The equities market closed negative for the second week running despite the continued inflow of earning releases and corporate actions.
The NSE ASI settled 4.51 percent lower, just as trading activities on the bourse tempered, with volume and value of transactions reducing by 61.56 percent and 50.93 percent, respectively.
The negative mood in the market was widespread as all sectors, save for Healthcare sector (+4.83%), recorded index declines. Owing to this bearish mood, 54 stocks featured in the negative zone while only 12 appreciated in value (Market breadth of 0.17x).
HONYFLOUR rebounded this week, recording a 7.91 percent Week-on-Week (WoW) price increase, after shedding 4.14 percent in the previous week. Other top gainers were GLAXOSMITH (5.00%), COSTAIN (4.92%), AIICO (3.45%) and WEMABANK (3.23%). On the other hand, AFRIPRUD, ZENITHBANK, DANGFLOUR, DIAMONDBNK and FIDELITYBK, declined the most in value, paring by 22.58 percent, 19.95 percent, 17.85 percent, 14.82 percent and 14.57 percent in that order.
The Banking sector, which shed 11.13 percent during the week ended, was the major drag of market performance, with 11 out of the 15 sector stocks closing lower.
We attribute the prevailing sell sentiments in the market to profit-taking, and panic selling by investors ahead of the 2015 general elections. We do not see a resurgence in activities in the coming week, largely due to the growing anxiety in the country, as anticipated political headwinds crystallise.
We also expect proceedings from the MPC meeting scheduled for next week to form major considerations for the investing public in the subsequent weeks.
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 round-up: MPC to maintain status quo
The Monetary Policy Committee (MPC) will reconvene on March 23 and 24, 2015, for its second meeting of the year. This meeting comes shortly after the tacit devaluation of the naira to N197/USD amid intermittent declines in crude oil prices, rapidly decreasing external reserves balance, and uncertainties surrounding the outcome of the rescheduled 2015 general elections.
We expect the sustained demand for dollars relative to the naira, and the CBN’s weakening ability to defend the naira amid dwindling reserves and high capital outflow, to top the agenda in the next committee meeting. On the external front also, falling oil prices, slowing global output recovery, divergent monetary policy postures between the US and Euro area as well as non-inclusive growth remain very important risks.
We anticipate that the naira may remain resilient around the current trading band in the near-term, due to the methodology of the new currency trading system.
Also, with political risks almost in the rearview, we anticipate increased levels of capital importation, especially from the Euro area which has historically been a significant importer of capital into the country, and which is currently undergoing its own Quantitative Easing programme (EUR60bn/month). This would augur well for the reserves, as increased net inflows would result in a reduction in the pressures on the local currency, and consequently the quantum of funds needed to defend the currency.
While we note that macro-economic variables, particularly the diminishing reserves and rising inflationary pressures, suggest the need for the apex bank to further tighten, we however opine that the growing apprehension in the country, on the back of the fast approaching elections, may hinder the MPC from such tightening decisions.
Considering the recent shut down of RDAS, CBN’s official FX window, as well as the defense of the naira at N197/USD, we expect the MPC to officially adopt the prevailing rate as its exchange band while maintaining its regulatory oversight at the interbank market. We also opine that the MPC will retain all other policy variables while reiterating the CBN’s commitment to continue to support the naira.
Fixed income brief: Sentiments favour long-term securities
Treasury bills worth N167.21 billion were sold in the week, with respective stop rates settling at 10.79 percent (91-days), 14.70 percent (182-days), and 15.35 percent (364-days) in that order. Average yield change on treasury bills in the secondary market was +0.21 percent as yields on the 1M, 2M, 3M, 6M, 9M, and 12M tenors pegged at 14.81 percent (+0.43%), 15.01 percent (+0.61%), 15.18 percent (+0.46%), 15.53 percent (0.00%), 15.56 percent (-0.50%), and 16.82 percent (+0.28%), respectively.
OBB and OVN rates settled at 10.00 percent (-12.00%) and 10.75 percent (-13.25%) as a result of increasing system liquidity.
Also, average NIBOR pared by 8.77 percent during the week, as most banks funded their obligations internally. The current system liquidity position is expected to be considered by the MPC, during its meeting scheduled to hold next week.
The recent bullish investor bias witnessed on bonds was reversed, as offer yields increased by 0.45 percent across instruments. We however anticipate a reversal in coming weeks, especially as investors take advantage of discount bonds given the outlook of a probable resurgence in the market post-elections.
