MPC maintains status quo

…as 7-week bearish WoW trend ends

Despite uncertainties in the financial market in recent times, the All Share Index appreciated by 0.15% Week on Week (WoW), whilst YtD return settled at -10.29%. 29 stocks advanced against 44 stocks that pared to skew the market breadth (0.66x) in favour of decliners.

Volume traded and value of transaction increased WoW by 0.45% and 0.15% respectively. NEIMETH led the outperformers for the week, witnessing a price appreciation of 19.69% to close at NGN1.52 for the week.

Other counters that featured on the gainers’ chart were BETAGLAS (15.50%), CAVERTON (14.91%), HONYFLOUR (10.71%), and TRANSCORP (8.49%) in that order. Conversely, TRANSEXPR topped the underperformers for the week, shedding 20.72%. Other top losers were CONTINSURE, EVANSMED, CCNN, and ETI which trimmed by 19.42%, 16.44%, 15.64%, and 10.00%% respectively.

The week also witnessed an avalanche of corporate releases, with BERGER, TRANSCOHOT, FLOURMILL, UBN, CCNN, UNILEVER, LINKASSUR, CORNERST, FBNH, DIAMONDBNK, FIDELITYBK and COURTVILLE releasing their Q2 performance scorecards.

While LINKASSUR, UBN, FIDELITYBK, FBNH and BERGER posted some good showings, all the other afore-mentioned released unimpressive results in line with our expectations. With more corporate releases anticipated, we opine that this might further drag returns. Given the relative stability in interbank rates, the CBN’s ability to manage liquidity, and the fact that some leakages are being plugged, 8 people voted against four to maintain status quo during the 245th MPC meeting.

Consequently, no changes were made, and MPR and CRR were retained at 13%, and 31%. We opine that with the outcome of the MPC meeting, investors’ sentiments and skepticism might cause an increase in market activity in the coming week. In this report, we review event in the economy laying emphasis on performance of different segments of the financial market while presenting our expectation for the rest of the month.

Fixed Income: Liquidity level exerts upward pressure on rates

Activities in the Treasury bill and bond markets started off the week relatively bullish, in contrast to the previous week. This momentum was maintained in the bond space whilst the Tbills’ run was short-lived, lasting only the first trading day with mixed sentiments prevailing thereafter. Consequently, the week’s average yield on T-Bills stayed flat at 13.77%, while the average yield in the bond space closed the week at 14.99%.

The OBB and OVN rates both soared to 14.17% (+6.09% WtD) and 14.67% (+5.92% WtD) respectively, a trend mirrored by the average NIBOR tenors rates which closed the week at 17.20% (+2.92% WtD), spear-headed by the Call rate, 19.21% (+9.75% WtD).

We opine that activities on the debt instruments were tempered during the week, as investors remained relatively cautious in anticipation of the MPC meetings’ outcome. While we attribute the increase in money market rates to low system liquidity.

The Naira remained stable during the week, closing at mid-price of NGN197.80/USD. We do not expect any volatility in the interbank rate in the short-term, while it is anticipated that the parallel market rate might continue to weaken against the greenback.

Agric Sector…OKOMUOIL inch up by 0.70%.

Despite the lackluster performance in the equities market, the agric sector remained resilient, as the sector performance as measured by our MERIAGR index advanced by 0.29% WoW.

The marginal growth was larger driven by a higher price appreciation of the lone stock that gained, as against the lone stock that waned in value. OKOMUOIL appreciated by 0.70% to close at NGN26.00 (vs. NGN25.82 in the previous week), and emerged as the sole gainers for the week.

On the flip side, LIVESTOCK waned by -1.99% while PRESCO, ELLAHLAKES and FTNCOCOA all traded flat.

We expect discerning investors to take position in some of the counters given their relatively low prices ahead of a probable resurgence in the coming week, as we anticipate Q2:2015 results in the agric sector Banking Sector: Start of Earnings Season doesn’t stop fall The week was largely negative for banking stocks, as 11 stocks pared in value against 4 advancers.

