Last week was quite positive for the market, in stark contrast to the direction of activities in the year so far, as the NSEASI returned positive on three (3) of five (5) trading days. Consequently the NSEASI returned 0.53% WoW to peg the YtD return of the market at -13.24%.
There were thirty-six (36) gainers and thirty-two (32) decliners to peg the market’s breadth at 1.13x. TIGERBRANDS led the gainers, after recording a +20.87% appreciation in price to NGN2.78. The ticker was closely followed by ETERNA, TRANSEXPR, LEARNAFRCA, and FCMB, after the tickers recorded respective gains of 20.37%, 14.14%, 12.50%, and 11.96%. On the flip side, LAWUNION (-18.03%), FIDELITYBK (-13.57%), UNHOMES (-9.58%), AIRSERVICE (-9.50%), and OKOMUOIL (-9.38%) populated the decliners’ list.
Also, Q1:2016 earnings season commenced during the week in review, with fifteen (15) companies releasing numbers. Some of the companies which released their Q1 numbers last week included: CAP, GUARANTY, NB, UBA, and ZENITHBANK, while GUINNESS released 9M2016 numbers. Reviews of the results have been captured in respective sections to which these companies belong.
MSCI recently declared, that on or before the 29th of April, 2016, an announcement would be made regarding its decision on the ‘treatment of MSCI Nigeria Indexes and other related indexes. It was noted that restrictions on foreign currency trading and deterioration in FX market liquidity, which have adversely impacted capital flows and market accessibility, were the primary reasons for the review of Nigeria’s position within the index. This could potentially see Nigeria reclassified to Standalone Market status
While there is most definitely a possibility of exclusion of Nigeria from this index, the market was resurgent last week, shrugging off fears of an exclusion, with significant gains recorded at midweek (+0.51%), and on the penultimate trading day of the week (+0.50%). While there is a possibility of a ‘potential mitigation plan’ from the CBN, considering that the value of funds tracking the index is equivalent to 37% of the nation’s foreign reserve, and 24% of the equities market capitalisation, we highlight that no such plan was introduced following announcements by JPMorgan and Barclays regarding exclusions from their respective institutions bond indexes.
Hence, in line with the recommendation in our report released on the 12th of April, 2016 regarding this subject matter, we still advise that our clients reduce their exposure to stocks which make up the index.
This report reviews events last week, with emphasis on different segments of the financial market, while presenting our expectations for this week.
Fixed Income: Yields Rise Across Instruments
Inter-bank market rates trended northwards during the week, after NIBOR advanced by 0.97% on the average, to settle at 9.92% at the week’s end. A similar trend was witnessed in the money market space, as OBB and OVN rates climbed by 0.50% each, to peg the average MM rate at 4.75%. We opine that this may be related to thinning system liquidity given the increase in OMO auctions, and the Primary Market T-Bills Auction (for instruments worth NGN167.51bn) held during the week.
Treasury bills yields advanced by 0.64% WoW, to peg the average yield at 8.14%. This increase in yields may be tied to market participants revising expectations given the spike in stop rates at the Primary Market Auction (PMA) held during the week. The stop rates for the 91-day, 182-day, and 364-day bills at the PMA were at 7.88%, 8.99%, and 10.25% respectively.
Similarly, Treasury bonds yields trended northwards across instruments, resulting in the average bond yield advancing by 0.47% WoW, to peg at 12.08%. We anticipate that this hike in yields may be due to the significant climb in the inflation figure for March to 12.80%, and allusions by the CBN Governor, Godwin Emefiele, that this could consequently lead to a further upward revision in the Monetary Policy Rate (MPR).
The Naira weakened against the US Dollar in the week, depreciating by 0.23% WoW, to peg the mid-price at NGN199.29/USD at the end of the week. The local currency also stood steady at the parallel market, sustaining a mid-rate of NGN323/USD.
Agric. Sector: Snaps Two Week Gaining Streak
The Agric sector was further pressured in the week (MERI-AGRI index pared by 4.31% WoW), to snap a 2 week gaining streak. Consequently, the YtD return of the index pared to +1.22%.
There were two (2) decliners and no advancers. The decliners were OKOMUOIL and LIVESTOCK, after the tickers declined by 9.38% and 5.21% respectively.
The long term prospects of the sector remain good, as we expect medium term performances to be driven by continued focus on the sector by the government. Hence, we advise investors with long term horizons to consider the sector for investment.
Banking Sector: Q1:2016 Results Begin to Flow In
The banking sector finished the week strong, after appreciating by 3.84%, to mark a 2ndconsecutive week of gains. Consequently, the index return pegged at –15.76% WoW.
