May 28 (Lagos) - According to analysts at ARM Securities ltd, The Nigerian equity market continued its negative run for the fourth consecutive week, losing 2.84% WoW to end the week at 39,323.62pts. On a sectorial level, all sectors closed in the negative territory. The Brewers sector topped the losing chart. IKEJAHOT and LAWUNION led the gainers while ETERNA and JAPAUL topped the decliners.

All opinions and recommendations on below stocks are from analysts at ARM Securities ltd for the week of May 28 - June 1 2018. Easykobo does not endorse or oppose any recommendations expressed in this article. 

UBA:STRONGBUY(FVE:N14.17).

UBA is our top pick in the banking sector due to higher asset yield and improving asset quality with NPL ratio expected to moderate 150bps YoY to 5.2%.

CCNN Plc. :BUY (FVE: N32.68). 

BUA, the largest shareholder of CCNN, recently announced the commissioning of the 1.5MMT plant in Sokoto State, expected to be operated by CCNN. Based on available data, we believe the capex was funded by BUA Group, as such, we accessed the possible structure on how the plant would be integrated into CCNN. Working on our best-case scenario, we assumed a debt related structure (finance lease) and arrived at a FVE of N32.68.

Nigerian Breweries Plc : UNDERWEIGHT (FVE: N118.76). 

Nigerian Breweries revenue performance in the last two quarters was weak owing to volume pressures most likely associated with the brewing competition in the domestic brewery industry. On account of this, we are not overly optimistic on revenue in FY 18. Margins, however, have held up underpinned by the moderation in prices of its key inputs, which should provide support to earnings.

Flourmills of Nigeria Plc : STRONG BUY (FVE: N39.40).

 Flourmills recently raised N39 billion via rights with proceeds earmarked to pay down some of its short-term debts amongst others. Following the payment of some of its debt, we expect tamer finance costs and, by extension, improvement in earnings in FY 19. Additionally, currently lower commodity prices (sugar and wheat) guides to expansion in gross margin and improvement in operating cash flow.

Dangote Sugar Refinery Plc – STRONG BUY (FVE: N20.23). 

We are cautiously optimistic on Dangote Sugar due to the recent smuggling of cheaper refined sugar which impacted on the company’s market share and, by extension, revenue. Irrespective, we believe the moderation in input costs would provide some support to 2018 earnings.

SeplatPlc :  STRONGBUY(FVE:N975.27).

The case for Seplat remains higher crude oil prices and volumes ,unrecognized capital allowance, reserve accretion, higher receipt from crude oil lifted in OML 55 as well as the company’s extended debt maturity profile which feeds into an improved cash position.

Okomu Oil Plc – NEUTRAL (FVE: N102.33). 

Okomu is our most preferred pick in the Palm oil sector, as 2018 presents opportunities for stronger volumes growth, better operating efficiency, and lower finance cost which guides to improved earnings

Recommendation Criteria:

A two-tier rating system is employed which is based on systemic importance of the security under review and the deviation of our target price for the stock from current market price. We characterize systemic importance as a function of a stock’s ranking among the group of top 20 stocks by NSE market capitalization over a trailing 6-month period (minimum) to the review date. We adopt a 5-point rating system for this category of stocks and a 3- point rating system for stocks outside this group. The choice of top 20 stocks arises from the consideration that this group of stocks constitutes >75% of overall market capitalization and stocks outside this group are generally less liquid and individually account for <<1% of market capitalization. For stocks in both categories, the basis for ratings subject to target price deviation is outlined below:

TOP 20 ( Rating and its respective deviation)

STRONG BUY :     > 20% 

OVERWEIGHT:    10 - 20%

NEUTRAL :           0 - 10%

UNDERWIEGHT:  0 - -5%

SELL:                     < -5%

NON TOP 20 ( Rating and its respective deviation)

BUY :                   > 20%

NEUTRAL:          5 - 20%

SELL:                    < 5%        

RECOMMENDATION KEY

BUY : Accumulate security to a substantial extent constrained only by portfolio diversification considerations

OVERWEIGHT: Accumulate security to an extent moderated by cognizance of its benchmark weight

NEUTRAL : Maintain status quo for security with respect to current holding—i.e. keep if already holding and don’t buy otherwise—subject to reasonable portfolio constraints

UNDERWEIGHT: Minimise exposure to security taking cognizance of its index weighting 

SELL: Sell-off security completely from portfolio