Buy sentiment increases as earnings season approaches

by | February 8, 2018 12:55 am

Despite expectations that volatility will continue in the stock market this week investors are still see buy opportunities amid expectation for impressive full-year 2017 earnings season.

The heightening buy sentiment, driven by the recognition that the market still holds opportunity for short term gains, comes amid analysts urging investors to ‘pick’ or ‘hold’ stocks in the portfolio of equities.

Currently, improving macroeconomic conditions and still-positive market fundamentals are supporting analysts’ long-term positive outlook for equities.

In the trading week to February 2, there was a moderate pull-back in the mid-week as bearish counters dominated the bullish, which created buying opportunities as witnessed on Thursday and Friday.Thereafter, Nigerian equity market posted a green close on Friday which helped take the review week’s return higher by 1.98percent even as investors gained about N328billion in capital appreciation.

For the bond market, analysts reiterate their theme on the bond market which favours lower yields, as expected monetary easing, improving inflationary conditions, and the FGN’s new debt management strategy remain key drivers of yield movement in the near-to-medium term.

“We note the renewed interest in select banking names at the end of last week, and expect this to filter into this week. We however foresee an overall mixed session as investors continue to cherry pick,” said equity research analysts at Vetiva Capital.

For GTI Capital research analysts, they expect profit taking to be handy this week in view of the growth witnessed last week.

“By and large, we expect a soft close this week. At this point, we strongly advise investors to take a keen interest on firms’ fundamentals before taking investment position on such firms. We equally advise on taking a medium-long term view of the market,” GTI Capital said.

With one month already gone in 2018, notably, recurrent among the stocks picks this week are Access Bank Plc, Zenith Bank Plc, Dangote Sugar Refinery Plc, Flour Mills Nigeria Plc, and Lafarge Africa Plc.

Aside other stocks that are in analysts’ watch lists, they either made “buy” or “hold” case for Nigerian Breweries Plc, Total Nigeria Plc, GTBank Plc, FBN Holdings Plc, PZ Cussons Nigeria Plc, Dangote Cement Plc, Presco Plc, Okomu Oil Palm Plc, Oando Plc, and Seplat Petroleum Development Company Plc.

“UBA remains one of the most reputable banks in the Nigerian business landscape. In a recent third-quarter (Q3) result, the bank grew gross and net income by 25.8 percent and 23.04percent respectively. It is expected that this stellar performance will be consolidated in the expected full year 2017 results.  The analysts’ price target for UBA Plc is N15, a premium of 17.65percent return from N12.75recorded at the close of last week’s trading”, according to GTI Capital.   

For Dangote Sugar Refinery Plc which controls over 60percent of the sugar market in Nigeria, the analysts expect its streak of decent results showed in Q3 to continue in expected Full Year 2017.  “The company is an income and growth stock. Final dividend for FY 2017 is highly anticipated. Our target price for Dangote Sugar is N25, representing 21.07percent upside potential against current price,” GTI Capital researcher said.

Zenith Bank ranks in the list of few banks with low non-performing loans. Its current balance sheet size is a major bolster for the firm going concern. The bank has one of the firmest capital adequacy ratio (CAR) at 21percent which provides ample buffer against the regulatory minimum of 15 percent.

It is expected that its stellar performance in Q3 2017 evidenced in 39.8percent and 35.5percent growth in revenue and profit respectively will continue in expected full year 2017 results. Analysts put the bank target share price at N37, which implies an upside potential of 15.81percent to the closing price of N31.95 as at Friday last week.

Flour Mills Nigeria Plc is a market leader in the foods and agro-allied products in Nigeria. The company has continued to build on works on backward integration in core value chain. It recently concluded the merger of Golden Penny Rice Limited to its operations which is expected to boost the company’s profitability.

Analysts at GTI Capital also expect the backward integration strategy to help bring down its input cost considerably in years ahead. In the company’s recent nine-month 2017 result, revenue grew by 9.63percent while profit after tax grew by 79percent.  Their target price for Flour Mills Nigeria Plc is N42 which represents 24.08percent upside potential to current market’s price of N33.85.

Iheanyi Nwachukwu