The bulls fought back during the week to end a seven-day bearish trend. The Equities market All Share Index (NSE ASI) ended the week 0.15 percent up, having gained on three out of five trading days. The positive momentum observed towards the end of the week was, however, not strong enough to erase previous losses as Year-to-Date (YtD) return settled at -0.63 percent.
Volume of transactions for the week increased marginally by 2.52 percent, while value traded declined by 28.44 percent from the previous week. Market breadth for the week pegged at 0.76x, representing 41 losers against 31 gainers.
Top gainers for the week were BERGER, UPL, 7UP, and CAVERTON, which posted respective gains of 10.25 percent, 10.04 percent, 8.64 percent, 7.25 percent, with BETAGLAS and NEIMETH appreciating by 10.00 percent each. On the converse, GLAXOSMITH topped the underperformers’ chart with an 18.15 percent loss in value. Other top losers for the week were UNITYBNK, SKYEBANK, HONYFLOUR and ETIwhich recorded losses of 14.89 percent, 13.20 percent, 12.37 percent and 11.96 percent, accordingly.
The late rally observed during the week, following a predominantly bearish trading period, suggests that discerning investors are slowly returning to the bourse to take advantage of fundamentally justified and attractively priced stocks. Going by the oscillatory movement of market returns in recent times, we do not consider the current mood sustainable. Hence, we anticipate that there will be pockets of profit-taking activities in the coming week. We also expect the considerations and outcome of the approaching MPC meeting to influence market activities.
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: Inflation climbs to 8.7%, GDP stems in Q1:2015
National Bureau of Statistics (NBS) released the April Consumer Price Index, showing a 20bps rise in inflation rate to 8.7 percent up from 8.5 percent in March, to mark the fourth consecutive increase in 2015. Core inflation and food inflation surged by 0.2 percent and 0.1 percent to 7.7 percent and 9.5 percent, respectively (vs. 7.5% and 9.4% in March). We are of the opinion that the inflation was cost driven, owing to the continuous depreciation of the naira against the dollar, which has impacted adversely on production cost.
GDP growth suffered a significant decline in the first quarter of 2015, as it settled at 3.96 percent, implying a 1.98 percent slide relative to the 5.94 percent growth recorded in Q4:2014. The non-oil sector grew by 5.59 percent, with growth largely driven by the trade, agriculture, construction and telecommunication sectors. Low global oil prices and inefficient supply of crude (pegged at 2.18mbpd), impacted negatively on oil-sector growth as real growth settled at -8.15 percent, while the contribution of the oil sector to GDP was 10.45 percent.
NBS also released a controversial unemployment statistics, stating that unemployment rate declined from 23.9 percent in 2011 to 6.4 percent as of Q4:2014.
Business and economic activities slowed during the week, owing to petroleum product scarcity. This is expected to persist as petroleum marketers insist on receiving subsidy debt of over N200 billion owed by the government, before supplying the product. Considering the cash-flow crunch facing the country, and with only a few days to the swearing-in of the new government, we anticipate that the situation might be sustained if the present government is unable to settle.
Fixed income: Apex bank activities dominate during the week
The week was somewhat eventful, starting with two OMO auctions early in the week in a bid to reduce excess liquidity in the system. At the interbank market, the Call, 1M, 3M and 6M tenors closed at respective rates of 13.54 percent, 14.76 percent, 15.69 percent and 16.61 percent for the week. OBB and OVN rates also closed at 14.29 percent and 14.67 percent, respectively, which represent WtD changes of 6.04 percent and 5.88 percent accordingly.
The Nigerian Treasury Bills market enjoyed moderate buy sentiments during the week. This demand was particularly for the shorter-term instruments, and the WtD change in yields were 2.46 percent, 0.66 percent, 0.80 percent, 1.07 percent, 1.46 percent and -0.32 percent for the 1M, 2M, 3M, 6M, 9M and 12M bills, respectively.
Yields in the bond space trended downwards generally during the week; the average offer yields on Benchmark and Off-the-run bonds pegged at 13.82 percent and 15.22 percent, respectively, at the end of the week. Also in the week, the DMO conducted auctions of five-year, 10-year and 20-year bond instruments worth N60 billion and was fully subscribed.
