20, 2017 1:23PM/ Afrinvest Research
Market Last Week (Our Observations)
Market performance was largely negative last week as the All Share Index declined 1.1% W-o-W while YTD return moderated to 36.6%.
Sector performance was largely bearish with 4 of 5 major indices closing the week lower. %). The largest loser was the Consumer Goods index (down 2.9% W-o-W), followed by the Insurance and Banking indices which fell 2.0% and 1.3% respectively. Similarly, the Industrial Goods index inched 1.0% lower. On the contrary, the Oil & Gas index was the week’s lone gainer, up 0.8% W-o-W.
The top performers last week were AGLEVENT (+27.3%), FORTE (+10.2%) and BOCGAS (+9.9%) while the worst performers were CAVERTON (-21.4%), LINKASSURE (-17.6%) and CILEASING (-13.8%).
Market This Week (Our Expectations)
The Afrinvest weekly sentiment indicator reduced to 2.3 points from 2.4 points recorded last week due to a decline in market breadth.
Following last week’s loss in the market, we expect performance in early trades this week to be driven by bargain hunting in stocks which dragged the market in prior trading sessions.
Also, we expect sentiment on stocks which were deleted from the MSCI Frontier Market Indices to remain weak as investors sell down ahead of delisting on November 30th
Our top pick for the week is ZENITH BANK.
Top Pick for the Week: Zenith Bank Plc
Zenith is the largest Nigerian bank by Total Asset (N4.9tn) and falls within Afrinvest Tier-1 classification, it has subsidiaries in Ghana, Sierra Leone, and the Gambia. The bank also has representative offices in South Africa and The Peoples Republic of China.
In its 9M:2017 report, Gross Earnings rose 39.7% Y-o-Y to N531.3bn in 9M:2017, supported by a 26.6% Y-o-Y increase in Interest income (from N285.7bn to N361.8bn) and a 79.0% jump in Non-interest income (from N94.7bn to N169.5bn).
Growth in Interest income was driven by interest from Treasury Bills (up 120.0% Y-o-Y to N84.3bn) and Loans & Advances (up 15.5% to N240.9bn). Non-interest income was buoyed by the bank's E-business income as well as Trading Income. Accordingly, PAT waxed stronger, up 35.6% Y-o-Y, to settle at N129.3bn in 9M:2017.
Q3:2017 standalone result showed a rather mixed performance as Gross Earnings fell 25.3% Q-o-Q to N150.8bn, dragged by declines in both Interest income (down 31.0% to N99.5bn) and Non-Interest Income (down 42.1% to N51.3bn). However, Impairment charges declined 86.5% Q-o-Q (from N34.5bn to N4.7bn); hence, PAT rose 42.6% Q-o-Q to N53.9bn in Q3:2017.
The stock currently trades at N24.12 (17/11/2017) implying a 9.1%
upside potential relative to our target Price of N26.31. Zenith currently
has a 14- day RSI of 37.98 (near the oversold region), hence presenting
opportunities for capital appreciation.