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Monday,
November 06, 2017 1:35PM / Afrinvest
Market Last Week (Our Observations)
Sentiment in the local bourse was bullish last week as the All
Share Index (ASI) rose 1.3% W-o-W while YTD returned expanded to 37.5%.
Similarly, we saw an equally bullish performance across sectors
with 4 of 5 indices closing positive W-o-W. The Insurance index gained the
most, up 1.5% W-o-W.
Following closely, the Oil & Gas and Industrial Goods
indices rose 1.4% apiece W-o-W. In the same vein, the Banking index climbed
0.3% higher W-o-W. On the flipside, the Consumer Goods index was the lone
loser, down 0.1%.
Top gainers were UPL (+26.3%), LEARNAFRCA (+19.0%)
and FLOURMILL (+18.2%) while AIRSERVICE (-18.3%), LINKASSURE
(-13.3%) and UNILEVER (-6.5%) were the top losers.
Market This Week (Our Expectations)
The Afrinvest weekly sentiment indicator weakened to 3.6 points
from 4.0 points recorded last week due to a marginal decline in market breadth.
As the macroeconomic environment improves on the back of
increased forex liquidity as well as the continued rally in oil prices, we
expect the market to sustain momentum as knock-on effect of the oil rally buoys
investors' appetite for Nigerian assets.
Hence, we believe the positive performance from last week, will
be sustained in early trades this week.
Top Pick for the Week:
Fidelity Bank Plc
Fidelity Bank Plc (“Fidelity” or “the Bank”) is a leading Tier 2
Bank with a total assets of N1.3tn as at 9M:2017. The Bank provides a broad
range of financial services with a core focus on SME, Corporate and Retail
banking.
Recently, Fidelity issued a US$400.0m 5-year Eurobond at 10.5%
coupon in a bid to refinance the tender offer to purchase its outstanding
$300.0m Eurobond as well as other operations of the bank.
In H1:2017, the Bank’s gross earnings grew 22.1% Y-o-Y to
N85.8bn from N70.3bn in H1:2016 driven by a 27.8% increase in interest income.
Despite the challenge of higher impairment charges, PBT and PAT jumped
impressively by 66.6% and 65.6% to N10.2bn and N9.0bn in H1:2017.
Similarly, the Bank sustained the impressive performance in
9M:2017 as gross earnings expanded 17.9% Y-o-Y to N130.1bn while PBT and PAT
increased 65.1% apiece to N16.2bn and N14.5bn respectively. Consequently, the
Bank’s net margin rose 3.2 percentage points to 11.1% from 7.9% the previous
year.
In terms of cost management, the Bank’s Cost to Income ratio
improved from 70.2% in 9M:2016 to 64.6% in 9M:2017.
Following the Bank’s resilient performance in 2016 despite the
tough macroeconomic environment and an equally impressive 9M:2017 performance
driven by improving macroeconomic conditions, our outlook on the bank is
largely positive.
The stock has a 14-day RSI of 58.78, P/BV of 0.2x and is currently trading at a price of N1.69 (3/11/2017) against our target price of N1.76. Hence, we see potential for capital gains in the stock as investors’ appetite for equities remains strong.
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