Market loses 2.15% WtD

The equities market continued on a downward slide during the week, as trading activity was dragged by negative investors’ sentiment.

The equities All Share Index (NSEASI) declined by 2.15% WoW to peg the YtD return at -10.41%. Market breadth (0.21x) tilted in favour of the decliners, with 13 stocks advancing against 61 decliners.

Despite the relatively shorter number of trading days in the week, volume traded declined by just 6.09% while market turnover increased week on week by 28.48%.

CAVERTON emerged as the top gainer for the week, advancing by 7.89%, to settle price at NGN3.69 for the week. The ticker was trailed by ETI, FO, UNITYBNK, and DIAMONDBNK which recorded respective gains of 4.76%, 4.50%, 3.83%, and 3.29%.

On the flip side, TRANSEXPR was the highest decliner for the week, paring by 22.92% to close at NGN1.11. Other top laggards were CWG, TRANSCORP, OANDO, and AGLEVENT which declined by 18.09%, 15.20%, 14.17%, and 13.57% correspondingly.

In the week, STANBIC, NB, CADBURY and NEM released their Q2 performance scorecards. The companies, save for NEM, posted unimpressive results, largely in line with our expectations. We expect to see an influx of more companies’ results in subsequent weeks, which might further drag returns.

In our opinion, the prolonged dampened mood in the equities market is due to dearth of policy direction by the current government coupled with investors’ skepticism ahead of the MPC meeting scheduled for 23rd and 24th of July 2015.

We expect the outcome of the MPC meeting, inflow of H1:2015 results as well as policy actions or pronouncements from the government to dictate the direction of trade in the coming week. In this report, we review events in the economy, laying emphasis on performance of different segments of the financial markets, while presenting our expectations for the week ahead.

Fixed Income Brief: CBN acts to ease liquidity pressures on FX

The fixed income space encountered more bearish sentiments from investors in the week. However, pockets of bargain hunting and profit taking were recorded on both Treasury bills and bonds. Average yield on Treasury Bills settled at 13.77% (+0.32%), with yield on the 1M T-Bill (+2.22%) advancing the most to peg at 12.33%, while yield on the 12M T-Bill (-0.38%), pared the most to peg at 14.77%. Sell pressure outweighed demand in the Treasury bonds space, as average offer yield change for the week was +0.12%, and average yield settled at 15.18%.

The Treasury bond auction held in the week was largely undersubscribed, as only NGN44bn of the initially proposed NGN70bn was sold by the DMO. Stop rates on the auctioned FEB2020 (NGN28bn) and JUL2034 (NGN16bn) re-openings were 15.289% and 15.299% respectively.

We expect decisions by the MPC on key variables such as the MPR to have a material impact on market activities in coming weeks. OBB and OVN rates pared by 2.82% WtD on the average, holding at 8.08% and 8.75% respectively, while average rate on NIBOR tenors settled at 14.28% (-0.98%) WtD.

This tempered activity, in our estimation, was due to increased system liquidity from Open Market Operation (OMO) maturities worth NGN124.49bn that hit the system on the last trading day of the week. The CBN, on Wednesday, sold USD80mn to BDC operators at NGN196.95/USD, which can be sold with a maximum spread of 3.50% to the clearing rate. However, the Naira depreciated by 3bps in the week, as mid-price settled at NGN197.50/USD in the interbank market, while the currency continued to lose ground against the greenback in the parallel market.

Agric sector: Counters stay bearish

The Agric sector stocks stayed bearish, mirroring last week’s mood, with the MERIAGR index paring by -8.73% WoW to further drag the Year-to-Date to 14.66%. Three (3) stocks waned in value, while the remaining two (2) stocks traded flat.

PRESCO emerged as the sector’s top underperformer, as the counter pared by 8.26% to close at NGN31.19. In the same vein, OKOMUOIL and LIVESTOCK pared by 9.40% and 0.99% respectively. Other stocks in the sector – FTNCOCOA and ELLAHLAKES – traded flat during the week. The erstwhile resilience of agricultural sector stocks has been dragged to a bearish mood, in recent times, by the apathy and the lackluster performance in the equities market. However, we expect that specific news flow such as Q2: 2015 earnings releases, if impressive will drive the sector to gains in coming weeks.

Banking Sector: MERI-BANK Index pares by 2.51% WoW

The gains recorded by some banking stocks on the final trading day of the week brought the WtD return as measured by our MERIBank index to -2.51%, after reaching -3.86% as at Wednesday.

Sector breadth for the four (4) trading days in the week pegged at 0.36x, as four (4) stocks (ETI, UNITYBNK, DIAMONDBNK and UBA) recorded gains, while eleven stocks declined in value.

The top losers for the week were ZENITHBANK, UBN, WEMABANK, SKYEBANK and FBNH, with respective losses of 6.49%, 6.06%, 6.00%, 4.87% and 4.39%. We attribute the sector’s negative return for the week to uncertainties regarding the possible outcomes of the next MPC meeting, which has been re-scheduled for 23rd and 24th of July.

While the market expects a relaxation of FX trading rules, the unavailability of a viable alternative makes the adoption of same impractical. We therefore expect the MPC, in the upcoming meeting, to retain policy variables.

The losses posted in the week may also be attributed to expectations for H1:2015 results, which are expected to be weak given the decline in income generation for most banks especially from non-interest sources, as well as the increased cost of funds and risk across the sector.

While we are not optimistic about the sector for the rest of the year, we advise investors to trade with caution, and employ a more long-term approach.

