Monday, July 10, 2017, 12:58 PM /Afrinvest
Market Last Week
Sentiment was bearish on the Nigerian Bourse in the first week of the month as the market sustained losses on the first three days before staging a mild rebound in the last two sessions. Consequently, the benchmark All Share Index declined 2.0% W-o-W to close at 32, 459.17 points, paring YTD gain to 20.8%.
Sector performance mirrored the broader index as three of five indices closed in the red. The Insurance and Industrial Goods indices were the only advancers, up 1.1% and 0.2% W-o-W respectively. On the flipside, the Consumer Goods index declined the most, down 4.0% W-o-W. Similarly, the Banking index shed 2.2% as investors reacted negatively to Etisalat Nigeria credit default while the Oil & Gas index weakened 1.8% W-o-W.
Top gainers include CUTIX (+10.0%), CONTINSURE (+9.2%) and HONYFLOUR (+8.0), while MAYBAKER (-25.8%), NEIMETH (-24.4%) and CONOIL (-18.5%) led the laggards.
Market This Week
The Afrinvest weekly sentiment indicator waned to 2.5 points from 3.0 points last week as market breadth and turnover weakened in last week’s trading session.
With the euphoria which greeted the opening of Investors’ and Exporters’ window drying up, we expect performance to be more driven by earnings fundamentals in the near term.
Investors will be looking at H1:2017 earnings results due to be released in July/August for clues on how solid companies’ fundamentals are but we expect some early-bird investors to start taking positons ahead of the releases.
Hence, we expect the Bourse to recoup losses in trading sessions this week, barring negative earnings surprises.
Our top pick for the week is WAPCO.
Top Pick for the Week: Lafarge Africa Plc
Lafarge Africa Plc (“WAPCO” or “the Group”) FY:2016 result comfortably outperformed Analysts’ estimates on key earnings metrics.
FY:2016 revenue fell 17.8% Y-o-Y to N219.7bn, slightly ahead of our estimate of N216.5bn, while the Pre-tax loss of N22.8bn also beat our forecast of N44.3bn.
Fourth Quarter 2016 standalone EBITDA expanded 291.7% Y-o-Y to N18.8bn (75.2% of total adjusted FY:2016 EBITDA) while EBITDA margin rose 22.8 percentage points Y-o-Y to 32.0% in the Quarter.
WAPCO recorded a tax credit of N39.7bn – from deferred tax assets generated from UNICEM operations pre-acquisition - which erased the pre-tax loss and consequently brought post-tax profit to N16.9bn against a consensus forecast of a post-tax loss of N30.3bn.
Earnings Per Share came in at N3.31 (from N6.43 in FY:2016) while the Group declared a final dividend of N1.05, translating into a dividend yield of 2.6%.
Recent debt restructuring, energy source diversification and Nigeria price action remain positive drivers of forward earnings.
Hence, earnings have stayed resilient as Q1:2017 revenue rose 55.1% Y-o-Y to N81.3bn while PAT settled at N5.2bn from a loss position of N1.9bn in Q1: 2016.
The stock is currently trading at forward P/E and EV/EBITDA of 9.2x and 7.9x
At current price (N50.00), the stock offers an attractive upside of 42.4% for capital gain when compared to 52 weeks high of N66.60 and our current TP: N60.82.