Market Remains Under Pressure, Pares By 1.14%

…Nigeria to be excluded from Barclays Index

The NSEASI pared during the week, declining by 1.14% to bring the YtD return to -16.78%, with market returning negative on three (3) trading days during the week. The volume and value of transactions both advanced by 5.88% and 34.96% accordingly, as 29 stocks advanced against 40 decliners, to peg the market breadth at 0.73x.

The gainers for the week were led by UNILEVER, after the ticker recorded a 15.75% Week-on-Week (WoW) gain. The ticker was closely followed by ETERNA, UAC-PROP, and DANGFLOUR which recorded respective gains of 12.42%, 10.14%, and 9.52% accordingly. On the other side, AGLEVENT recorded the largest loss in value, after the ticker recorded a 12.75% WoW price decline. Also, on the decliners’ list were CAVERTON (-9.42%), ETRANZACT (-9.26%), and NAHCO (-8.47%). The market remained pressured during the week, as underwhelming results releases and generally negative sentiments have seemingly weighed down price returns.

Also, yields in the fixed income markets trended down to lows not witnessed since 2010, as subsisting system liquidity exerted downward pressure on yields, although we note that the current level of interest rates may benefit the equities market over the midterm provided the current levels persist over the same horizon. Going into next week, we anticipate that activities will mirror those of this week, with trading activities resulting in spikes in prices on which players may attempt to capitalize.

Also, on the heels of Nigeria’s exclusion form JP Morgan’s Government Bond Index for Emerging Markets (GBI-EM), Barclays announced that Nigeria will be excluded from its Emerging Market Local-Currency Bond index (EM-LCBI) on the 1st of February, 2016. While Nigeria will be excluded from the EM-LCBI, the bank noted that the country would remain eligible for its broader Emerging Markets local currency Government Universal Index. In this report, we review events in the economy, laying emphasis on the performance of different segments of the financial market, while presenting our expectations for the coming week.

Fixed Income update … Barclays to exclude Nigeria’s Bonds

NIBOR advanced by an average of 0.27% on the first trading day of the week, however, this trend did not persist as rates declined given substantial system liquidity. By the end of the week, the average rate across tenors declined marginally (0.01% WoW) to peg at 11.46%. Also, OBB and OVN rates closed the week at 0.71% and 1.00% accordingly. Investors favored the Nigerian Treasury Bills for most of the week, with increased demand pressuring yields downwards by an average of 1.61% WoW across tenors.

The buy activities were more evident on the 6M instrument which recorded a significant 2.25% WoW decline, as the average yield across tenors pegged at 4.33%. Barclays announced its intention to exclude Nigeria from its local currency EM Bond Index, this news however, did not significantly impact activities within the secondary market, as the average offer yield closed the week at 10.98%. There was an FGN Bond auction held during the week for instruments worth a total of NGN50bn, as the DMO re-opened the 15.54 FEB 2020 (NGN20bn) and 14.20 MAR 2024 (NGN30bn) bonds. The respective stop rates on the 2020 and 2024 maturities were 10.249% and 10.01% accordingly. The naira continued to gain value against the dollar at the interbank, advancing by 0.25% WoW to peg the mid-rate at NGN197.54/USD.

The spread between the interbank and parallel market trading rates continued to widen, as the Naira pegged at NGN232/USD at the parallel market on the last trading day, representing a 2.20% WoW depreciation at the parallel market. We expect the current trend to persist at the bond market given the relatively high system liquidity, however, we anticipate decreased demand for the Treasury Bills instruments as the next primary auction draws closer.

Agric sector: FTCOCOA releases Q2:2015 numbers

The agric sector advanced during the week, to end a 3-week losing streak.

The sector’s performance, as measured by our MERI-AGR index, was recorded at 0.13% WoW to peg the Year-to-Date return at +19.03%, as a lone stock advanced and declined respectively. OKOMUOIL emerged as the only gainer for the week, as it advanced by 0.28% WoW to close at NGN28.90.

On the other side, LIVESTOCK was the only decliner, paring by 0.71% to close the week at NGN1.40. All other stocks traded flat. FTNCOCOA released its Q2:2015 numbers during the week, which showed a significant YoY increase in Revenue, which advanced by 251.71% to NGN562.29mn, however, this was completely withered away due to the company’s significant cost of sales, NGN591.99mn (+91.37% YoY growth).