The top gainers for the week included STERLNBNK (4.88%), ACCESS (3.18%), and UBN (1.55%), while the decliners were led by ETI (-10.00%), UNITYBNK (-6.56%), and WEMABANK (-4.26%). FBNH, UBN and UNITYBNK released H1:2015 numbers during the week.

FBNH grew Gross earnings, Profit-Before-Taxes and Profit-After-Taxes, by 27.97%, 7.9% and 7.7% YoY respectively. UBN grew gross earnings by 5.81%, while PAT grew by 1.81%. UNITYBNK recorded top and bottom-line growths of 8.79% and 11.10% accordingly.

The losses in the sector are partly due to the general consternation pressuring down the general market, and also partly due to the expectations that sector-wide financial performances will be weak in 2015. We advise taking position in cheap fundamentally justified stocks as prices bottom out.

Consumer Goods: Scorecards spun investors’ reactions

During the week, the sector, as measured by our Meri-Consumer Goods Index, returned 0.54% WtD. HONYFLOUR (+10.71%) recorded the highest market price appreciation while AGLEVENT (-9.09%) recorded the highest decline.

Sector breadth was 0.70x with 7 advancers against 10 decliners. UNILEVER’s Q2 results showed 1.91% decline in revenue; while Cost of Sales and finance costs increased by 3.78% and 137.38% respectively. Accordingly, profit after tax declined by 94.16%, in spite of the 98.61% decline in tax payable. FLOURMILL’s FY2015 results showed 5.23% and 5.23% respective declines in revenue and cost of sales.

Consequent upon the NGN14.29billion gain on disposal of investment in associate and tax rebate of NGN0.74billion, however, profit after tax increased by 57.66%. Investors’ reactions to these earnings releases saw FLOURMILL and UNILEVER recording price depreciations of 0.65% and 1.35% in that order. Recent earnings releases have mirrored our expectations from companies, given current economic realities.

In spite of recent performances, however, most of the component companies hold potential upside for investors with medium to long term horizons. We advise investors to take position only in fundamentally justified stocks. Healthcare Sector: Bears continue to growl The sector, as measured by our MERI-HLTH index, closed the week 0.01% down, which dragged Year to Date return to 8.39%.

Only one stock recorded price appreciation, while two stocks declined, leaving market breadth at 0.5x for the week. All other counters traded flat. NEIMETH emerged as the only price gainer in the week, advancing by 19.69% to peg price at NGN1.52. Conversely, EVANSMED and MAYBAKER recorded price declines in the week, paring by 16.44% and 8.55% to close at NGN0.61 and NGN1.39 respectively.

As we do not expect striking results from companies in the sector, we advise investors to continue to tread cautiously. In view of the abatement of current risk factors and resurgence in the economy, we advise investors with medium to long term horizons to take advantage of stocks trading below their fundamentally justified prices.

Industrial goods: Berger and CCNN results, a mixed bag

The bearish mood in the industrial goods sector appeared to have subsided slightly during the week, as three stocks closed positive as against zero advancers in the previous week. Subsequently, the sector index appreciated marginally by 0.96% in the review period.

BERGER, which released an impressive H1:2015 results during the week, emerged as the highest gainer with a 4.67% WtD growth in share price. ASHAKACEM and DANGCEM followed suit with 4.13% and 1.21% increases in share value to close the week’s trading at NGN21.92 and NGN170.04 respectively.

CCNN shareholders continued to dump the stock, as the ticker led the sector laggards for the second consecutive week, declining by 15.64% to NGN8.79. Other decliners were DNMEYER, CAP and WAPCO which recorded respective losses of 3.95%, 1.22% and 1.00% WtD.

BERGER declared a 50.20% YoY growth in Profit-After-Tax (PAT) for H1:2015, on the back of 14.91% and 48.75% YoY growths in revenue and other income from the prior year. CCNN on the hand, witnessed a 6.98% decline in sales during the period, coupled with a 13.57% increase in finance expense, resulting in a 17.98% YoY drop in PAT.

