Source: Thisdayonline, Feb, 2012

Investors’ hope that the Nigerian equities market would rebound last week were dashed as the market closed weaker because profit warning by two banks sparked fears that the expected strong corporate report by blue chip companies might not be realisable.

The market had since the beginning of the new-year maintained an unstable trend following rising cost of living on the back of the removal of subsidy from fuel by the Federal Government.

It nonetheless, recorded a mixed performance the previous as bargain hunters take position for possible future gains following analysts insistence that the market will rebound as quoted companies begin to release their 2011 results.

However, the profit warning by two major banks further dampened investor confidence as the Nigerian Stock Exchange (NSE) key market indicators closed the week in red-led by the twin market gauge.

Trading statistics released by the NSE showed that the Exchange’s benchmark All-Share Index or ASI depreciated by 254.01 points or 1.2 per cent to close on Friday at 20,623.63 while the market capitalisation of the 186 First -tier equities dropped to N6.5 trillion.

Also, the NSE-30 Index, which mirrors the most capitalised stocks on the Exchange declined by 11.26 points or 1.2 per cent to close at 930.98. Last week, the NSE-ASI depreciated by 0.1 per cent while the NSE-30 Indices appreciated by 0.7 per cent.

Conversely, two of the four sectorial indices appreciated during the week, same as during the preceding week. While the NSE Consumer Goods Index appreciated by 8.07 points or 0.5 per cent to close at 1,684.78, the NSE Oil/Gas Index went up by 1.03 points or 0.5 per cent to close at 213.78.

However, the NSE Banking Index depreciated by 10.53 points or 3.8 per cent to close at 272.92 and the NSE Insurance Index depreciated by 5.50 points or 4.7 per cent to close at 114.28.

A further review of the trading numbers revealed that investors sold a total of 1.342 billion shares worth N7.01 billion made in 15,166 deals, in contrast to a total of 1.613 billion shares valued at N15.1 billion exchanged the previous week in 17,444 deals.

The Nigerian Stock Market opened for four days as Monday, February 6, 2012 was declared Public Holiday to commemorate Eid-el-Maulud.

The trading statistics showed that the Financial Services sector accounted for 1.13 billion shares valued at N4 billion traded in 8,372 deals. The consumer goods sector followed with for 70.4 million shares valued at N2.15 billion traded in 3,026 deals.

The banking subsector of the Financial Services sector was the most active during the week (measured by turnover volume); with 852.83 million shares worth N3.833 billion exchanged by investors in 7,880 deals.

The volume of shares sold in the banking subsector was largely driven by activity in the shares of UBA Plc. Trading in the shares of the bank accounted for 426.342 million shares, representing 50.0 per cent, 37.8 per cent and 31.8 per cent of the turnover recorded by the subsector, sector and total turnover for the week, respectively.

The insurance subsector of the financial services sector, boosted by activity in the shares of Goldlink Insurance Plc and Mutual Benefits Assurance Plc, followed on the week’s activity chart with a subsector turnover of 263.11 million shares valued at N151.354 million traded in 479 deals.

The previous week, the banking subsector led on the activity chart and was followed by the Insurance subsector, both from the Financial Services sector.

Also included in the transactions for the week included 756 units of NewGold Exchange Traded Fund valued at N2.03 million traded in 9 deals. There were no transactions executed through the stock market in the Federal Government Development Stocks, State Government Bonds and Industrial Loans/Preference Stocks sectors.

Gainers and Losers
The price movement chart of the NSE displayed a total of 19 equities that appreciated in price during the week, lower than the 25 of the preceding week. Two equities from the Consumer Goods sector led on the gainers table.

As in the preceding week, Nestle Nigeria Plc led on the gainers’ table with a gain of N6.65 or 1.5 per cent to close at N446.65 per share while Nigerian Breweries Plc followed with a gain of N1.39 or 1.5 per cent to close at N95.40 per share.

Other price gainers’ in the Top 10 category include: Presco Plc (50 kobo), NCR (Nig) Plc (46 kobo), Unilever Nigeria Plc (45 kobo), Eterna Oil & Gas Plc (40 kobo), Oando Plc (39 kobo), Access Bank Plc (34 kobo), Lafarge WAPCO Cement Nigeria Plc (33 kobo) and Guinness Nigeria Plc (30 kobo).

On the other hand, 42 stocks depreciated in price, higher than the 40 of the preceding week. MRS Oil Nigeria Plc led on the price losers’ table, dropping by N4.68 or (9.7 per cent) to close at N43.39 per share while Julius Berger Nigeria Plc followed with a loss of N3.46 or (11.9 per cent) to close at N25.65 per share.

