The Nigerian financial markets (equities and fixed Income) have experienced several events so far in the year which have pressured returns; ranging from the devaluation of the currency to intensified insurgency in North-eastern part of the country, and heated polity pre-general election conclusion, amongst other factors.
The Nigerian equities market have maintained an oscillating trend so far in the year, recording a Year-to-Date (YtD) return of -1.00%, which was similar with previous year’s performance for the same period. Further reflecting this almost parallel performance, the NSEASI has recorded gains on just 49 days in the 101 trading days of the year compared to 51 days in the same period of the prior year.
Top gainers so far in the year are NPFMCRFBK, NEIMETH, VONO, BETAGLAS and PRESCO, as each stock has recorded price appreciations of 68.75%, 53.85%, 50.89%, 43.88%, and 43.67% correspondingly. On the flip side, UNITYBNK led the decliners after paring by 42.80% YtD, to peg its price at NGN2.86. FO, EVANSMED, DIAMONDBNK, and WAPIC, also followed suit, shedding 22.77%, 21.05%, 20.25%, and 16.93% respectively.
According to our Meristem sector indices, the MERI-AGRIC index has advanced the most so far in 2015, after appreciating by 30.11%.
The index is trailed by the MERI-BNK, MERIHLTH, MERI-CONG, MERISER U, MERIINS indices which have each appreciated by 14.54%, 9.71%, 4.21%, 3.33% and 0.14% respectively. While the MER-IND index declined most by 7.64%, followed by the MERI-CMG (-6.21%) and MERI-OILG (-0.04%) indices. Looking forward, we are optimistic regarding a possible rebound in the equities market as risk factors abate. This, however, may be pressured by other risk factors in the Nigerian economy which remain prevalent (i.e. persistently pressured global crude oil prices). In this report, we review the year so far as we enter into a new political dispensation, giving our views on what we expect for each sector for the rest of the year.
Economic Round-Up: New government takes office
Tomorrow May the 29th, will go down in history as the day in which the President-elect, from arguably the most keenly contested election in Nigeria, was sworn into office. Expectations of “change” are rife, as most Nigerians expect an immediate change in the outlook for the country.
While the out-going government might have recorded some achievements during its reign, some Nigerians and non-nationals do not hold it in high regard. While the incoming president, General Muhammadu Buhari, is renowned for his zero tolerance attitude to corruption, and vast knowledge and achievements in the Oil & Gas sector, as the Petroleum Trust Fund (PTF) chairman in 1994.
It is expected that major factors impeding the country’s performance such as high level of corruption in public offices and insecurity among other challenges will be extensively addressed during his regime.
Furthermore, the Vice President-elect, Professor Yemi Osinbajo is also expected to bring to the table, his wide knowledge of law in improving the country’s perceived weak judicial system. This, we anticipate may support the expected war against corruption and insecurity.
Fixed Income: Reserves down by 14.08% YtD
Yields in the Nigerian fixed income recently enjoyed a relative level of stability, due to increased levels of participation which partnered the abatement of risk factors in the Nigerian economy (primarily political risk). However, consternation remains amongst investors, given the lingering risk factors which may reduce their Return on Investment (ROI) (i.e. uncertainties regarding the Naira, and pressured foreign reserves amongst others).
Activities in the bond market closely mirrored those of the T-Bills market, which resulted in the average yield settling at 13.82% (-0.26% YtD) across TB instruments, as investors took advantage of the attractive offer yield on the Treasury bonds, resulting in a YtD decline of 0.21% in the average offer yield, to 14.63%.
The external reserves have witnessed a level of stability recently, paring marginally by 0.30% in the period between the 30th of April and the 27th of May, 2015, although it has declined by 14.08% to USD29.62bn Yearto- Date. We speculate that the stability in the foreign reserves was largely precipitated by the institution of the new FX trading system (Order Based 2-way Quote (“OB2WQ”) following the RDAS shutdown.
