion which hit the system in the week.
Treasury Bills yields increased WoW by 0.32 percent across tenors, with the yields on 1M, 2M, 3M, 6M, 9M, and 12M Bills pegging at 13.65 percent, 13.88 percent, 14.05 percent, 14.36 percent, 14.77 percent, and 14.86 percent in that order. T-Bills worth N110.94 billion were auctioned at the Primary Market Auction (PMA) held during the week for the 91-day (N32.44bn), 182-day (N22.82bn), and 364-day (N55.68bn) tenors, with their respective stop rates settling at 9.95 percent, 12.75 percent, and 13.00 percent.
The Meri-Bond index level pegged at 789.73 (-0.15%), as sentiments in the bond market were seemingly bearish for the week, with the average yield on FGN bonds closing at 14.57 percent (+0.01%). We note that the harmonisation of the Credit Reserve Ratio (CRR) may consequently result in reduced participation by some banks in the fixed income market, which may affect yields upwards.
The naira remained resilient during the week, appreciating by 0.31 percent against the dollar to peg mid-price at N197.06/USD.
Agric Sector: OKOMUOIL takes a leap, with a 6.40% gain
MERI AGRI index ended the week with a +4.21 percent WtD return, to drive the YtD return to +22.27 percent. Three stocks closed in the green zone, with no stock shedding points. FTNCOCOA and ELLAHLAKES closed flat.
OKOMUOIL led the gainers’ chart with a 6.40 percent gain to close at N30.26, reversing the previous week’s negative return. The ticker was trailed by PRESCO, which sustained its positive momentum, advancing by 2.30 percent to close at N30.69. LIVESTOCK also inched higher by 0.83 percent.
The sector appears to have been the toast of investors recently, however, we anticipate that the sector might witness a degree of profit taking next week, following weeks of gains. Thus, we advise investors to tread the path of caution.
Banking Sector: SKYEBANK leads with an 18.43% gain
The banking sector ended the week with a breadth of 2.25x, as nine stocks appreciated against four stocks, while STANBIC and UBN traded flat. In spite of this development, the MERI-BANK index showed a decline of 0.22 percent for the week. The top gainer was SKYEBANK, with a gain of 18.43 percent, which can be attributed to the bank’s Q1:2015 result. Other top gainers were UNITYBNK (5.83%), FCMB (4.67%), DIAMONDBNK (2.75%) and ACCESS (1.78%). The largest decliners for the week, on the other hand, included WEMABANK with a WtD loss of 3.03 percent, GUARANTY (-1.36%), UBA (1.35%) and STERLNBANK (-0.93%).
Skye Bank’s Q1:2015 result showed growths of 23.44 percent and 81.13 percent in gross earnings and profit-after-tax in that order. Similar to other banking results in the same period, the growth in income was supported by the 12.63 percent and 63.95 percent growths in interest and non-interest income, respectively.
The MPC’s harmonisation of CRR on all funds had a resultant effect of dragging liquidity, contrary to the widely speculated positive impact on liquidity. The implication of the squeeze in liquidity in the short-term is a rise in money market rates, while some banks may also require sell-downs on their investment securities, consequently dragging interest income growth.
There might be a further decline in banking sector returns in the coming week, as more investors price the effects of the new policy. We therefore advise investors, especially those with short-term horizons, to be cautious.
Consumer Goods: VITAFOAM records -22.41% WoW
The sector experienced mixed sentiments during the just concluded week, however, the Conglomerates and Consumer goods sector indices recorded WoW returns of -2.45 percent and -0.27 percent, respectively. The price ofVITAFOAMdeclined by 22.41 percent during the week, owing to a combination of the dividend mark-down, as well as a level of proft-taking following gainsaccumulated sincethe announcement of the company’s corporate action.
VONO closed the week as the highest gainer for the week, with an impressive WoW return of 29.79 percent. 7UP, UACN, HONYFLOUR, NASCON, and GUINNESS also joined the gainers’ table with 1.14 percent, 3.00 percent, 3.75 percent, 0.63 percent and 0.46 percent respective returns.
The decliners’ chart for the week had VITAFOAM,witha 22.41 percent loss, at the top. The stock was trailed by DANGFLOUR (-12.28%), AGLEVENT (-4.94%), CHAMPION (-4.37%), DANGSUGAR (-2.88%), NESTLE (-2.11%), PZ (-1.17%),NB (-1.22%), FLOURMILL (-0.14%) and UNILEVER (-0.07%), accordingly.
We do not anticipate any sector-specific news to drive the market in the coming week. However, we advise investors to take position in fundamentally justified stocks while balancing optimism with caution.
Healthcare Sector: Sector reverses prior week’s drab mood
The Healthcare sector closed positive for the week, with the Meri-HLTH index appreciating by 4.02 percent WtD to peg YtD return at 14.58 percent. Four stocks recorded positive returns while two stocks depreciated in value.
