OPEC to Cut Crude Oil Production in January …Oil and Gas Stocks Advance
The Nigerian equities market recorded mixed reactions during the week, appreciating on three (3) out of the five (5) trading days. Subsequently, the NSEASI advanced by 1.61% WoW, thus pushing the YTD return to -10.13%. Volume of transactions increased significantly by 291.14% WoW, following investors’ buy sentiments on some low-valued stocks. Market turnover also increased (+55.40%), albeit at a moderate pace. Market breadth settled at 0.90x, indicating 28 gainers versus thirty one losers during the week.
MOBIL emerged as the top gainer for the week, after its share price grew by a whopping 55.11% to NGN324.13. PORTPAINT (+31.16%), WEMABANK (+9.62%), CADBURY (+9.55%), OANDO (+9.27%), and GUARANTY (+9.21%) followed accordingly. On the flip side, the losers’ chart was led by NEIMETH (-12.00%) even as UNITYBNK (-10.17%), HORNYFLOUR (-10.09%), UAC-PROP (-9.72%), and CCNN (-9.60%) made up the list.
We attribute the market’s performance to positive sentiments on Banking and Oil & Gas stocksduring the week. The Oil & Gas sector rally may not be unrelated to the announcement of OPEC’s decision to cut crude oil output by 1.2mbpd.
In the coming week, we expect mixed sentiments in the market, barring the inflow of positive market news to sustain the current positive momentum.
This report reviews events in the current week, with emphasis on different segments of the financial market, while presenting our expectations for the coming week.
Fixed Income: Naira closes at NGN305/USD
System liquidity tempered in the week, following the OMO mop-up which occurred yesterday. The OBB rate remained flat at 10.00% at the close of today’s trades, while the OVN rate pegged at 10.50% bringing the average money market rate to 10.25%.
The outcome of the Primary Market Auction (PMA) which held on November 30th revealed an oversubscription across all tenors auctioned. The stop rate for the 91-day instrument was maintained at 13.99%; the 182-day bill advanced marginally to close at 17.49%, while the rate for the 364-day bill pared, settling at 18.69%.
Sentiments in the secondary market, however, were somewhat muted as the average yield at the close of trades for the week advanced to 18.46% (+0.23%).
Activities in the treasury bonds space were relatively calm in the week with marginal movements in yields across instruments. At the end of today’s trading activities, average bond yield advanced to 16.71% (+0.08%), reflecting some level of bearish sentiments.
The Naira closed at NGN305.00/USD up from NGN305.25 which it closed last week in the interbank FX market. Average forward quotes on the other hand, pegged at NGN323.29.
Agric Sector: OKOMUOIL Rallies
Market reaction was positive for the Agricultural sector this week. The MERI-AGRI index advanced by 2.16% WoW to peg YtD return at 29.61%. At the close of trading on Friday, there was one gainer and loser apiece. OKOMUOIL emerged as the lone gainer for the week, appreciating by 5.00% WoW to close at NGN38.01. Conversely, LIVESTOCK extended its prior week’s loss, paring by 7.69% WoW to close at NGN0.72.
The sector’s strong performance was driven by positive sentiments towards OKOMUOIL, after persistent downtrend in the prior week. In the coming week, we do not expect significant activity in the sector considering the dearth of news inflow to stimulate investors’ interest.
Banking Sector: MERI-BNK Index gains 5.28% WoW
The MERI-BNK index, which measures activities in the banking sector, left the negative zone this week, bringing the year to date return to 4.11%. There were bargain hunting activities on some counters this week, as the sector appreciated by 5.28% at the end of the week. Sector breadth (1.80x) signified nine (9) gainers against five (5) laggards.
WEMABANK (+9.62%), GUARANTY (+9.21%), ETI (+3.89%) UBN (+3.46), and FBNH (+2.93%) populated the gainers list for the week while UNITYBNK (-10.17%), FCMB (-4.76%), SKYEBANK (-3.85%), ACCESS (-3.17%)and DIAMONDBNK (-3.16%) populated the laggards chart.
Activities in the sector mirrored the general market mood, as investors’ sentiments were particularly skewed towards the sector, thus resulting in a strong WoW performance. We advise investors to take position in fundamentally justified stocks currently trading below their intrinsic value.
