Monday, August 14, 2017 1:20PM / Afrinvest Research
Market Last Week (Our Observations)
Activities in the Nigerian equities market last week was largely bullish as the Benchmark Index closed higher on 4 of 5 sessions. Thus, the All Share Index closed the week 2.1% higher to settle at 38,198.60 points while YTD gain expanded to 42.1%.
The Consumer Goods index led sector gainers, up 9.7% W-o-W followed by the Industrial Goods index which trended 2.4% northward W-o-W. On the flip side, the Insurance index declined the most, down 3.0% W-o-W whilst the Oil & Gas and Banking indices closed 2.8% and 0.9% lower W-o-W respectively.
The best performing stocks were GUINNESS (+27.1%), NAHCO (+20.3%) and NESTLE (+17.7%) while the worst performers were NEM (-18.5%), MORRISON (-13.3%) and DANGSUGAR (-12.5%).
Market This Week (Our Expectations)
The Afrinvest weekly sentiment indicator weakened to 3.1 points from 3.9 points last week due to a moderation in market breadth.
This week, we suspect the equities market may trade sideways in early trades due to profit taking in Consumer Goods counters which could offset bargain hunting in banking stocks whose earnings are yet to be released.
GUARANTY is scheduled to release its H1:2017 result during the week and we have a positive expectation of the result. A better than expected performance could potentially boost investor sentiment in the week.
Our top pick is GUARANTY
Guaranty Trust Bank Plc
Guaranty Trust Bank Plc (“GUARANTY” or “the bank”) remains one of the foremost Nigerian banks and has continued to boost efficiency by leveraging on technological innovation.
In Q1:2017, Guaranty continued its steady growth in gross revenue which expanded 38.8% to N104.7bn from N75.4bn in the prior year as both interest income and Non-interest income grew 50.6% and 62.1% to N84.1bn and N66.1bn respectively.
The Bank’s Interest expense declined 19.6% Y-o-Y to N18.0bn while Net Interest income rose 62.1% Y-o-Y to N66.1bn while Net Interest Margin settled at 8.4%.
In line with Guaranty’s drive to stay cost efficient, Cost to Income Ratio (CIR) moderated from 42.6% in Q1:2016 to 36.8% inQ1:2017 despite the 23.9% Y-o-Y increase in Operating Expenses.
Accordingly, the bank’s PBT and PAT expanded 64.3% and 61.9% Y-o-Y to N50.4bn and N41.5bn respectively while EPS settled at N5.00.
We remain positive on the prospects of Guaranty in the year 2017 given the resilience of the bank amidst tighter operating environment, high interest rate environment and positioning of the Bank’s balance sheet for FX gains.
Recommendation: At current price of N39.60 and a P/BV multiple of 2.2x, we recommend the stock a BUY.
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