The year 2015 has come to an end, and the equities market recorded its second straight year of decline. The NSEASI returned -17.36% for 2015, with the index level pegging at 28,642.25pts.
The gainers chart for the year featured thirty-one (31) counters, with BETAGLAS, LAWUNION, and FO recording the highest returns of 92.40%, 46.00% and 44.80% respectively. On the other side, the decliners for the year far outweighed the advancers, numbering eighty eight (88). EVANSMED, TIGERBRANDS, and OANDO recorded the highest losses in value, after paring by 78.07%, 75.16% and 63.38% accordingly.
The somber level of market activities may be attributed to several headwinds, some of which crystallized in the previous year (2014), resulting in depressed returns of the index. These headwinds include but are not limited to; the decline in crude oil prices, the falling value of the naira as well as the anticipation and subsequent increase of interest rates in the United States.
While we remain confident in our assessment that value remains in the market, we note that participation in the Nigerian equities market is likely to remain tempered in the short-term given the impact of foreign investors and their wariness to participate given their perception that the naira is ‘unfairly’ valued. This, we anticipate will cause a drag to market returns, provided that the apex authority maintains its stoic stance regarding management of the FX market.
In contrast to the equities market, the fixed income space has been buoyed by significant demand, as investors channelled funds to that market amidst the weak performances of equities. Yields across Treasury Bills and Bonds pegged at by 5.04% and 10.00% YoY across tenors and instruments respectively. We anticipate that yields will trade around those levels for the first quarter of the year, although we expect that demand levels may temper in the face of the persistently depressed yields.
In this report, we review events in the economy, laying emphasis on the performances of different segments of the financial market, while presenting our expectations for the coming year.
Fixed Income update: Naira pares by 7.40% YoY to NGN198.82/USD
Market activities were pressured during the year as a myriad of headwind crystallized which should have ordinarily pushed yields northwards. However, significant system liquidity levels during the second half of the year (opening balance of NGN0.81trillion as at 30th December), pressured the Nigeria Interbank offered rate (NIBOR) and the Money market rates (OBB & OVN) downwards.
Money market rates pared by an average of 10.48% YoY to close at 0.75%, while NIBOR declined by 5.81% YoY across tenors to close the year at 8.35%. Also, the Call rate, OBB and OVN rates attained year lows of 0.85%, 0.50% and 0.92% accordingly.
Similarly, the yield environment at the secondary market of the Nigerian Treasury Bills was pressured during the year, further impacted by the recent MPR cut by the Monetary Policy Committee (11% from 13%). Yields across instruments declined by an average of 9.04% YoY, with the yields on the 1M, 2M, 3M, 6M, 9M and 12M instruments recording respective declines of -12.10%, -10.61%, -10.28%, -6.81%, -7.27% and -7.16% year-on-year.
Bonds instruments rallied during the year, with increased demand despite some unfavourable news inflows, including the exclusion of Nigeria from the JP Morgan Government Bond Index for Emerging Markets. Consequently, the average offer yield on Benchmark and Off-the-run bonds closed at 9.73% and 9.86% accordingly for the year. The 16-AUG-2016 and 28-NOV-2028 instruments had the lowest and highest offer yield at the secondary market respectively, recorded at 5.96% and 11.12% accordingly at yearend.
The domestic currency returned -7.40% YoY to close at a mid-price of NGN199.30/USD at the interbank market. The Naira however, closed at NGN267.00/USD at the parallel market, though it attained a value of low of NGN266 against the dollar during the year.
Agric. Sector: Lone survivor in a bear market
The Agric. Sector was resilient in 2015 despite adverse market forces which rocked other sectors into the negative zone. Measuring by the performance of our MERI-AGRI index, the sector recorded the only positive year-to-date return (+26.87%) in the equities market. This result was, however, achieved on the wings of two players’ performance, as other sector players either stayed flat or waned in value.
During the year ended, PRESCO and OKOMUOIL recorded gains of 34.69% and 19.53% to settle share prices at NGN33.00 and NGN30.30 respectively, while LIVESTOCK trimmed by 41.67% to close at NGN1.33. ELLAHLAKES and FTNCOCOA recorded no changes throughout the year, thus pegging the sector breadth at 2.00x
The sector accommodates numerous non quoted (large, medium and small) players. Most recent scorecards of listed players revealed a combined turnover of c. NGN22.766bn, which is significantly small relative to the estimated NGN13.787trn 9M2015 GDP output contribution of the sector, hence we opine that aggregate sector performance may not be sufficiently reflected by the performance of quoted companies.
Albeit, we anticipate that the sector will continue to thrive in the short term on the back of existing favourable policies owing to the economic diversification benefits it proffers. We advise investors to place emphasis on stock fundamentals as short term market sentiments do not appear to impact the sector significantly.