Given this, and despite the decline in operating expenses and in-crease in other operating income, the company recorded a loss before taxation of NGN39.07mn.

Although we note that this represented quite a significant comparative decline over the corresponding period of the previous year (Q2:2014: NGN-291.39mn) While the agric sector is the best performing sector in the year, it seems to have lost steam recently, oscillating between gains and losses as the rest of the market. We expect this trend to be maintained over the short-term as negative sentiments continue to weigh down price returns.

Banking sector: Returns remain pressured by negative sentiments

The banking sector snapped back to losing ways this week, as sector performance, as measured by our MERI-BNK index, recorded a 1.06% WoW decline to bring the YtD return of the sector to –12.98%.

There were six (6) gainers and nine (9) decliners, to leave the sector’s breadth pegged at 0.67x, just as the volume and value of transactions of the sector’s tickers declined and advanced by 18.18% and 35.97% accordingly. ACCESS led the sector gainers’ chart after recording a 5.15% WoW price appreciation, followed by UBA, FIDELITYBK, and UBN which recorded respective price appreciations of 5.00%, 1.45%, and 1.43%. Conversely, UNITYBNK recorded the largest price decline, paring by 7.94%.

The ticker was followed by SKYEBANK (-6.19%), ETI (-4.86%), and ZENITHBANK (-4.01%) on the decliners’ list. We do not expect a change in the market trend which has characterized recent weeks, as even generally good 9M2015 results from the secotor’s banks were not enough to drive price returns. Hence, we advise investors to take decisions based on a long-term horizon, as we do not anticipate a market resurgence in the short-term.

Consumer Goods: Heavyweights drag sector returns

The Consumer goods sector recorded a WoW return of -2.49%, to bring the sector’s return to -20.01% (NSEFBT10), as negative market sentiments and some unpleasant sector specific news acted to weigh down returns. UNILEVER closed the week with a market price of NGN36.38, after a WoW price increase of 15.75%, to emerge as the highest gainer for the week.

DANGFLOUR, PZ, INTBREW, HONYFLOUR, FLOURMILL and NASCON also recorded price appreciations of 9.52%, 6.91%, 4.62%, 1.67%, 0.87% and 0.28% WoW accordingly. Contrarily, the decliners’ chart featured AGLEVENT, NB, GUINNESS, 7UP, CADBURY, VONO and CHAMPION amongst others, after the tickers recorded respective WoW declines of 12.75%, 6.12%, 5.77%, 5.71%, 4.98%, 4.35% and 4.08%. Guinness Nigeria Plc, on Thursday, notified the NSE and shareholders of the demand for a payment of NGN1billion (Administrative Charges) from the National Agency for Food and Drug Administration and Control (NAFDAC). The demand is relating to some alleged regulatory infractions, in relation to the destruction and re-validation of expired raw materials without authorization and supervision of the Agency.

The company noted that this relates directly to the raw materials and not its brands, and that discussions are on-going with NAFDAC. The activities on some of the sector heavyweights during the week could be credited to the tempered general market mood. However, we anticipate some bargain hunting activities in the coming week on the back of low trading prices, although we do not foresee a sustainable resurgence in the market in the short term.

Healthcare Sector: MAYBAKER posts 144.11% YoY growth in PAT

The healthcare sector traded flat during the week, as measured by MERI-HLT, thus pegging year-to-date return at -7.54%. There were three (3) decliners, while a lone stock appreciated in value. FIDSON reversed part of the losses the counter recorded in the previous week, advancing by 6.76% WoW to peg price at NGN3.00, hence emerging as the only price gainer for the week. On the flipside, EVANSMED and NEIMETH pared in value by 7.41% and 4.85% respectively, after trading flat in the prior week.

Also, MAYBAKER upturned the prior week’s gain, after paring by 5.00% during the week, to settle price at NGN1.14. In the week, MAYBAKER released its 9M2015 performance scorecard which showed, 8.88% and 144.11% Year-on-Year growths in revenue and Profit-After-Taxes (PAT) accordingly. The significant growth in PAT was due to cost savings across all the cost lines. Despite this impressive showing, the stock declined in value during the week.

