Monday, September 11, 2017/4:00PM/ Afrinvest Research
Market Last Week (Our Observations)
Contrary to the bearish sentiment on the local Bourse in the last week of August, sentiment improved last week at the equities market as the All Share Index (ASI) rose 1.3% W-o-W to close at 35,957.24 points, while YTD return rose to 33.8%.
All indices closed in the red save for the Consumer Goods index which rose 2.0% W-o-W. The Oil & Gas index led sector losers, down 3.8% W-o-W followed by the Banking index which plunged 1.0%. Similarly, the Industrial Goods and Insurance indices declined 1.0% and 0.1% W-o-W respectively.
GUINNESS and PZ released their FY:2017 financials which showed Gross Earnings grew 23.5% and 14.5% Y-o-Y to N125.9bn and N79.6bn while PAT rose 195.4% and 73.1% to N1.9bn and N3.7bn respectively.
The top performing stocks for the week were GUINNESS (+27.6%), CAVERTON (+6.3%) and CILEASING (+6.0%) while STERLING (-7.5%), WAPCO (-7.4%) and SEPLAT (-6.6%) were the worst performers.
Market This Week (Our Expectations)
The Afrinvest weekly sentiment index waned to 2.8x (from 3.2x last week) as market activity weakened.
As performance has been underwhelming in the past three weeks, we believe there are still opportunities for bargain hunting across sectors.
We expect the market to trade sideways in the short term, pending the release of 9M:2017 results while still retaining our positive view for equities in the medium term.
Our top pick is WAPCO.
Top Pick for the Week: Lafarge (WAPCO) Africa Plc
Lafarge Africa Plc (“WAPCO” or “the Group”) 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 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.
In H1:2017, WAPCO continued with its impressive performance as Gross revenue jumped 44.2% Y-o-Y to 154.8bn from N107.4bn in H1:2016. WAPCO recorded a PAT of N19.8bn from a loss of N30.2bn in H1:2016.
The stock is currently trading at forward P/E and EV/EBITDA of 4.5x and 8.7x and has an RSI of 34.4. At a current price of N57.77 (08/09/2017) against our 12-month TP of N60.82, we recommend a BUY on the stock.