The naira appreciated by 0.04 percent during the week’s trading, with the mid-quote pegging at N199.06/USD. As earlier stated, we are encouraged by the resilience of the currency since the currency trading system was changed. We do not foresee any significant pressure being exerted on the exchange in the short-term, and so expect the FX rate to continue to trade within tight bands around the current mid-quote.
Agric Sector: Sombre mood persists
The sombre mood in the agric sector has refused to abate as the MERIAGR index pared by 4.99 percent WtD.
There was no advancer recorded for the second consecutive week, as the sector remains weighed down by a combination of a dearth of news flows and general negative market sentiments. OKOMUOIL pared the most, declining by -5 percent. PRESCO and LIVESTOCK followed closely, declining in value by -4.99 percent and -3.81 percent, respectively.
We expect the sector returns to remain pressured over the next few weeks, as with the rest of the market, due to the impending headwinds, notably from the polity. However, we expect that with risk factors abating an upswing may be in the offing.
Banking Sector: Riding the wave down
The banking sector suffered under the pressure of profit-taking activities of investors this week, as the MERI-BNK index shed 11.13 percent Week-on-Week (WoW).
There was a solitary gainer (WEMABANK) during the week, while 11 stocks declined in value. SKYEBANK, STANBIC and UNITYBNK stayed flat. ZENITHBANK (-19.95%), DIAMONDBK (-14.82%), and FIDELITYBK (-14.57%) pared the most in value during the week.
UNITYBNK released its FY2014 results during the week. The bank recorded appreciable Year-on-Year growth in both gross earnings and earnings-after-tax of 19.58 percent and 147.35 percent, respectively. Although the exponential growth in PAT was due to the loss recorded by the bank in 2013 (-N22.58bn), we remain encouraged by the bank’s improved income generation and operational efficiency.
Much in line with our expectations, the market has been generally bearish in the lead up to elections. This, we believe will persist up until after the elections on the 28th, and so, good buying opportunities will be presented. Given that one of the major risk factors which has depressed market returns in 2015 will be gone after the elections, this could be the final opportunity to take position at such attractive prices.
Consumer Goods: PZ declares N0.20 interim dividend
Despite the bearish run in the market, the consumer goods fared better than expected, as investors reacted to earnings releases of PZ and Champion Breweries towards the end of the week. NSEFB10 declined by 3.45 percent WtD to settle YtD return at -17.93 percent.
Performance during the week favored the decliners over the gainers, while other counters remained flat. The gainers’ chart was led byHONYFLOUR, CHAMPION, 7UP, NESTLE and NASCON with WtD changes of 7.91 percent, 3.20 percent, 1.31 percent, 1.16 percent and 0.31 percent.
On the flipside, DANGFLOUR, PZ, NB, FLOURMILL, INTBREW, DANGSUGAR, UNILEVER, VITAFOAM and GUINNESS returned losses of 17.85 percent, 9.52 percent, 5.40 percent, 3.94 percent, 3.37 percent, 3.17 percent, 2.89 percent, 2.47 percent and 0.02 percent for the week, while UACN, CADBURY, NNFM, VONO, AGLEVENT, and PREMBREW retained their respective market prices.
Champion Breweries released its 2014FY result, showing a growth in topline of 47.87 percent and a 35.91 percent moderation in loss after tax. Investors’ reaction was positive, as the counter recorded a WoW gain of 3.20 percent, a sharp rise from previous WtD loss of 6 percent as of Thursday.
PZ Cussons recorded a marginal 0.56 percent growth in top-line (N52.890bn vs. N52.594bn), while earnings for the period declined YoY by 27.91 percent (N2.787bn vs, N3.867bn). Despite the interim dividend of N0.20k declared, the counter’s market price shed 4.81 percent WoW.
Market mood has been largely influenced by earnings releases and panic sell offs, which permeated the market ahead of MPC meeting, forthcoming general elections and profit taking by some speculative investors. We believe that as the prices of stocks plunge further, opportunities are being created for long-term investors to take position for higher returns.
