Monday, October 16, 2017/12:59PM/ Afrinvest Research
Market Last Week (Our Observations)
The bullish sentiment on the Nigerian Bourse was sustained in trading sessions last week as the All Share Index (ASI) rose 1.5% W-o-W to close at 36,848.17 points, while YTD return advanced to 37.1%.
Sector performance was largely bullish as all indices rose W-o-W. The Insurance index led gainers, up 7.9% W-o-W while the Oil & Gas index followed suit, rising 1.8% W-o-W. Similarly, the Banking index appreciated 1.4% W-o-W while Industrial and Consumer Goods Indices advanced 0.6% and 0.1% W-o-W respectively.
The best performers this week were MANSARD (+25.5%), CCNN (+20.1%) and LINKASSURE (+17.3%) while the worst performing were UPL (-13.7%), AGLEVENT (-11.6%) and LAWUNION (-9.0%).
Market This Week (Our Expectations)
The Afrinvest weekly sentiment was unchanged at 4.7 points (same as previous week) as market breadth stayed strong.
As we expect more Q3:2017 earning scorecards to trickle in this week, we believe this will be major driver of trading activities as investors take position in anticipation of the results.
We are optimistic on Q3 earnings performance of corporates, hence, we expect the market to remain in the positive territory during the week.
Our top pick of the week is UBA.
Top Pick for the Week: UBA
United Bank for Africa Plc is one of the largest banks in Nigeria offering a broad range of financial services.
UBA's FY:2016 Gross Earnings expanded 21.9% Y-o-Y to N383.6bn (higher than our FY:2016 estimate of N351.0bn), the fastest topline growth since 2010 (when compared with 5-year average annual growth of 12.3%) notwithstanding extreme operating environment. PBT and PAT numbers climbed higher by 32.4% and 21.1% Y-o-Y to N90.6bn and N72.3bn respectively in FY:2016 despite a sharp rise in impairment charges (up 447.9% Y-o-Y to N27.7bn) for the period.
The bank continued to strengthen its cost management framework as FY:2016 Cost to Income (CIR) Ratio witnessed significant improvement, moderating to 56.3% from 65.0% in prior year. In H1:2017 the bank reported a 34.5% and 56.2% Y-o-Y growth in Gross Earnings and PAT which increased to N222.7bn and N42.3bn respectively.
Amid sound risk management framework and improved operating network across Africa (ex- Nigeria now accounts for 32.0% of Gross earnings), outlook for UBA remains positive.
The stock has a 14-day RSI of 55.0, P/BV of 0.7x and is currently trading at a price of N9.23 (10/13/2017). This implies a relative undervaluation of the stock with more upside for capital gain.