Banking sector: Year of discontent
The banking sector ended the year in the negative territory, with the sector’s performance, as measured by our MERI-BNK index, recorded at -27.23%.
There was a solitary gainer in the year, WEMABANK, which advanced by 4.17% to close the year at NGN1.00. All other stocks recorded declines in value, the most significant of which were UNITYBNK (-77.60%), DIAMONDBNK (-58.78%), and FBNH (-41.70%).
While the financial performances of the listed banks were generally good, the negative sentiments which permeated the equities market pressured price returns and consequently led to a negative year for the sector’s tickers. Also, the banking sector was pressured by regulatory reforms and policy actions which hampered operations, while also leading to some banks being fined for rule infringements.
Finally, while we remain confident in our assessment of the value inherent in the sector, we do not expect a significant rally over the short-term as negative externalities are likely to continue to pressure returns. However, we expect some reaction in prices as we inch closer to FY2015 result releases, given that we anticipate that investors will position to take advantage of dividend disbursements.
Consumer Goods: BETAGLAS records 92.40% YoY return
The year 2015, proved a tedious one for the Consumer Goods sector, with some weighty value depreciation and resultant new lows for some of the sector’s counters. We credit some of the apathy to less than impressive performance scorecards from the companies during the year. However, this was not the case across all companies, as some counters proved resilient, recording double digit price appreciations for the year.
The drab mood witnessed in the sector was reflected by the NSEFBT10 index, which showed a -17.41% YtD return for the year. Also, the sector breadth for the year pegged at 0.40x, as six (6) counters recorded price appreciation against fifteen (15) decliners.
7UP, NASCON, VITAFOAM, PZ, BETAGLAS and UNILEVER emerged the only gainers for the year, with respective year-on-year price appreciations of 10.04%, 14.95%, 34.24%, 7.98%, 92.40% and 20.81%.
Conversely, TIGERBRANDS, CADBURY, AGLEVENT, NNFM, CHAMPION, FLOURMILL, HONYFLOUR, UACN, INTBREW, GUINNESS, VONO, PREMBREW, NB, NESTLE and DANGSUGAR recorded -75.16%, -57.13%, -52.67%, -52.63%, -51.72%, -46.94%, -40.75%, -38.97%, -31.58%, -28.40%, -27.68%, -22.71%, -17.73%, -15.00% and -5.04% returns accordingly year-on-year.
We do not anticipate a reversal of the current mood in H1:2016 given our expectations for the general market, and considering the significant correlation between some of the sector’s heavyweights (which direct sector performance) and the general market. However, we anticipate some pockets of gains on some stocks that witnessed severe price declines in 2015.
Healthcare Sector: NEIMETH and PHARMADEKO close up
The healthcare sector mirrored the mood in the general equities market in 2015, recording a return of -14.58%, as measured by our MERI-HLTH index, therefore closing negative for the second consecutive year. The performance was largely driven by the weak investor sentiment in the equities market, coupled with the unimpressive scorecards released by some companies in the year.
Although the sector index closed positive as at H1:2015, this was not sustained as subsequent pressure pushed the index downward. Sector breadth closed the year at 0.33x, with two (2) stocks closing positive while six (6) stocks closed under water. EKOCORP and UNIONDAC traded flat all through the year.
NEIMETH and PHARMADEKO were the only stocks with price appreciations in the year, after gaining 14.10% and 5.14% to close at NGN0.89 and NGN2.25 respectively.
Conversely, the decliners’ chart featured EVANSMED, FIDSON, GLAXOSMITH, MAYBAKER, NIG-GERMAN and MORISON, having recorded respective price declines of 78.07%, 35.90%, 31.60%, 30.38%, 22.31% and 4.95% to close the year at NGN0.50. NGN2.50, NGN34.20, NGN1.10, NGN4.91 and NGN1.73.
Given that the prices of most counters have bottomed relative to their intrinsic values, we expect investors with long term focus to take advantage of these low prices, while also considering the gloomy state of economy and the negative mood in the equities market which is expected to subsist into the New Year.
Industrial Goods: Sector pressured for second year running
The industrial goods sector, in line with the overall market, remained bearish for the second consecutive year, losing 12.18% at the close of the trading year. Market breadth (0.63x) also denoted the bearish trend in the sector, with five (5) stocks recording YoY upward price movements, compared to the eight (8) stocks that experienced downticks in the same period.
CUTIX emerged as the year’s top gainer, having appreciated by 27.69% to NGN1.66. Other YoY gainers were WAPCO, ASHAKACEM, BERGER and CAP which advanced by 20.25%, 14.16%, 11.11% and 0.27% in that order.