Continuous demand for the greenback resulted in the depreciation of the domestic currency. Although naira saw pockets of gains during the week, YtD return remains negative at -6.64 percent. Naira closed the week at a mid-price of N197.67/dollar, while forward quotes remained flat.
Agric Sector: MERI-AGRI index drives to 1.68% WtD
The Agric Sector cut short its recent negative trend, as Week-to-Date return closed positive at 1.68 percent, to peg YtD at 17.34 percent. Sector breadth (0.50x) favoured decliners as one stock appreciated in price against two decliners.
PRESCO appears to have taken a cyclical turn in the past four weeks, with an increase of 3.52 percent, reversing last week’s morose outlook. However, LIVESTOCK stemmed its two-week bullish run, as its share price decreased by 2.04 percent to close at N2.40, a 5.42 percent differential of its N2.53 year high.
Conversely, OKOMUOIL failed to live up to expectations, as it shed 0.28 percent to close at N28.44.
We opine that the positive outlook in the agric sector might not be unconnected with the good showing of most of the companies in their full year and first quarter results. We anticipate that profit-taking might ensue in the coming week and advise cautious trading by investors.
Banking Sector: MPC concerns to pressure returns performance
Most banking sector stocks pared this week as investors sentiment swung, with the impending MPC meeting being a probable concern. There were only five gainers, led by ZENITHBANK, while all other sector stocks declined, save for STANBICand STERLNBANK, which traded flat.
ZENITHBANK led the advancers with a price appreciation of 4.52 percent. The ticker was closely followed byUBA (4.00%), ACCESS (3.34%), GUARANTY (2.32%), and WEMABANK (2.06%). On the flip side, UNITYBNK once again led the losers’ chart, after paring by 14.89 percent, maintaining the trajectory set upon since its share reconstruction. The ticker was followed by SKYEBANK (13.20%), ETI (11.96%), DIAMONDBNK (5.00%),and UBN (4.55%).
SKYEBANK released its much awaited FY2014 result at the end of the week. The result showed a maintenance of the trend in top and bottomline growth witnessed throughout 2014. The bank recorded gross earnings growth of 3 percent, while profit-before-tax (PBT) and profit-after-tax (PAT) declined by 46.7 percent and 47.4 percent, respectively.
We expect sector stocks to be pressured at the start of the week, as investors remain concerned about the possible outcomes of the MPC meeting, and how the sector may be affected. However, given that we believe that the committee will maintain its current policy positions, we do not anticipate that this will persist till the end of the coming week.
Consumer Goods: Sombre atmosphere
Activities in the Consumer and Conglomerates sector were relatively quiet, as most counters retained their share prices at prior week’s level, although there were pockets of gains and losses on some counters during the week. Returns for the week were 0.69 percent and -0.18 percent for the Consumer Goods and Conglomerates sector, as measured by our MERI-CMG and MERI-CONG sector indices in the same order.
There was also a noticeable negative sentimenton counters in the breweries segment during the week (1 advancer against 4 decliners), as profit-taking activities supervened on most counters in the week.
7UP recorded the most impressive outing with a WtD gain of 8.64 percent, and was joined on the gainers’ chart by UNILEVER (+4.72%), PZ (+3.57%) DANGSUGAR (+3.12%) NB (+1.09%) and DANGFLOUR (+0.65%), accordingly. HONYFLOUR, on the other hand, recorded the highest WtD loss of 12.37 percent, trailed by PREMBREW (-4.99%), VONO (-4.08%), NASCON (-3.61%) CHAMPION (-2.88%), INTBREW (-2.06%), FLOURMILL (-0.82%), GUINNESS (-0.35%)and VITAFOAM (-0.31%), respectively.
During the week, NASCON released its 2014FY result, which showed 3.8 percent YoY growth in revenue, while profit after tax declined by 30.8 percent YoY. The unimpressive earnings performance could be attributed to the 8.73 percent increase in cost to sales ratio and 83.1 percent YoY increase in finance charges for the year. In addition, investment income and other income declined by 86.9 percent and 54.9 percent YoY, respectively. The company nonetheless declared a dividend of N0.50/share with a register closure date of May 25 – 26, 2015
We do not expect any news strong enough to move prices upwards in the coming week; however, value remains evident for some counters at current market prices. We advise cautious trading ahead of the oncoming MPC meeting and the political transition.
