27, 2017 11:53AM/ Afrinvest Research
Market Last Week (Our Observations)
Last week, market performance was largely bullish as the All Share Index rose 1.8% W-o-W while YTD return expanded to 39.0%.
Similarly, performance across sectors was broadly positive as all indices - save for the Oil & Gas index - gained W-o-W. The Industrial Goods sector led gainers, up 2.3% W-o-W. Trailing the Industrial Goods index were the Insurance and Consumer Goods indices which rose 0.8% and 0.5% respectively. In the same vein, the Banking Index climbed 0.3% W-o-W. On the flip side, the Oil & Gas index was the lone loser, shedding 1.5% W-o-W.
The best performing stocks last week were LINKASSURE (+14.3%), DANGSUGAR (+10.3%) and NASCON (+9.0%) while FORTE OIL (-17.7%), GLAXOSMITH (-9.7%) and FLOURMILL (-8.0%) were the worst performing stocks.
Market This Week (Our Expectations)
The Afrinvest weekly sentiment indicator advanced to 3.0 points from 2.3 points recorded last week due to the significant improvement in market breadth.
Our medium-term outlook for the market remains positive, as improvement in macroeconomic fundamentals is anticipated to have knock-on impacts on corporate earnings and valuation multiples.
Also, we expect short term performance to remain broadly positive as investors take position ahead of anticipated year-end rally in equities.
Our top pick for the week is GUARANTY TRUST BANK.
Top Pick for the Week: Guaranty Trust Bank
Guaranty Trust Plc (“GTBank” or “the Bank”) ranks as a Tier-1 Bank, based on total assets of N3.2tn as at 9M:2017 by Afrinvest classification, and also a Systemically Important Bank (SIBs) by CBN’s Taxonomy.
In 9M:2017, Gross earnings fell by 5.9% Y-o-Y to N309.9bn as the impact of the 36.5% jump in Interest income (from N181.9bn in 9M:2016 toN248.3bn) was countered by a 58.2% drag in Non-Interest income (from N147.4bn in9M:2016 to N61.6bn in 9M:2017).
Interest Income was supported by the higher interest rate environment while Noninterest income suffered from a high base impact on FX gains as well as a decline in e-business income.
PAT came in higher at N125.6bn, up 7.3% Y-o-Y. Despite the improvement recorded in profitability, ROAE and ROAA weakened to 25.9% and 4.4% in 9M:2017 from 31.8% and 5.1% in 9M:2016 respectively. Still, we expect the Bank’s performance to remain strong in Q4 due to its focus on cost efficiency
GUARANTY currently has an RSI of 50.8 and trades at N42.00
(24/11/2017) implying a 9.5% upside potential relative to our target Price of
N46.01. Hence, we recommend a BUY for the stock.