PAINTCOM ended the year as the sector’s worst performer, returning –32.47% to close at NGN1.04. DANGCEM lost 15.00% of its market value during the year to close at NGN170.00. We attribute the bellwether’s heavy decline to the deteriorating investor confidence towards the stock, particularly in the later part of the year where its share value fell to a year low of NGN151.10. Other YoY laggards were DNMEYER, VANLEER, CCNN, AVONCROWN, AFRPAINTS and PORTPAINT which respectively declined by 19.54%, 18.63%, 10.01%, 8.81%, 4.78%, and 3.59%.
With the government set to embark on infrastructural development in the coming year, and given the fact that prices across the sector appear low, we expect the sector to enjoy bits of positive sentiments from investors. However, owing to the current state of the overall market, we advise cautious trading in the sector, particularly in the early parts of 2016.
Insurance Sector: Index trails the general market, closes red
Despite travails in the Nigerian economy, the insurance sector launched an impressive financial performance in 2015. The 9M2015 scorecards of twenty two (22) out of the twenty nine (29) listed insurance companies which have released results, showed gross premium earned (GPE) advanced by 13.58% YoY to NGN136bn, while PAT also grew by 13.26% YoY to NGN17.40bn.
However, the performance of the sector in the equities market was in contrast to companies performances, as the sector’s performance as measured by both our MERI-INS Index (-3.50%) and the NSEINS10 Index (-4.70%) were negative.
In the last quarter of 2015, LAWUNION constantly outperformed the market and emerged the sector’s top gainer for the year, having appreciated by 46.00% YoY to close at NGN0.73 (vs. NGN0.50 in FY2014). The counter was trailed by CUSTODYINS (+13.26%), AIICO (+12.35%), CONTINSURE (+10.78%) and NEM (4.62%). On the flip side, WAPIC and MANDSARD led the underperformers, after the respective counters recorded value declines of 21.88% and 15.94% to close at NGN0.50 and NGN2.69 accordingly.
On the back of the anticipated improvement in economic activities in 2016, coupled with increased awareness of the sector, and impending sector reforms, we are positive about the potentials for the sector.
Oil & Gas Sector: Drab sector performance in 2015
Investors’ perception of sector stocks was largely bearish in 2015, with most stocks snubbed due to unfavourable news flows (especially given falling crude oil prices), and pressured company earnings. Three (3) sector stocks recorded year-on-year appreciations, while five (5) counters pared in value. Consequently, the sector returned -6.20% YoY, as measured by the NSEOILG5 index.
FO blazed the trail for the year, advancing by 44.80% YoY to settle its share price at NGN330.00, while TOTAL and MOBIL appreciated by 3.16% and 1.27% YoY to settle at NGN147.01 and NGN160.00 respectively. On the flip side, OANDO, SEPLAT, CONOIL, ETERNA, and MRS recorded year-on-year value declines to close at NGN5.90 (-63.38%), NGN203.00 (-45.28%), NGN24.74 (-35.08%), NGN2.05 (-31.21%), and NGN49.66 (-6.65%) accordingly. Other sector stocks traded flat.
We note the challenges from the subsisting low crude oil prices, and the drop in petroleum product import volume, further aggravated by pressured funds flows, is largely responsible for the poor performances of upstream and downstream companies. The price of crude oil, as measured by Brent, declined by 36.05% YoY to USD36.66pb, as supply in the year outstripped demand.
Heading into 2016, we advise investors to trade with caution on the sector stocks, whilst taking long term positions in counters that are fundamentally justified.
Services Sector: weakened by dull market sentiment
Over the course of the year, MERISER INDEX’ year to date return mostly stayed in the negative territory, with the exception of the periods from May – June, and September – October, wherein spikes occurred as a result of temporary shifts in market perception towards Nigeria’s economy.
The Index ended the year losing -5.39%, as three (3) stocks advanced against eight (8) stocks that pared, pegging the sector breadth at 0.38x.
UPL was the sector’s most prominent advancer, climbing by 42%, from NGN 4.22 to NGN 6.00. The ticker was trailed by AIRSERVICE (30.12%) and REDSTAREX (7.87%). Conversely, the largest decliner was ACADEMY which pared by 53.39%, from NGN 1.18 to NGN 0.55, followed closely by LEARNAFRCA which lost 47.41%, from NGN 1.35 to 0.71. Other counters on the losers chart were RTBRISCOE (-35.06%), CAVERTON (-29.23%), NAHCO (-23.79%), IKEJAHOTEL (-15.41%), ABCTRANS (-9.09), and lastly TRANSEXPR (-8.13%).
Capitalizing on the sectors weak performance in 2015, the relatively low share prices present prime opportunities for investors to take positions in fundamentally justified stocks in anticipation of an overturn in market sentiment when sound monetary and fiscal policies to drive the economy are implemented.
