The equities market went agog during the week as the NSE ASI advanced by 17.60 percent in the week. This pushed the YtD return of the index into the positive zone (+3.09%) for the first time this year, even as volume and value of transactions surged by 122.14 percent and 320.97 percent, respectively.
We are of the opinion that the peaceful conduct of the general election, in addition to earnings releases and corporate actions aided the revival of interest in the equities market. 75 stocks appreciated in the week, while six stocks declined in value. This translated to a market breadth of 12.5x, as all NSE sector indices advanced in the week ended, led by the NSEBNK10 index (+23.97%).
Others were NSEOILG5 (+16.42%), NSEFBT10 (+15.14%), and NSEINS10 (+3.46%). NSE30 also advanced by a 17.91 percent in the week.
FIDELITYBK emerged as the top gainer for the week with a 38 percent gain, trailed by NAHCO (33.93%), ZENITHBNK (32.54%), OANDO(31.34%), and GUARANTY (30.87%). On the contrary, PHARMADEKO trimmed by 4.91 percent to top the losers’ chart for the week. Other decliners were FO, VONO, REDSTAREX, and TRANSCOHOT, which declined by 4.40 percent, 4.30 percent, 4 percent, and 3.70 percent in that order.
The positive sentiment, which permeated all sectors in the week, was due to the perceived upturn in the outlook for the nation’s economy and financial markets, as the incumbent government peacefully ceded power to opposition, a rare feat in the country’s history.
Although most companies have released their scorecards to the market in the past weeks, we still expect a hand full of result in the coming week. Despite the excitement in the market, we advise investor to trade cautiously as we envisage pockets of profit taking on some stocks that have advanced dearly during the week.
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: Smooth election conduct signals economic recovery
The voice of Nigerians seemed to have resounded loud and clear in the recently concluded presidential elections, as the people united to select the next president of the country, in spite of the overwhelming power of incumbency usually wielded in African elections.
Contrary to general expectations, the announcement of Muhammadu Buhari as the winner of the 2015 general election was received with jubilations across most regions in the country, facilitated by the quick concession of defeat by the incumbent, President Goodluck Jonathan.
After 16 years of sustained democracy, four elections and three presidents all from the People’s Democratic Party (PDP), Nigerians set a new precedence for democracy and electoral processes in the country. We believe this feat was achieved due to the growing frustrations of citizens with regards to the state of the economy amid security challenges, coupled with the rise of a formidable opposition party following the merger of key regional political parties (ACN, CPC and ANPP) in February 2013.
Given the knackered condition of the economy (ext. debt of $26bn, devaluation, low-level global oil prices, currency volatility etc.), we do not envisage an immediate change in the economic state of the country. We nonetheless believe that the anti-corruption drive of the incoming government may help plug in leakages, reduce wastages and significantly cut back on cost of governance, thus freeing up funds for increased government spending and growth stimulating activities.
Given the significant international focus on the country, owing to Nigeria’s position as the largest economy and most populous country in Africa, coupled with the body language of foreign observers and stakeholders which, in our opinion, suggested a preference for Buhari’s candidacy, we expect a turnaround in the nation’s economic fortunes.
This, we believe, will be driven by increased inflow of foreign direct and portfolio investments into the country driven by improved perception of the country’s potentials by foreign governments, investors and rating agencies.
Fixed Income Brief: Market liquidity results in bullish trend
OMO maturities worth N148 billion hit the system in the week, spurring substantial rally on Bills in the week. Average yield change on T-Bills settled at -0.88 percent, as the 1M, 2M, 3M, 6M, 9M, and 12M T-Bills pegged at 12.10 percent (-2.04%), 13.88 percent (-0.51%), 14.12 percent (-0.34%), 14.68% (-0.11%), 14.85 percent (-1.00%), and 15.35 percent (-1.28%), respectively.
Reflecting the liquid nature of the system, average NIBOR decreased by 1.28 percent, with the OBB and OVN rates closing at 9.50 percent (-3.25%) and 10.17 percent (-3.00%) in that order.
Yields across the bond market pared for the week, as investors seemingly had renewed confidence in the Nigerian market on the back of a fairly seamless presidential election. Our Meri Bond index, which reflects the change in market price, was +3.14 percent for the week. We expect a viable sustenance in the recent trend going forward.
Naira appreciated marginally by 0.01 percent against the greenback in the week, as mid-price settled at N199.10. However, with political risks nearly completely out of sight, reducing global crude oil prices remains the only substantial threat to the local currency. We expect that a committed drive towards seeking alternative revenue sources for the economy, as reiterated by the elected administration, will further abate pressure on the naira in the face of global oil price challenges.