In addition, the mild resurgence seen in the global crude oil prices in recent times, as Brent crude touched a year-high of USD67.77 on the 6th of May, 2015, may also be partly responsible. We are of the opinion that purchasing high yielding bonds now, may portend good capital appreciation benefits once market conditions normalize, and participation in the fixed income market increases.
Our expectations are tempered by certain adverse factors like rising inflation (8.7% in April), and negative news flows regarding the country’s fiscal position which could potentially increase consternation amongst investors. Notwithstanding, we believe that there will be a short-term fade period for most of the headwinds which are currently depressing activities in the Nigerian financial markets
Agric sector: MERIAGR index achieves YtD return of +30.11%
The Agric sector have had a positive run in the year, recording a Year-to-Date return of 30.11%, according to our MERIAGRI index.
Three stocks appreciated while two stocks traded flat. PRESCO, OKOMUOIL, and LIVESTOCK, all achieved positive YtD returns of 43.67%, 16.37% and 5.26% respectively, with ELLAHLAKES and FTNCOCOA traded flat.
During the week, PRESCO continued its 3-week gaining streak to lead the market outperformers, with a 14.70% gain to close at NGN35.20. LIVESTOCK and OKOMUOIL also mirrored this positive movement with returns +3.00% and +2.08% respectively, while other sector stocks traded flat. The MERIAGRI index appreciated by 6.42% WtD.
We are also optimistic that the various stimulation policies put in place to boost the Agric sector such as CACS, Import Substitution, Fertilizer e-wallet Scheme, coupled with the Agric credit guarantee scheme funds from regional and international organizations such as African Development Bank amongst others will continue to drive sector companies’ growths, and consequently sector equities returns.
Banking sector: Resurgence doesn’t mask risk factors
The year so far has been wholly positive for banking sector stocks, as many recovered post- General elections, after trading at multi-year lows. Also, the better than expected earnings releases by most banks, which benefitted greatly from the devaluation of the naira, played its part in the resurgence. The sector has returned +13.71% so far in the year, as measured by our MERI-BNK index, and the best performing stock’s this year include; UBA (25.58%), FCMB (24.10%), FIDELITYBK (19.14%), and UBN (19.06%). On the other side, the worst performing shares are led by UNITYBNK (42.80%), which underwent a share restructuring which reduced its shares outstanding to 11.69bn shares.
The ticker is followed by DIAMONDBNK (20.25%), STERLNBNK (16.93%), and ACCESS (5.61%). Given all our expectations for the sector, and our anticipations regarding the economy and financial markets, our top picks for 2015 are GUARANTY, ZENITHBNK, which may seem a fairly safe, and predictable selection. However, these are the stock which we expect will remain unaffected by regulatory reforms, and which can maintain their financial performances in the current range over the mid-tolong term.
Consumer Goods: Sector Index records -6.12% YtD
The Consumer goods sector has experienced and endured an array of news, and sentiments which have affected investors’ bias towards the sector’s counters. Analyzing the performance of the sector equities reveals that VONO is the sector’s best performer, with a +50.89% return so far in the year. Following closely are VITAFOAM, NASCON, UNILEVER, PZ and UACN with respective YtD returns of 33.75%, 28.62%, 25.70%, 22.61% and 21.18%. The listed companies in the Breweries sector have not fared so well in the year. GUINNESS, NB, INTBREW, CHAMPION and PREMBREW have recorded YtD returns of -3.06%, -9.20%, -14.42%, -3.30% and -13.98% accordingly.
These have not been the only sector equities’ impacted by negative market and sector sentiments, as DANGFLOUR (-9.45%), FLOURMILL (-7.65%) and NESTLE (-15.99%) have also recorded negative returns. We anticipate that most of the companies within the sector will enjoy a modest return for the year as normalcy return to the sector and the economy. However, NESTLE, FLOURMILL and NB remain our top picks for the sector despite their negative YtD returns.
Healthcare Sector: Reforms and CAPEX to trigger sector growth
The Healthcare sector has sustained its positive momentum so far in the year with Year-to-Date return of 9.71%, as measured by MERIHLTH index. An equal number of stocks advanced and declined so far in the year, to bring sector breadth to an equilibrium, while other counters stayed flat. NEIMETH, PHARMADEKO and MAYBAKER have all had a positive showing so far in the year, as each stock appreciated by 53.85%, 4.21% and 2.53% respectively.