Consumer Goods: NB’s PAT declines by 10.02% YoY

Investors’ apathy towards the sector counters continues to pressure prices downwards, with our Meri-Consumer Goods index recording WtD and YtD returns of -3.70% and -15.72% respectively. UACN and GUINNESS were the only gainers for the week within the sector, recording price appreciation of 2.47% and 1.57% accordingly.

AGLEVENT, HONYFLOUR, DANGFLOUR, FLOURMILL and DANGSUGAR recorded the highest depreciations in value for the week, after paring by 13.57%, 13.31%, 10.29%, 9.60%, and 9.37% respectively.The earnings season for the sector has begun, with NB, CADBURY, and CHAMPION releasing Q2:2015 scorecards. NB’s result showed an increase in revenue of 7.19% YoY, and profit after tax decline of 10.02% YoY, while CADBURY’s revenue declined by 7.72%, with a loss after tax of NGN250.716m (120% YoY decline).

Also, CHAMPION recorded a turnover growth of 14% YoY, while also recording a loss after tax of NGN14.579m (101.65% YoY growth). The sector performance is closely in line with the general market, and we do not anticipate that there will be a resurgence in the shortterm. Nonetheless, we opine good buying opportunities for long term investors still remain.

Healthcare Sector: No price gainer in the week

The sector closed down for the fourth consecutive week, as the MERI-HLTH index pared by -0.04% Week to Date, to settle the Year to Date return at 8.40%. Only four (4) stocks recorded price depreciations, while other counters traded flat. EVANSMED emerged as the biggest underperformer for the week, declining by 12.95% WoW.

Following closely were NEIMETH, MAYBAKER and FIDSON with respective losses of 8.63%, 5.00% and 4.89%. We ascribe the dreary mood in the sector to the general sentiment in the equities market, as investors continue their flight to safety amidst the gloomy state of the economy. We however, advise long term investors to take advantage of stocks trading below their fundamentally justified prices ahead of market recovery.

Insurance sector: NEM release impressive Q2:2015 financial result.

The insurance stocks had a bearish outing during the week, as the sector’s index waned on all four (4) trading days. Measuring the sector performance by the NSEINS10 index, the sector pared by 1.17% WoW, to peg the YtD return at -5.17%. Four (4) stocks declined in value, while all other stocks traded flat. CONTINSURE with a 6.36% loss, emerged as the top loser during the week, while LINKASSURE (-1.96%) CUSTODYINS (-1.72%) and NEM (-1.49%) trailed in that order.

In the course of the week, NEM released more than impressive Q2:2015 results. Gross Premium Earned (GPE) grew by 10.86% YoY to NGN4.79bn, while Profit after Tax also appreciated significantly by 45.13% YoY to NGN1.58bn (vs. NGN1.09bn in Q2:2014). However, the news was not adequate to sway investors’ sentiment in favour of the counter. While investors await other earnings releases in the coming week, we expect the bearish sentiment to persist, and so advice investors’ to blend their optimism with caution.

Industrial goods: No sector gainer in the week

In line with the bearish trend in the market, none of the stocks in the industrial goods sector recorded gains during the week ended. Six (6) stocks declined in value while others traded flat, bringing the sector’s WtD and YtD returns to -0.46% and -12.95% respectively, according to our Meri-Industrial index. CCNN led the laggards for the week, with a 9.39% drop in value to NGN10.4, while BERGER, ASHAKACEM, PORTPAINT, WAPCO and DANGCEM shed 7.77%, 4.97%, 3.00%, 1.96% and 0.18% accordingly.

Although sector returns remain volatile owing to incessant profit-taking activities by stakeholders, as well as growing investor apathy to the stock market, we urge stakeholders with long investment horizons to take position in fundamentally justified and attractively priced stocks.

Oil & Gas Sector: Bearish activities persist

Bearish sentiments on the sector stocks from the previous week were sustained, as the Oil & Gas sector once again closed negative. WtD change as measured by the NSEOILG5 index was -2.58%. Three counters closed positive, while four counters waned in value. FO outperformed peers, advancing by 4.50% to settle at NGN188.10, while TOTAL and MOBIL followed with respective price gains of 1.84% and 1.35%.

OANDO, ETERNA, SEPLAT, and MRS also featured on the laggards’ chart, paring WoW by 14.17%, 6.41%, 3.37%, and 1.74% accordingly. Other stocks traded flat. In the week, Iran and the P5+1 group finally arrived at an agreement regarding the Iran nuclear deal, with implementation expected in November. Consequent upon this, the price of Brent crude declined by 1.53% WoW, to peg at USD57.83pb.

We opine that given the anticipation of increased supply of Iranian oil (though not immediate), pricing of the commodity might remain below USD70pb for an extended period of time, barring any major uptick in global demand for crude oil.

Services sector: CAVERTON leads gainers after 2weeks of inactivity

The services sector aligned with the mood in the equities market, as sector breadth of 0.33x tilted in favour of six decliners, against two stocks that appreciated in value. The MERISER Index declined by 4.60% WtD, dragging YtD return to -7.78%. Following a 2-week hiatus, CAVERTON led the gainers with a price appreciation of 7.89% to close at NGN3.69. ABCTRANS followed with a 1.96% increase.

On the other hand, TRANSEXPR led the losers with a 22.92% decline, followed by NAHCO (13.45%), LEARNAFRICA (8.80%), RTBRISCOE (7.79%), and ACADEMY (4.21%) in that order. We believe that the bearish mood might persist into the coming week, especially as investors await the outcome of the MPC meeting, and implications for the economy, upon which activities in the services sector is dependent.