Although the MERI-HLT closed flat in the week, the sector mood remains negative, considering the number of decliners relative to gainers. However, we expect bargain hunting to ensue on sector stocks in the coming week, as reactions to the unimpressive 9M2015 results fade. Consequently, we advise short term investors to blend optimism with caution, while also taking positions in fundamentally justified stocks.

Industrial Goods: Bellwether stocks determine sector direction

At the end of the trading week, the industrial goods sector closed 0.39% down, as measured by our Meri-Industrial sector index. There were an equal number of gainers and losers in the week, thus pegging sector breadth at 1.00x.

The top gainer for the week was CAP, which appreciated by 7.76% to close at NGN40.95. Also, CCNN and BERGER advanced by 1.01% and 0.10% respectively, to make up the gainers’ chart.

WAPCO led the decliners’ for the week, after depreciating by 4.26% to close at NGN90.00. Other losers were ASHAKACEM and DANGCEM which each shed 2.18% and 0.05% of their respective values. PAINTCOM released its 9M2015 results in the week, which showed a 17.04% YoY growth in revenue, while Profits-After- Taxes pared by 17.66% YoY.

We noted that negative sentiments on the sector stocks waned slightly during the week ended relative to previous week, as seen in the WoW performances for both periods.

Considering the attractiveness of some stocks following the sustained bearish trend, we envisage trickles of position taking in the sector in the coming weeks. Insurance Sector: Sector surges despite weak earnings results The sector returned positive during the week, advancing by 1.61% WoW to peg the YtD return at -3.95%, as measured by the NSEINS10 index. There were five (5) advancers and one (1) decliner to peg the sector’s breadth at 5.00x.

MANSARD, NEM and LAWUNION emerged the sector’s top performers, after recording respective gains of 3.85%, 3.03% and 1.92%. On the flip side, CONTINSURE (-2.86%), was the only decliner.

All other counters traded flat during the week. GUINEAINS, LAWUNION, and PRESTIGE all released financial results during the week. GUINEAINS released its FY2014 numbers, which showed that the company recorded a growth in Gross Premium Written (GPW) and decline in Profits-After-Taxes (PAT) of 0.47% and 305.59% YoY accordingly. LAWUNION’s 9M2015 numbers showed a YoY decline in GPW of 9.37% to NGN3.25bn, while PAT grew significantly by 215.60% YoY. PRESTIGE recorded declines in both GPW and PAT of 80.81% and 114.87% YoY correspondingly.

We expect that profit-taking activities might dictate the direction of activities in the coming week, as investors take gains on stocks which have generated sufficient price returns.

Oil & Gas Sector: ETERNA records +12.42% WoW return

The sector was unable to consolidate on the previous week’s positive return as it closed the week in the negative zone. Sector performance, as measured by the NSEOILG5 index, was recorded at -0.25%. A lone advancer and two decliners resulted in a sector breadth of 0.50x. ETERNA recorded the only price appreciation, after advancing by 12.42% to settle at NGN1.81.

Conversely, OANDO and SEPLAT declined in value by 0.13% and 1.32% accordingly. While we maintain our stance that some of the sector’s stocks portend value at current price levels, we acknowledge that negative sentiments stemming from the current low level of crude prices, and outlook for same, may prove depressive to price returns over the medium term.

Services sector: YtD settles at -2.63%

The sector’s return, as measured by our MERISER index, was recorded at -2.46% WoW, dragging the year-to-date return to -2.63%. Two (2) stocks advanced against six (6) stocks that depreciated in value, pegging the sector breadth at 0.30x. IKEJAHOTEL was this week’s strongest performer, appreciating by 8.44% to close at NGN3.47.

The ticker was followed by REDSTAREX which advanced by 1.19%. On the other hand, CAVERTON had the largest decline in value, after paring by 9.42% to close at NGN2.50.

The ticker was tracked closely by NAHCO which shed 8.47%. LEARNAFRCA, ACADEMY, RTBRISCOE and AIRSERVICE also appeared on this week’s decliners’ chart, after paring by 4.41%, 3.39%, 1.96% and 0.52% respectively; other stocks within the sector traded flat. The sector’s YtD witnessed a marked southward movement over the week, denoting both negative market and sector sentiments.

We opine that share prices within the sector may steadily rise over the coming weeks, however, we advise investors to trade cautiously with a long – term view, on the sector’s fundamentally justified tickers.

-newtelegraph