Agric sector: Okomuoil declares N0.25K
On the back of the positive sentiment that permeated the equities marketand impressive scorecards released by companiesin the week, the agric sector’s index increased by 3.64 percent WtD to settle YtD return at 13.97 percent.
LIVESTOCK led the gainers with a 13.24 percent gain, which we attribute to the company’s impressive FY: 2014 result which showed revenue and PAT growths of 29.45 percent and 20.60 percent. PRESCO followed on the gainers’ chart, returning 7.67 percent for the week.
However, OKOMUOIL’s poor showing in its FY: 2014 result,with respective declines of 2.31 percent and 25.75 percent in top-line and bottom-line, reflected in its performance for the week, as it pared by 0.46 percent. No other stock declined, while ELLAHLAKES and FTNCOCOA traded flat.
We expect the optimism in the market to be maintained in coming weeks, as the peaceful recently concluded election, in our opinion, has boosted investors’ confidence. The said optimism, we anticipate will bode well for the agric sector in the near term.
Banking Sector: Strongly resurgent, with political headwinds dissipated
The banking sector was strongly resurgent during the week, as investors flooded the market post elections. There were 14 gainers, while UNITYBNK traded flat, to bring the YtD return to 23.43 percent.
DIAMONDBNK, FIDELITYBK and STANBIC all released FY2014 numbers during the week. DIAMONDBNK recorded a laudable growth in gross earnings of 15.04 percent, while profit-after-tax (PAT) declined by 10.27 percent, to make the bank the first to post a decline in this earnings season. FIDELITYBK recorded YoY growths in gross earnings and PAT of 4.32 percent and 78.68 percent, while STANBIC also followed suit, consolidating on a strong 2014 by posting 17.43 percent and 57.40 percent YoY growth in gross earnings and PAT, respectively. All three banks declared final FY2014 dividends: DIAMONDBNK (N0.10/share), FIDELITYBK (N0.18/share) and STANBIC (N0.15/share).
Much in line with our expectations, market has been resurgent since the conclusion of the presidential Elections on Tuesday 31 March. However, we implore investors to take position in only fundamentally justified tickers so they do not get stuck when the momentum subsides
Consumer Goods: NSEFBT10 returns 15.14% WtD
The consumer goods sector ended the week with a spectacular WtD return of 15.14 percent, and sector breadth closed at 14.00x. The positive sentiment permeated all the counters in the sector save for VONO that declined by 4.30 percent, while NNFM and AGLEVENT retained their market prices from the previous week.
The gainers’ chart had counters like DANGSUGAR (15.57%), NASCON (20.44%), INTBREW (27.06%), CHAMPION (15.49%), UNILEVER (12.96%), UACN (12.96%), NESTLE (17.00%), 7UP (3.21%), and FLOURMILL (9.58%)
UACN released its FY2014 result, showing group revenue of N85.654 billion, an increase of 8.82 percent over previous performance. Earnings after tax also increased by 8.64 percent. The company declared a dividend per share of N1.75, implying a dividend yield of 4.86 percent at current market price. Closure date has been slated for July 6 -10, 2015.
The race to take position in fundamentally justified counters, after the smooth election process could be credited for the significant gains recorded in the sector during the week. However, we anticipate a moderation in the coming week, as we envisage that there might be a degree of profit taking.
Healthcare Sector… GLAXOSMITH declares N0.75 dividend and 1:4 bonus
The positive sentiment which permeated the equities market was also felt in the Healthcare sector, as the sector’s index (MERI-HLTH) advanced by 21.02 percent WtD to drive YtD return into the positive zone (2.00%). Four stocks advanced in price, while only one stock declined.
The sector giant (GLAXOSMITH) was the major gainer for the week, as it advanced by a whopping 21.52 percent WoW to peg the share price at N51.04. The ticker was trailed by EVANSMED, which saw its price appreciate by 7.32 percent. MAYBAKER and FIDSON also advanced by 4.40 percent and 3.65 percent, to settle share prices at N1.66 and N3.41, respectively. On the flip side, PHARMADEKO was the only counter that stayed in the negative region, as it declined by 4.91 percent to N2.13. All other counters traded flat.
GLAXOSMITH’s FY2014 result released on April 1, 2015, showed revenue growth of 4.58 percent YoY, while earnings declined by 36.67 percent YoY. In our opinion, the ticker’s significant gain on the trading floor, despite theunimpressive earnings performance, was primarily due to the final dividend declaration of N0.75K (which brought total dividend for 2014 to N1.00/share) and a bonus issue of 1 for 4 existing shares.
We do not expect this flowering performance to remain strong, as we imagine some profit takings on some stocks in the coming week.