Healthcare: GLAXOSMITH advanced by 5% WoW
The sector outperformed the market, courtesy the sector giant (GLAXOSMITH), which appreciated by 5 percent to settle at N42.00 and emerged as the only stock with positive price movement in the sector during the week. Three stocks declined in value, while other stocks traded flat. The MERI-HLTH index advanced by 4.83 percent WoW to trim YtD return to -15.75 percent
The losers’ chart was championed by MAYBAKER, which lost 13.14 percent, dragging share price to N1.55, followed by NEIMETH and EVANSMED, which dipped by 8.57 percent and 4.65 percent, respectively, to settle price at N0.64 and N2.05, respectively.
While we are optimistic about opportunities in the sector at current stock prices, we expect tempered trading in the coming week as we move closer to the long-awaited general election.
Industrial goods: Sell pressures drag returns
Positive sentiments on building material stocks waned during the week ended as the Meristem industrial goods index depreciated by 1.05 percent. None of the stocks in the industrial goods basket closed positive; 6 stocks recorded price declines while all others closed the week flat.
PORTPAINT was the major laggard for the week, posting a WoW loss of 9.09 percent. BERGER, WAPCO, DNMEYER, ASHAKACEM and DANGCEM were the other decliners having shed 4.95 percent, 4.91 percent, 4.60 percent, 2.45 percent and 0.66 percent, respectively.
We attribute the continued slowdown in trading activities to the general mood in the market, triggered by the prevailing uncertainties in the nation’s economic and political space. We advise investors to take positions in fundamentally justified stocks currently trading below their intrinsic values, as we believe these stocks will benefit significantly from the anticipated mood reversal post elections and in H2:2015.
Insurance sector: AXA acquires 7.15% stake in Africa Reinsurance Corporation
The sector was unable to weather the market pressure during the week as the MERI-INS index pared by 0.88 percent WtD to peg YtD return at -3.11 percent. Market breadth (0.25x) was in favour of decliners, as only 1 stock appreciated in price against 4 decliners.
INTENEGINS led the losers’ chart, shedding 7.41 percent to close at N0.50, while NEM, CUSTODYINS and CONTINSURE trailed by 6.35 percent, 3.85 percent and 3.49 percent losses in that order.
However, AIICO returned 3.45 percent WoW to close at N0.90 (vs. N0.87 in previous week) to emerge as the lone gainer for the week.
AXA, the French insurance company that acquired a 77 percent stake in Mansard in 2014, announced that it has completed acquisition of 7.15 percent stake in Africa Reinsurance Corporation (Africa Re), for a total consideration of $61 million (N12bn).
Following increased demand for attractive insurance products to boost the Nigerian insurance sector, MANSARD, in collaboration with MTN, has unveiled an insurance scheme for Small and Medium Scale Enterprises (SMEs) to cover against fire, flood and other risks.
Oil & Gas Sector: Brent slides further
The general market sentiment did not spare the sector, as it pared 5.03 percent in the week. No stock gained for the week, as seven counters declined while others traded flat. SEPLAT pared the most with a change of -9.75 percent, followed by CONOIL (-5.00%), OANDO (-4.29%), MOBIL (-3.46%), TOTAL (-3.11%), ETERNA (-1.85%), and FO (-1.46%).
The price of Brent closed at $53.93, representing a WoW decline of 1.35 percent in spite of the 2.27 percent WtD gain to $55.91as of Wednesday. This was expected, given the statement by Kuwait’s Oil Minister, Ali al-Omair, that there would be stable supply by OPEC member countries despite the current glut. Further compounding this, was a larger than expected US crude inventory which, according to the recent EIA weekly data release, rose to 458.508 million barrels.
The outlook for oil on the global space seams bleak, just as we do not see any major upturn in the sector’s counters in the near term. Impressive corporate actions and good earnings declarations by the companies may however contribute towards a level of recovery in the sector.
Services Sector: ABCTRANS emerges as sole gainer
Activities in the services sector remained pressured as YtD return settled at -7.78 percent. One company advanced as against three decliners to peg sector breadth at 0.33x.
ABCTRANS advanced by 1.92 percent during the week, emerging as the sole gainer.
Conversely, RTBRISCOE led the losers for the week, declining by 10.67 percent followed by AIRSERVICE and LEARNAFRICA which pared by 4.97 percent and 2.61 percent, respectively, while other counters traded flat.
In another development, TRANSCORP HOTEL recently proposed a dividend of NGN0.37 per share, implying a dividend yield of 3.70 percent at current market price.
We anticipate that the lacklustre performance across the counters will abate after the general elections, when the direction of the polity would have been set. Therefore, we advise that investors should tread cautiously.