There were nine (9) gainers and five (5) decliners to peg the sector’s breadth at 1.80x. FCMB led the gainers, after appreciating in value by 11.96%, to peg its trading price at NGN1.03. The ticker was followed by DIAMONDBNK, ZENITHBANK, ETI, and STANBIC which recorded respective price appreciations of 8.46%, 6.11%, 5.98%, and 4.76%. On the other side, the decliners list was populated by FIDELITYBK (-13.57%), STERLNBNK (-3.85%), SKYEBANK (-1.03%), UBN (-0.42%), and FBNH (-0.30%).
There was a steady influx of results during the week, with GUARANTY, UBA, UBN, and ZENITHBANK releasing Q1:2016 numbers. While the results were fair, a noticeable unifying theme emerged across the banks listed here (save for GUARANTY); declines in Gross Earnings. This was expected, given the relatively weaker income generation from non-funded sources, while interest income growth has been tethered by prudent risk asset growth.
GUARANTY recorded an 8.5% growth in Gross Earnings, while Profit-Before-Tax and Profit-After-Tax declined by 6.1% and 3.6% YoY accordingly.UBA recorded declines in Gross Earnings and Profit-Before-Tax of 10.8%, and 1.7% YoY accordingly, while Profit-After-Tax advanced marginally by 0.2% YoY. Similarly, UBN recorded a marginal 3 basis points decline in Gross earnings, while PBT and PAT advanced by 101.2% and 104.6% YoY respectively.
Finally, ZENITHBANK recorded declines in Gross Earnings, Profit-Before-Tax and Profit-After-Tax of 12.3%, 3.0%, and 4.0% accordingly.
Consumer Goods: TIGERBRANDS Leads Advancers
The Consumer Goods sector, as measured by the NSEFBT10 index, returned -0.83% WoW, to push the Year-to-Date return to -21.43%. The sector’s breadth pegged at 0.75x; indicating six (6) advancers and eight (8) decliners for the week. The advancers for the week were led by TIGERBRANDS and DANGSUGAR, after the respective tickers advanced by 20.87% and 9.90% WoW. On the flip side, CHAMPION and PREMBREW declined the most, after the tickers recorded WoW returns of -9.35% and -4.75% accordingly.
There were Q1:2016 results inflows during the week, which were largely positive, as many of the released results showed growths in Revenue and Earnings.
Unilever Plc. (UNILEVER) recorded growths in Revenue, Profit-Before-Tax (PBT) and Profit-After-Tax (PAT) of 12.55%, 64.13% and 76.38% YoY accordingly.
Also, Dangote Sugar Refinery Plc. (DANGSUGAR)posted an impressive 3M2016performance in the period, after recording a 44.82% YoY growth in Revenue, with PBT and PAT also advancing significantly by 34.62% and 40.63% YoY.
Champion Breweries Plc.’s (CHAMPION) 3M2016 result showed a 15.17% YoY growth in Revenue, while PBT (+508.83% YoY) and PAT (520.74% YoY) grew at exponentially faster paces. Similarly, Nigerian Breweries Plc. (NB) 3M2016 scorecard showed that the Company recorded a 10.92% YoY increase in revenue, while PBT and PAT also advanced by 3.94% and 3.49% YoY accordingly, as trickle-down to the bottom-line was decimated by the 49.58% YoY hike in finance charges.
Contrarily, Guinness Plc.’s (GUINNESS)9M2016 scorecard revealed a revenue decline of 17.85% YoY, while PBT and PAT declined by 83.12% and 83.43% YoY respectively to NGN1.204bn and NGN0.864bn.
During the week also, news inflow from the Management of Tiger Branded Consumer Goods indicated that changes made by the previous management of the Company were to be revised. The most notable of which include: reverting the Company’s name back to Dangote Flour Mills Plc., and a return to a January-December financial calendar year.
We are not optimistic of an uptick in the sector’s performance despite the impressive first quarter scorecards released. However, we opine that the largely positive results may start a shift in perception regarding the sector.
Health Sector: Sector Breadth Settles at 0.50x
After a relatively quiet week, the sector closed marginally negative (-0.02% WoW), as measured by our MERI-HLTH index. Furthermore, sector breadth for the week settled at 0.50x, reflecting a lone advancer compared to two (2) decliners.
MAYBAKER (-6.67% WoW) and MORISON (-4.62% WoW) were the decliners, closing at NGN0.84 and NGN1.65 for the week. Contrarily, FIDSON was the only advancer, after gaining 2.38% to peg at NGN2.15.