Industrial goods: Bargain hunting drives sector gains
Building material stocks, which had hitherto been severely hit by the bearish trend in the market since 2014, were major benefactors of the upbeat mood witnessed, especially in the last two trading days of the week.
The Meri Industrial Index gained 18.04 percent during the week to drive YtD return to -7.20 percent. None of the sector stocks traded in the negative zone, while seven stocks recorded accretions to value.
DANGCEM, the sector leader by market share and capitalisation, enjoyed the most positive sentiments as the ticker gained 18.95 percent in the week to push share price to N182.
ASHAKACEM, CCNN, CUTIX, BERGER, WAPCO and PORTPAINT were not left out, as they gained 16.75 percent, 14.65 percent, 14.48 percent, 13.25 percent, 10.71 percent and 4.85 percent, accordingly.
BERGER released its FY2014 scorecard, showing a 13.72 percent YoY increase in revenue (N3.083bn vs. N2.711bn). Profit after tax however came in at N0.15 billion (42.23% lower than previous year) due to YoY growths in production (11.11%), operating (27.97%) and finance (38.26%) costs. The company, however, declared a dividend of N0.75 (EPS of N0.51), which implied a dividend yield of 8.28 percent at current market price.
Despite the economic and operating challenges faced in the country in 2014, CAP reported a revenue of N6.99 billion at a YoY growth of 12.78 percent. The paint market leader continued to show superiority in its cost efficiency strategies as cost-to-sales margin and OPEX ratio dropped to 48.51 percent (from 49.08% in 2013)) and 19.56 percent (vs 20.09% in 2013). Consequent upon this, PAT grew by 17.34 percent during the period. CAP also proposed a dividend of N0.85, indicating a dividend yield of 2.50 percent.
CCNN during the week also declared a dividend of N0.35, implying a dividend yield of 2.78 percent. This came on the back of the cement company’s 23.05 percent expansion in bottom-line, despite the 1.25 percent decline in top line. The company also reported cost savings in production (-7.28% YoY), operations -13.56% YoY and financing (-13.94% YoY).
As envisaged, investors have started taking advantage of attractively priced stocks in the sector basket. We expect this trend to continue in the weeks to come, although at a slower rate, as stocks gradually near their fundamentally justified prices.
Oil & Gas Sector: Sector enjoys market upturn
Six stocks appreciated in the week, as the NSEOILG5 gained 16.42 percent. OANDO led the pack with 31.34 percent, followed closely by MOBIL (+18.28%), CONOIL (+16.48%), TOTAL (+13.44%), ETERNA (+12.68%), and SEPLAT (+11.28%). FO was the lone decliner, shedding 4.40 percent, while other stocks traded flat.
MRS Oil Nigeria plc and SEPLAT Petroleum Development Company released their FY2014 results, with varying performances noted. MRS top-line grew by 5.17 percent. Other income increased by 105.02 percent, while OPEX ratio and tax payable for the year moderated by 10.79 percent and 30.68 percent, respectively. This resulted in a 17.65 percent gain in PAT, and a dividend of N0.88k was proposed.
For SEPLAT, on the other hand, a 56.43 percent increase in gas sales was not enough to offset the 1.44 percent decline in crude oil sales, as its revenue dropped by 8.99 percent. Poor cost management resulted in 3.12 percent and 11.3 percent respective growths in cost to sales and OPEX ratios. This, coupled with the massive 133.83 percent jump in finance charges contributed to the 52.62 percent decline in earnings after tax to N40.481 billion (vs. 85.431bn FY 2013).
We expect the positive sentiment in the equities market as well as the sector to persist in the coming week, and therefore advise position-taking in cheaply priced stocks with attractive fundamentals.
Services Sector… NAHCO leaps by 40.63%
In line with the seamless political transition that increased optimism in the equities market, the services sector also towed the same path as sectoral breadth (8.00X) skewed emphatically in favour of advancers as eight stocks gained against a sole decliner. The MERI-SERVICES index advanced by 10.84 percent WoW to drive YtD return to 2.20 percent.
NAHCO led the performers chart having gained 40.63 percent during the week while LEARNAFRICA, TRANSEXPR, IKEJAHOTEL, RTBRISCOE, CAVERTON, ABCTRANS, and UPL followed suit with18.69 percent, 16.98 percent, 14 percent, 12.86 percent, 10 percent, 7.27 percent, and 1.51 percent in that order. On the flip side, REDSTAREX emerged as the sole loser declining by 4 percent while others traded flat.
We expect the renewed optimism in the equities market and the country as a whole to trigger investors’ confidence, especially the foreign players. We however advise investors to tread cautiously in the light of potential profit-taking by short-term investment.
BLOOMBERG, NSE, MERISTEM RESERACH
