04  June, Lagos: According to the analysts at ARM Securities Limited the Nigerian equity market continued its negative run for the fifth consecutive week, losing 6.38% WoW to end the week (28th May-1st June) at 36,816.29 pts. On a sectorial level, all sectors closed in the negative territory save the Personal Care sector. The Brewers sector topped the losers chart. ETERNA and MBENEFIT led the gainers while INTBREW and WAPCO topped the decliners.

All opinions and recommendations on below stocks are from analysts at ARM Securities limited. Easykobo does not endorse or oppose any recommendations expressed in this article. 

GTB ( GUARANTY ) –STRONGBUY(FVE:N 49.02). : The analysts believe higher Net Interest Margin (+10bpsYoYto9.2%) and lower loan loss provision (-39% YoY) – due to lower NPL - will be central to strong earnings performance (+6% YoY to N6.12/share) over FY 18.

CCNN Plc. – NEUTRAL (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, the analysts believe the capex was funded by BUA Group, as such, they assessed the possible structure on how the plant would be integrated into CCNN. Working on their best-case scenario, they assumed a debt related structure (finance lease) and arrived at a FVE of N32.68.

Dangote Sugar Refinery Plc ( DANGSUGAR ) – OVERWEIGHT (FVE: N20.23). Analysts 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, analysts believe the moderation in input costs would provide some support to 2018 earnings.

Flourmills of Nigeria Plc ( FLOURMILL ) ( 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, analysts 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.

PZ Cussons Plc ( PZ ) – SELL (FVE: N16.57). The analyst’s sell rating on PZ is premised on expected slow rebound in volumes due to weak income levels. Additionally, the recent rise in Brent crude is expected to stoke pressures on petrochemical prices which would weigh on gross profit and earnings.

Seplat Plc ( SEPLAT ) – STRONG BUY (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 ( OKOMUOIL ) BUY (FVE: N102.33). Okomu is analysts 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 over FY 18.

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