Activities in the sector remained relatively calm, and are expected to remain so over the coming weeks given a dearth of sector specific news flows to spur buy-side activities on the sector’s stocks.
Industrial goods: Sector Enjoys Mild Rally
Overall, the industrial goods sector witnessed mild trading sentiments, as the Meri-Industrial index closed the week relatively flat at +0.02%. Two (2) stocks apiece recorded price gains and losses during the week ended, while others closed the week flat.
BERGER rebounded from previous week’s decline to emerge as the highest gainer for the week. The stock closed trading at NGN9.30; which represents a 9.15% appreciation from last week’s closing price. CCNN also recovered mildly from strong negative sentiments since the release of it FY2015 result, as the ticker appreciated by 1.00% to NGN7.10.
PORTPAINT reversed last week’s gain following a 9.03% decline in share price. CUTIX continued to suffer sell sentiments, which pushed stock value down by 8.33% to NGN1.32.
Chemical and Allied Products Plc (CAP) recently released its 3M2016 result which showed a 2.22% growth in Revenue and 13.21% decline in Profit after Tax (PAT). We traced the decline in PAT, despite higher revenue levels, to reduced cost efficiency following higher growths in production (13.21%) and Operating (2.94%) costs.
Investor participation in the equities market has remained pressured this year owing to persistent negative economic news inflows. We do not anticipate a significant change in market mood, and as such do not expect the mild sector rally recorded this week to be sustained.
Insurance Sector: Records Positive Showing, as NSEINS10 Climbs
The positivity witnessed in the general equities market also impacted the insurance sector during the week. The sector’s performance, as measured by the NSEINS10 Index, showed a 2.59% WoW appreciation, to peg the YtD return at -6.70%. Sector breadth (2.00x) also skewed in favour of advancers (4) as against decliners (2).
MANSARD led the gainers this week after the counter advanced by 10.29% WoW to close at NGN2.25. The counter was trailed by AIICO, NEM and CONTINSURE, after the tickers advanced by 8.33%, 3.90% and 0.99% respectively. Conversely, LAWUNION and CUSTODYINS populated the laggards’ chart, after the respective counters pared by 18.03% and 2.56% to settle at NGN0.50 and NGN3.80 accordingly.
International Energy Insurance released its FY2014 financial scorecard, which showed a 3.63% YoY increase in Gross Premium Written, while the Company recorded a Loss-After-Tax of NGN2.16bn.
We expect the sector’s performance in the coming week to be further determined by reactions to earnings releases, amidst speculative and bargain hunting activities.
Oil & Gas Sector: Sector Breadth Reflects Negative WoW Performance
The sector finished the week down, as the NSEOILG5 index trimmed by 0.73% WoW. Also, the sector breadth pegged at 0.75x, with four (4) decliners, as against three (3) advancers.
Bargain hunting activities on ETERNA, which was witnessed on the last trading day of the prior week, persisted into this week, as the counter advanced by 20.37% WoW to close at NGN1.95. MOBIL(+2.48%) and SEPLAT (+2.36%) were the other gainers. Conversely, CONOIL (-9.37%) maintained the top decliner position for the 2nd consecutive week, after closing at NGN16.45. TOTAL (-7.55%),OANDO(-3.07%), and FO (-1.24%) followed suit.
Forte Oil Plc. (FO) released its Q1:2016 result in the week. Revenue and Profit-After-Tax (PAT) figures were recorded at NGN35.60bn (+7.68% YoY) and NGN0.95bn (+21.85% YoY) respectively. We attribute this performance to increased volume of petroleum product sales in the quarter, as well as sound cost and expenses management.
We anticipate that activities will remain relatively tempered, with pockets of bargain hunting directing the sector’s activities over the coming weeks.
Services Sector: TRANSEXPR advances 14.14% WoW
The Services sector’s performance, as measured by our MERISERV index, was positive. The MERISERV index advanced by 0.07% WoW to peg the Year-to-Date return at 0.51%.
TRANSEXPR led the gainers for the week, after the ticker advanced by 14.14% WoW to peg the market price at NGN1.13. Conversely, AIRSERVICE was the top decliner, after recording a 9.50% decline in value during the week.
AIRSERVICE released its FY2015 result during the week. The Company recorded a good growth in revenue, which advanced by 28.02% YoY, however, decline in income from non-operating sources, and a significant increase in operating expenses during the year decimated the trickle-down to the bottom-line. Consequently, the Company recorded PBT and PAT declines of 133.2% and 133.3% YoY respectively.
Given that the sector’s fortunes are closely tied to the state of the economy, we do not anticipate a revival over the short term. Therefore, we advise investors taking position in any of the sector’s equities to do so with a long term view.
