By: Afrinvest Research
MARKET LAST WEEK
- The All Share Index (ASI) appreciated 1.1% W-o-W bringing YTD loss to 3.1%. Performance was largely driven by DANGCEM which published a press release during the week that ex-factory price of cement in Nigeria will be hiked by N600/bag while switching to coal as source of energy for its production lines.
- Sector performance was mixed as the Industrial Goods index fell 0.2% W-o-W on account of profit taking in WAPCO (-2.8%). On the flipside, the Oil & Gas Index advanced the most up 4.1% W-o-W due to renewed appetite for SEPLAT (+15.6%) and MOBIL (+5.0%). Gains in 7UP(+28.2%), GUINNESS (+1.2%) and NIGERIAN BREWERIES (+0.7%) ensured the Consumer index closed 1.1% higher. The Insurance Index also closed in the green, up 0.9% following gains in AIICO (+6.5%) while the Banking index improved 0.7% due to gains in ETI (+3.1%)GUARANTY (+2.9%).
- The best performing stocks for the week were 7UP (+28.2%), WEMA (+17.2%) and SEPLAT(+15.8%) while MAYBAKER (-19.8%), UNITYBNK (-10.7%) and JBERGER (-9.7%) declined the most.
MARKET THIS WEEK
- The Afrinvest weekly sentiment indicator weakened to from 1.4 points from 1.7 points due to lower market breadth.
- As economic indicators point to a frail economy, investor sentiment is expected to wane and we anticipate market performance to remain soft.
- We believe there could be profit taking by investors in counters that appreciated in the previous week.
- Our top pick for the week is STERLING BANK.
Top Pick For The Week
Sterling Bank Plc
- Sterling sustained its fine form since the acquisition of Equatorial Trust Bank in 2011 (4-Year gross earnings CAGR: 34.0%) to record another positive Y-o-Y growth inH1:2016 despite the unsettled operating environment.
- The Bank reported a decline of 9.9% Y-o-Y loss in gross earnings from N103.7bn in FY:2014 to N110.2bn in FY:2015, 3.0% lower than our N113.6bn forecast for FY:2015.
- Performance on the back of impressive growth in net trading income (income from bonds trading up 2,652.3% to N4.1bn in FY:2015) and other operating income (gains on disposal of PPE of N1.3bn), resulting to a 13.7% Y-o-Y rise in non-interest income in FY:2015.
- Sterling’s Cost to Income Ratio (CIR) improved to 72.2% in FY:2015 from 73.6% in 2014 due to a marginal drop (1.9%Y-o-Y) in OPEX as operating income closed flat. The Bank’s NIM and CoF reflected the competitive environment in 2015 as interest expense surged 18.5% Y-o-Y.
- In H1:2016, gross earnings declined 9.1% Y-o-Y to N50.1bn from N55.0bn in prior period due to 44.0% Y-o-Y decline in non-interest income (from N15.2bn in H1:2015 to N8.5bn in H1:2016).
- PBT and PAT also fell 27.7% and 25.9% Y-o-Y to settle at N4.4bn and N4.0bn from N6.1bn and N5.4bn in prior period while PBT and PAT margins settled at 8.8% and 8.0% respectively in H1:2016.
- Based on H1:2016 result, Sterling is trading at a trailing P/E and P/BV of 3.3x and 0.4x respectively
- 14 days RSI settled at 39.61, with a current price of N1.01 compared to our TP of N2.27. Thus, we recommend Sterling as a BUY for the week