Consumer Goods Sector: Sentiments Favour GUINNESS
The Consumer goods sector index closed the week in the positive region, as MERI-CMG index appreciated by 0.35% WoW to settle the YtD return at -4.55%. Sector breadth at 0.25x, represented three (3) gainers and twelve (12) decliners in the week.
GUINNESS (+5.95%)steered the gainers’ chart to close at NGN89.00. The counter was followed by NB (+0.72%) and NESTLE (+0.62%) respectively. Conversely, HONYFLOUR led the loser’s chart, after paring by 16.24% to close at NGN0.98. The counter was trailed by PZ (-15.56%), CADBURY (-14.98%), 7UP (-14.25%) and NASCON (-13.75%) in that order.
Pursuant to the provisions of Clause 15 of the General Undertaking, Appendix III Rulebook of the Exchange, 2015 (Issuers’ rules), the Nigerian Stock Exchange (NSE) notified dealing members of the delisting of MANDRID and PREMBREW from the official daily list of the exchange with effect from December, 1, 2016.
The sector performance for the week was a reflection of the general market mood. Although, we foresee some bargain hunting on specific sector stocks, we expect the sector’s performance in the coming week to be dictated by the general market mood, in the absence of any positive news inflow.
Industrial Goods: PORTPAINT Advances by 31.16%
Investors’ reaction to the industrial goods sector was somewhat positive this week, as the MERI-IND index advanced by 0.84% WoW to settle the YtD return at -9.94%. During the week, there were equal numbers (3) of gainers and losers.
PORTPAINT led the gainers’ chart, advancing by 31.16% WoW to settle at NGN1.38. Similarly, BERGER and DANGCEM appreciated by 2.73% and 0.01% to close at NGN6.40 and NGN160.00 respectively. On the flip side, CCNN (-9.60%),CUTIX (-4.55%) and PAINTCOM (-4.11%)emerged as the losers for the week
The sector’s performance was largely driven by appreciable bargain hunting on selected stocks which currently trade at low levels. In the coming week, we expect a continuation of bargain hunting, particularly on large cap stocks in the sector.
Insurance Sector:AIICO Emerges as Lone Gainer
The insurance sector, as measured by the NSEINS10, declined by 2.04% at the end of the week, bringing the YtD return to -13.33%. The sector breadth (0.33x), signified one (1) gainer against three (3) laggards.
AIICO emerged as the lone gainer, after advancing by 3.51% to close at NGN0.59. On the flipside, MANSARD (-8.99%), CONTINSURE (-3.00%) and CUSTODYINS (-2.11%) were the losers in the week.
Profit-taking activities were sustained on sector stocks amidst the general bearish sentiments. We expect activities in the sector to reflect the general market in the coming week.
Oil & Gas Sector: Rally Continues on MOBIL
After four (4) weeks of consecutive decline, the Oil & Gas sector closed the week on a positive note having gained on four (4) out of the five (5) trading days of the week. Consequently, the NSEOILG5 advanced by 9.97% WoW, to settle the YtD return at -19.29%. There were five (5) gainers against a lone decliner in the week, reflecting a sector breadth of 5.00x.
MOBIL steered the gainers’ chart after the counter’s price climbed by 55.11% WoW, the counter was followed by OANDO, ETERNA, FO and TOTAL with respective gains of 9.27%, 4.91%, 3.92%, and 2.01%. On the flip side, SEPLAT alone featured on the losers’ chart after recording a marginal loss of 0.01% to close the week at NGN 342.
At the OPEC meeting on Wednesday, 30th November, 2016, members agreed to an output freeze. The organization set an output ceiling of 32.5mbpd, which implies a 1.2mbpd freeze, effective January 1, 2017. This move is expected to drive up global oil prices as the oil glut gradually fizzles out. Brent crude has since appreciated to USD53.78pb as at December 2, 2016.
Significant rally was also witnessed on MOBIL, as the news of the NIPCO transaction, valued at c.USD1.4 per share (or NGN427 per share at NGN305/USD) filtered into the market.
In line with the expectation of a reasonable growth in oil demand (c.1.2mb/d) vis a vis the expected OPEC output freeze in 2017, we expect a further uptick in the price of crude, which may positively affect the performance of some of the counters in the sector, especially those operating in the upstream segment of the Oil & Gas market.
Services Sector:LENNARDS Delisted from the NSE
The MERI-SER index recorded a WoW decline of 1.63% which dragged Year-to-date return to -17.19%. Sector breadth for the week remained at 0.25x with one (1) advancer against four (4) laggards.