Other price losers in the Top 10 category include: The Okomu Oil Palm Plc (N2.36), Glaxo Smithkline Consumer (Nig.) Plc (N1.13), Flour Mills of Nigeria Plc (N1.00), Guaranty Trust Bank Plc (95 kobo), UACN Property Development Company Plc (63 kobo), Dangote Flour Mills Plc (51 kobo), Ecobank Transnational Incorporated (47 kobo) and Berger Paints (Nig) Plc (46 kobo).

Analysts Optimism
Meanwhile, despite recording a decline of 0.7 per cent in the first month of the year, more capital market and financial analysts remain optimistic that the Nigerian equities market would close 2012 on positive note.

Analysts from two leading investment bank and research firms, FSDH Securities Limited and FBN Capital Limited had before last week predicted the Nigerian Stock Exchange All-Share Index would grow by 13.3 per cent and 14 per cent respectively in the current year.

Analysts from another investment bank and research firm, Meristem Securities Limited (MSL), last Friday said the index would close 2012 at 23,532.91, representing 13.5 per cent over the 2011 close of 20,730.63.

MSL, which was among the top 10 stockbroking firms that led equities transactions on the floors of the NSE in 2011, noted that their expectation was being driven by the bullish outlook on the financial service (majorly banks), Nigeria’s stable foreign exchange market, expected downward trend in yield on fixed income instruments and anticipated positive macroeconomic performance.

“Our valuation suggests a robust 2012 return of 22.53 per cent for the NSE index, which we believe is justified by the attractive valuations of our coverage companies (which represent 90 per cent of the entire market).However, we are inclined to adopt a conservative outlook. This is informed by the outlook on global economy and the increased possibility that the Nigerian market might witness reduced foreign participation in 2012. We therefore discount our forecast by 40 per cent to arrive at an adjusted 23,532.91 index level,” they said.

The analysts explained that their sectoral returns distribution showed their upside bias for the financial service sector particularly the banks, given their fundamentals, weight and volatility.

“We expect the sector to dictate and lead market performance in 2012. Our 22 per cent target return is 82 per cent overweight on the financial sector particularly the banks. We will however, subject our forecast and underlying assumptions to testing and review as events in both the economic and financial markets warrants.

“Our understanding of market performance and returns distribution is that market returns are always skewed towards a short period of time, and this is expected to play out in 2012. Though we remain watchful on the economic climate given the increasing level of uncertainties that overshadow 2012, we anticipate a fragile first quarter rally and a much stronger rally in the second half of 2012,” they said.

Corporate Earnings
Also, other market watchers believe the Nigerian equities market may assume a bullish posture in the days ahead as discerning investors take position for the possible impact corporate actions by blue-chip companies may have on the market.

In their review of the stock market for the week, analysts at Cowry Assets said the positive trend recorded in the equities market for the greater part of last week may continue into this week and the days ahead.

Their prediction, they added is based on their firm believe that the expected financial results from major quoted companies on the Nigerian Stock Exchange (NSE) will be strong enough to lift the market to positive territory.

It is expected that the year-end results of a few companies may begin to come to the Exchange this week.

According to the analysts, it is usual for investors to position themselves at a time like this, in anticipation of expected dividends from some of these companies.

Also analysts at Vetiva Capital Market Limited, in their report for the week, noted that the equities market usually recorded increased activities in the periods preceding the release of full year financial results.

“We expect that there would be positioning by investors ahead of the release of the full year 2011 results, and this is likely to stir activities on the stock market,” they said.

They also stated that this was evident from increased activities recorded in the market last week, as the market capitalisation of the listed equities increased by N46 billion or 0.7 per cent from N6.534 trillion last week, to close at N6.580 trillion.

Also, the NSE’s All-Share Index gained 0.7 per cent or 145.92 basis points to close at 20,877.64 points last Friday, up from 20,731.72 points last week.

The NSE-30 Index, which measures the performance of the 30 most capitalised stocks on the NSE, recorded a 1.5 per cent rise from 928.22 points to 942.24 points.

Other market indicators also rose during the week, with the NSE banking Index recording the highest gain for the week as it rose by 5.7 per cent or 15.29 basis points to 283.45 points up from 268.16 points recorded at the beginning of the week.

The Managing Director, Emerging Capital Limited, Mr. Chidi Agbapu, also expressed optimism that there might be increased buying activities in the equities market this week.
He noted that the signals received from investors last week pointed to the fact that investors might likely begin to buy might from the market, adding that this would boost activities.
He said: “You know that the equities market, like any other typical market has been going up and down due to some reasons, however, it is important to note that as results begin to be released by companies, there would be increased activities.

“Also, it is important to note that the macro-economic environment is becoming a bit more favourable to the equities market, and this may be another reason that could boost the market in the next few weeks.”

He, however, noted that following the results, investors might be involved in profit taking activities.

“But that is expected because investors will not want to take chance given their experience during the global financial meltdown of 2008. The market as you known is ruled by fear and greed, so we expect increased activities in the days ahead, “he said.