Healthcare Sector: Profit taking ensued on GLAXOSMITH
The Meri-Health index trailed the market, declining by 17.80 percent WtD to settle YtD return at -11.41 percent. An equal number of stocks appreciated and declined for the week, while all other counters traded flat.
NEIMETH emerged as the top gainer for the week, advancing by 10.00 percent WoW to drive YtD return to 41.03 percent, trailed by FIDSON which appreciated in price by 1.59 percent, thus reversing part of the previous week’s loss. On the flip side, GLAXOSMITH consolidated on previous week’s loss, closing at N44.20, which represents a WtD loss of 18.15 percent. This was followed by MAYBAKER, which shed 10.61 percent to close at N1.60 in the week.
The sector sustained the prior week’s drab mood. As we inch closer to the MPC meeting and government transition, we advise investors to tread cautiously while taking advantage of fundamentally justified stocks.
Insurance Sector: WAPIC leads the pack
The bears emerged victorious during the week, as two stocks advanced against four decliners, to peg the sector’s WtD return at -0.14 percent, thereby settling YtD return at -1.83 percent.
WAPIC, with a 1.89 percent gain, was the top gainer for the week, as it closed at N0.54 (vs. N0.53 in the prior week), just as MANSARD trailed the ticker with a 0.33 percent gain.
On the flip side, INTENEGINS overturned last week’s gain, after it shed 7.02 percent to close at N0.53 (vs. N0.57 returned in the previous week). Other underperformers during the week included AIICO (-3.85%), NEM (-2.86%) and CUSTODYINS (-0.71%). All other counters traded flat.
Given our opinion that most sector stocks are currently relatively fully valued, we do not expect a bullish rally on the insurance counters in the coming week.
Industrial goods: Sector records marginal gains
The industrial goods sector closed the week positive, with the Meri-industrial index appreciating by 0.22 percent. Two stocks recorded positive returns while three stocks depreciated in value.
BERGER emerged as the highest gainer for the week, following a 10.25 percent growth in share price to N10.00. DANGCEM, the other sector performer for the week, managed a 0.28 percent gain to close trading at N178.50. PORTPAINT, CUTIX, and WAPCO on the other hand shed 4.96 percent, 4.82 percent and 0.30 percent, respectively.
In line with our expectations, most of the sector stocks traded in the negative zone, as investors took profits on previous weeks’ gains. We expect short term investment activities to persist in the market as investors continue to balance optimism with caution.
Oil and Gas Sector: Brent finds new price resistance
The sector closed positive for the week, as measured by the NSE OILG5 index, gaining 0.62 percent. Three stocks advanced in prices, while two stocks shed points. Other stocks in the sector traded flat.
FO, CONOIL, and MOBIL were the only stocks that traded in the positive region for the week, appreciating 6.27 percent, 5.00 percent, and 0.87 percent in that order. TOTAL and OANDO declined 9.09 percent and 3.21 percent, respectively.
The price of Brent was sustained above its new resistance of $60/barrel, closing at $66.67/barrel, 1.96 percent higher for the week. Expectations for the end of the year price of crude oil, remain around the $70 mark, which is however hinged on the stance of OPEC member countries at the next meeting in June.
After trading much in line with our expectation, we envisage appreciation in stock prices in the coming week, albeit mild, as there is no major news to upturn the current market trend substantially.
Services Sector: UPL leads with 10.04% as LEARNAFRICA declines further
The Services Sector stayed positive for the week, as the WtD settled at 0.65 percent to drive the YtD return to 4.44 percent. Six stocks advanced against five stocks that declined, while others traded flat.
UPL topped the gainers’ chart with a 10.04 percent gain to close at N6.03. Following closely were CAVERTON (7.25%), REDSTAREX (4.68%), ACADEMY (4.17%), NAHCO (1.80%), and AIRSERVICE (0.48%) in that order.
Conversely, LEARNAFRICA led the underperformers with a 9.45 percent loss in value. RTBRISCOE followed suit, declining by 8.91 percent. Other losers were TRANSEXPR (8.62%), IKEJAHOTEL (4.29%), and ABCTRANS (1.75%) in that order, while others traded flat.
AIRSERVICE released its Q1:2015 result during the week, which showed impressive turnover and profit after tax growths of 20.74 percent and of 284.99 percent YoY.