We expect more H1:2015 result releases from industrial goods companies in the coming week.

We are, however, not bullish on the performance of these companies given the performances recorded as at Q1:2015, and the unconducive operating environment in Q2:2015. Based on this, we predict a somber mood in the sector, as we do not anticipate sufficient drive for positive trading activities in the coming week.

Insurance sector: LINKASSURE releases Q2:2015 results

The apathy towards insurance stocks was sustained during the week, as the NSEINS10 index pared by 2.00% WoW to peg the year to date return at -6.78%. CONTINSURE recorded the highest loss, as the counter pared by 17.48% to close at NGN0.85 compared to NGN1.03 in the previous week.

NEM and AIICO trailed with losses of 4.55% and 3.16% respectively. Following a 1.82% price appreciation on the last trading day of the week, MANSARD ended the week with a price of NGN2.80 (vs. NGN2.75 in the prior week).

All other tickers traded flat. Linkage Assurance Plc. and Cornerstone Plc. released their Q2:2015 financial results in the course of the week. LINKASSURE grew Gross Premium Earned (GPE) and Profit after Tax (PAT) by 29.23% and 10.90% to NGN2.38bn and NGN0.48bn (compared to corresponding NGN1.84bn and NGN0.44bn in Q2:2014).

CORNERST on the other hand, grew GPE by 15.57%, while PAT waned significantly by 60.18% down to NGN234mn from NGN587mn in the corresponding period.

The drag in CORNERST bottom-line was engineered by an upsurge in combined ratio (Claims & expenses) to 98.57% up from 72.51% in Q2:2014. We expect the outcome of the MPC committee to have a positive effect on the stock market in the coming week, and by extension, we expect it to bode well for insurance stocks.

Oil & Gas Sector: Sector returns +1.55% WtD

Coming from a low ebb, the Oil & Gas sector returned to positive waters in the week, with the sector performance as measured by the NSEOILG5 index settling its WtD change at +1.55%. Four stocks closed positive, while one counter waned in value.

Other counters traded flat. OANDO led the advancers by 7.94% WoW to close at NGN13.60, while MOBIL, ETERNA, and TOTAL followed suit, gaining 2.12%, 1.37%, and 1.31% in that order. FO was the sole decliner in the sector, paring by 1.12% to close at NGN186.00 for the week.

Queues for PMS (Petrol) at filling stations are gradually resurfacing within the country, as the scaling down on product imports by major marketers become more evident. We however note that as challenges of reduced product importation and increased costs of operation linger, we do not expect Q2:2015 earnings releases by the companies to be any different from their first quarter releases.

Following the decline in volume (-31.98%) and value (-52.96%) of transaction WoW, we do not envisage major activities in the sector in the coming week, bearing in mind the present equities market mood. Though we anticipate except for some bargain hunting when opportunity avails.

Services Sector…CAVERTON remains resilient; gains 14.91% WoW

The services sector continued its bearish mood in the week. A sole stock emerged as the only advancer, against five (5) stocks that trimmed in share prices to skew sectoral breadth (0.20x) in favour of the underperformers.

The MERISER index pared by -1.20% WtD, further dragging the Year-to-Date return to -7.78%. CAVERTON was the sole advancer, appreciating 14.91% WoW to close its price at NGN4.24.

On the flip side, TRANSEXPR led the decliners, as it shed 20.72%. REDSTAREX (-4.84%), AIRSERVICE (-4.81%), IKEJAHOTEL (-4.26%), and NAHCO (-2.94%) all followed suit in that order.

In another development, Transcorp Hotels Plc. released its Q2:2015 scorecard with topline and bottom line declines of 10.22% and 16.50% respectively. We believe that the services sector might not witness a rebound in the coming week given the high degree of correlation between the services sector and the state of the nations’ economy.