Public Hearing
As part of efforts to resolve the crisis in the market and restore investor confidence, the House of Representatives Committee on Capital Market and Institutions, during the week under review announced that it had concluded arrangements to commence a public hearing on the nation’s capital market.

The House had last December passed a resolution mandating the committee to conduct the public hearing.
THISDAY had reported that the hearing would commence in January.

However, competent sources close to the House told THSIDAY that public hearing had to be shifted due to the probe by the House Ad-hoc Committee on fuel subsidy removal.

“Given the importance of the two issues, the fuel subsidy removal and the capital market because of how they affect the masses, the hearing on capital market was delayed so that the ad-hoc committee on the subsidy would carry out its assignment without distraction,” a source had said.

But THISDAY checks revealed that members of the Committee on the Capital Market and Institutions, were preparing to commence the public hearing very soon.

“The members of the committee are gathering relevant information and data and very soon they will call for the submission of memoranda by members of the public. After this, the hearing will commence,” another source said.

The Chairman of the Committee, Hon. Herman Hembe, had last December confirmed to the THISDAY that the public hearing would take place in January.

“I can confirm to you that as part of efforts to resolve issues in the capital market and restore confidence back to the market and as part of our commitment to ensure that wealth of investors who patronise the Nigerian capital market are preserved, the Committee will hold a public hearing in January. The date for the hearing will be decided and made known to members of the public,” Hembe said.

As part of efforts to restore investor confidence, the Director-General of the Securities and Exchange Commission (SEC), Ms. Arunma Oteh, had disclosed that strategies would be mapped out by the apex regulator of the capital market this year to ensure that both local and retail investor base would be as active as they could be in the market.

She said: “What we will do this year is to map out, more clearly, plan to ensure that local investor base are able to take up the opportunity that the market that had declined provide. Because we don’t want a situation where it is the international investors who are picking up the equities at reasonable prices and both our local institutional and local retail investors are not able to. So, we have mapped out some very specific plans which we will further develop in this year.”

Robust Outlook for Banks
As investors salivate and eagerly wait for corporate earnings announcements by banks for 2011, research analysts at Cordros Capital Limited, a dealing member of the NSE, last week projected robust outlook for the banking stocks.

In a special report, titled: ‘Full Year 2011 Earnings Expectation,’ obtained by THISDAY, Cordros Capital Limited, which was one of the top firms with highest equities transactions on the NSE in 2011, projected that the banks would end the year with higher profit.

They equally noted that giving the higher profit, the banks would also reward shareholders with higher dividends.

Specifically, the analysts said First Bank of Nigeria Plc would declare gross earnings of N278.368 billion for the year ended December 31, 2011 and a profit after tax (PAT) of N42.9 billion. Out of the profit, First Bank, Cordros Capital noted, would likely recommend N35.4 billion as dividend. They forecast a return on equity of 15.69 per cent for investors in the bank.

For Zenith Bank Plc, the analysts said the financial institution might end the year with gross earnings of N217.955 billion and profit after tax of N51.631 billion. Shareholder are likely to share N34 billion as dividend, while a return of equity of 15.05 per cent has been envisaged.

Commenting on Guaranty Trust Bank Plc, Cordros Capital noted that the bank would record gross earnings of N170.141 billion and profit after tax of N50 billion. Dividend to be shared by the shareholders is estimated to be N38.421 billion.

The Cordros Capital Limited analysts said that their positive outlook for 2011 earnings in the banking sector was premised on increasing economic prospects for the Nigerian economy, expectation of good earnings buffer with strong interest margins, income diversification strategies of banks, AMCON rescue activities and stronger regulatory oversight.

“Earnings momentum as indicated by third quarter (Q3) 2011 results announcements of banks remains positive. Based on this, we expect banks performance for the FYE 2011 to be in line with previous quarterly results announcement,” they said.

According to them, as at Q3 2011, most banks including Access Bank, Ecobank Nigeria Plc; First City Monument Bank Plc, First Bank of Nigeria Plc, GTBank and Zenith Bank have recorded earnings per share (EPS) value in excess of full year expected EPS for 2011.

“We strongly believe a stable 2011 full year EPS will sustain banks dividend pay-out. Thus, we opined that dividend yield for 2011 will surpass 2010. Lower PE ratio also supports likely share price increase. Financial performance for banks in full year estimate in 2011 will be driven by our expectation for improving operating income impacted by higher transaction volume, lower impairment charges and funding costs, greater cost management focus and increase deposit funds combined with strong liquidity indicators,” they said.

The analysts added that earnings would be bolstered by the recent increase in oil prices and gains in other liquid assets.
“We expect banks’ assets quality to improve considerably following successive declines in banks’ non-performing loans (NPLs) as well as improvement in diversification in loan books. We also expect stronger balance sheet position based on Asset Management Corporation of Nigeria (AMCON)’s purchases of NPLs of banks,” they declared.

Nigerian Bank Nigeria