MAYBAKER emerged as the highest gainer for the week, fully reversing the previous week’s loss with a 16.25 percent growth in share price to N1.86. FIDSON and NEIMETH consolidated on the gains in the previous week, advancing by 12.19 percent and 9.09 percent to N3.44 and N1.20, respectively. PHARMADEKO also joined the gainers’ league with a 4.69 percent price appreciation during the week. EVANSMED and GLAXOSMITH, on the flip side, pared by 9.05 percent and 0.45 percent, respectively.
In the coming week, we expect some pockets of profit-taking on some counters that recorded price appreciation in the week. Thus, we advise investors to tread cautiously.
Insurance Sector: NEM releases impressive scorecards
The negative market sentiment barely affected insurance stocks, as the NSE INS10 surged by 0.99 percent WtD to settle the YtD return at -0.86 percent. Market breadth (1.00x) was neutral, as two stocks advanced and declined apiece.
NEM, with a 29.41 percent appreciation in value, emerged as the top gainer during the week, alongside CONTINSURE which gained 2.02 percent. On the flip side, profit-taking on CUSTODYINS resulted in a 4.08 percent loss, making the stock the top underperformer in the sector for the week. The ticker was trailed by WAPIC, which recorded a 1.85 percent loss, while all other counters traded flat.
NEM Insurance released its 2014FY and Q1:2015 financial results during the week. Gross Premium Earned (GPE) in both periods grew by 25.45 percent and 11.96 percent YoY to settle at N9.77 billion and N2.38 billion (vs. N7.79bn and N2.12bn), respectively. Earnings after tax (EAT) also surged significantly by 286 percent and 252 percent in 2014FY and Q1:2015, accordingly. The impressive financial performance resulted in a significant rally on the counter, which spurred a 29.41 percent growth in price to N0.88 (vs. N0.68 in the previous week).
Industrial Goods: Large cap stocks drag sector’s index
The industrial goods sector failed to sustain the marginal gains from last week, as the Meri-industrial index dipped by 0.89 percent. However, the sector’s MtD return remained in the positive zone, at 9.15 percent. Two stocks closed the week in the positive zone, while four stocks depreciated in value.
ASHAKACEM was the sector’s top performer for the week, gaining 5.03 percent to close at N21.50. PAINTCOM, the other top performer, appreciated by 4.72 percent WoW. PORTPAINT, CAP, WAPCO and DANGCEM all featured at the bottom of the sector’s returns table, after recording price declines of 4.67 percent, 3.49 percent, 2.16 percent and 0.42 percent, accordingly.
We expect continued oscillatory movements in sector returns in the coming weeks owing to the general mood in the market.
Oil & Gas Sector: Sector returns -1.93% WoW
Four stocks recorded gains in the week to bring the sector’s return, as measured by the NSEOILG5, to -1.93 percent. Three stocks declined in value, while others traded flat.
CONOIL led the advancers with a gain of 4.98 percent, trailed by ETERNA, FO, and MOBIL, which gained 3.70 percent, 2.64 percent, and 1.78 percent correspondingly. On the flip side, SEPLAT, TOTAL, and OANDO declined by 9.56 percent, 2.65 percent, and 0.56 percent, respectively.
Advancement of the Islamic State of Iraq and Syria (ISIS) forces into the strategic city of Ramadi in Western Iraq, among other challenges, resulted in a dip in the price of BRENT crude to $65.65pb (-1.74% WoW). This, was consequent upon the fact that the city is located not far from the oil producing town of Baiji. On the local front, petroleum products remained relatively scarce, as the oil marketers’ claims of being owed N200 billion has been refuted over and again by Ngozi Okonjo-Iweala, coordinating minister of the economy.
Having traded as we have expected, we note the sector might trade relatively flat in the coming week, as investors await the entry of the new government.
Services Sector: AIRSERVICE gains 16.11%
Four stocks in the services sector gained, while five stocks waned, to skew the sectoral breadth (0.80x) towards the decliners. Consequently, the MERI SER index moved into the negative zone for the week, with a WtD return of -3.19 percent, dragging the YtD return to 1.11 percent.
AIRSERVICE led the gainers’ chart with a 16.11 percent price appreciation to close at N2.45.The ticker was joined on the gainers’ chart byTRANSEXPR (8.49%), ABCTRANS (7.14%), and IKEJAHOTEL (2.90%).
Conversely, the losers’ list consisted of RTBRISCOE (-13.04%), NAHCO (-10.59%), CAVERTON (-5.14%), REDSTAREX (-2.44%), and UPL (-0.50%).
We believe that the lack of specific news flows resulted in the inactive state of the services sector. We opine that any positive news flow will spike the much needed push to drive the services sector in the positive realm next week.
United Capital: Post MPC flash note