On the converse, EVANSMED, GLAXOSMITH and FIDSON depreciated the most, after paring by 21.05%, 12.00% and 8.21% accordingly. All other counters traded flat YtD. In the week, MAYBAKER reversed its previous week’s gain by 12.90%, to peg price at NGN1.62, trailed by EVANSMED and FIDSON which depreciated by 0.55% and 0.28% respectively. No counter posted gains in the week Based on our performance expectations and companies’ positioning in the sector, coupled with their current prices, we recommend FIDSON and MAYBAKER as our top picks in the Healthcare sector.
Insurance sector: Rekindled hope amidst strict regulations
In spite of the weak demand for insurance stocks and limited growth drivers, the sector’s YtD return remain positive. Owing to a WtD gain of 0.20% during this week, the insurance sector has recorded a positive YtD return of 0.14%. This performance was swayed by the relatively flat return for most sector stocks, with a lone decliner, and 2 advancers. CONTINSURE (+6.00%) and WAPIC (+1.89%) were the gainers, while NEM (-7.95%) suffered significant price decline to close at NGN0.81.
We are optimistic about the growth potentials of the sector, and anticipate increased foreign insurer’s interest in the industry, as has been witnessed in recent times. Following this, we expect growth in the sector to be reflected in the stock prices of companies with strong fundamentals in the mid-to-long term. Based on our forecasts and assessments of individual company fundamentals, our top picks for the insurance sector are CUSTODYINS and MANSARD.
Industrial goods: DANGCEM and CAP remain our top picks
The industrial goods segment of the Nigerian equities market has witnessed a -7.64% YtD return so far in 2015. This, is expected given the economic realities of the country. Three stocks outperformed Year-to-date, while five stocks in the sector underperformed.
The gainers’ chart YtD has WAPCO (21.78%), BERGER (11.11%), and CAP (9.33%).
While PAINTCOM (-13.64%), DANGCEM (-10.00%), PORTPAINT (-6.67%) and CCNN (-0.67%) depreciated in price during the year. During the week PORTPAINT led the advancers with a 4.90% appreciation in share price to close at NGN3.64. WAPCO (2.00%), DANGCEM (1.27%) also emerged gainers for the week. Conversely, CAP (-3.61 %,) and CCNN (-1.71%) were the decliners for the week, while other counters traded flat.
In our opinion, the local content bill, 3.5% urbanization rate, emerging middle class and growing population, 170mn population growing at 2.6% and about c.30% paved road network are other drivers for the sector.
However, the main drag for the sector remains the economic conditions of the country, which has limited construction activities so far in the year. Going by our performance expectation and current prices of stocks, our top picks are DANGCEM and CAP.
Oil and Gas: TOTAL outperforms with 22.11% gain Year-to-Date
Investor’s bias towards the Oil and Gas sector during the year has been premised on the fate of global oil prices, and the intermittent currency devaluations (including tacit devaluation) which have affected the books of major sector players. Seplat Development Company, is the only company fully operating at the upstream segment of the industry, and has been the most hit by these factors, while other downstream and midstream companies have fared better.
The recent price resistance of global oil (BRENT) at USD60pb stands threatened by global challenges like escalating crises in the Middle East, and also the outcome of the upcoming Organization of Petroleum Exporting Countries (OPEC) June 5th meeting. BRENT has gained 8.72% YtD to peg at USD62.33pb. Year-to-Date performance of the sector, shows three advancers and five decliners, while others stocks have traded flat.
TOTAL leads the pack with a YtD gain of 22.11%, closely followed by OANDO and CONOIL, which have both advanced by 17.32% and 7.58% accordingly. Contrarily, FO, SEPLAT, ETERNA, MOBIL, and MRS have declined further in the year, shedding 22.77%, 8.90%, 7.72%, 7.09%, and 5.00% in that order.
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