Earnings fundamentals to drive equities market performance in near term, say analysts

As bearish sentiments gradually return to the equities market, typified by trading last week on the back of waning confidence on the continued forex liquidity at the Investors’ and Exporters’ window, analysts say market performance would be more driven by earnings fundamentals in the near term.

Afrinvest analysts say investors would be looking at H1:2017 earnings results due to be released in July/August for clues on how solid companies’ fundamentals are, adding that they expect some early-birdinvestors to start taking positions ahead of the releases.

The analysts specifically noted that their weekly sentiment indicator waned to 2.5 points from 3.0 points last week as market breadth and turnover weakened in last week’s trading session.

To this end, they expect the Nigeria bourse to recoup losses in trading sessions this week, barring negative earnings surprises.

On their stocks pick for the week, WAPCO’s Lafarge Africa Plc came tops on the grounds that its 2016 full year results outperformed analysts estimates on key earnings metrics.

The stock is currently trading at forward price earnings ratio (P/E) and enterprise value/earnings before interest, taxes, depreciation and amortization ratio (EV/EBITDA ) of 9.2x and 7.9x respectively.

At current price (N50.00), the stock offers an attractive upside of 42.4% for capital gain when compared to 52 weeks high of N66.60 and our current TP: N60.82. The analysts therefore recommended a buy to investors, claiming recent debt restructuring, energy source diversification, and Nigeria price action remain positive drivers of forward earnings. Hence, earnings have stayed resilient as Q1:2017 revenue rose 55.1% Y-o-Y to N81.3bn while PAT settled at N5.2bn from a loss position of N1.9bn in Q1: 2016.

“Lafarge Africa Plc (“WAPCO” or “the Group”) FY: 2016 result comfortably outperformed analysts’ estimates on key earnings metrics,” they noted.

Though the company’s FY:2016 revenue fell 17.8 percent year-on-year to N219.7 billion, it was slightly ahead of their estimate of N216.5
billion, as well as a pre-tax loss of N22.8 billion as against a forecast of N44.3 billion.

Lafarge’s fourth quarter 2016 standalone earnings before interest, tax, depreciation and amortization (EBITDA), a measure of a company’s operating performance, expanded 291.7 percent year-on-year to N18.8billion (75.2% of total adjusted FY: 2016 EBITDA) while EBITDA margin rose 22.8 percentage points year-on-year to 32.0 percent in the Quarter.

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The company in the period recorded a tax credit of N39.7 billion – from deferred tax assets generated from UNICEM operations pre-acquisition – which erased the pre-tax loss and consequently brought post-tax profit to N16.9 billion against a consensus forecast of a post-tax loss of N30.3 billion.

Earnings per share came in at N3.31 (from N6.43 in FY: 2016) while the Group declared a final dividend of N1.05, translating into a dividend
yield of 2.6 percent.

The equities market saw sentiments bearish in the first week of the month as the market sustained losses on the first three days before staging a mild rebound in the last two sessions.

Consequently, the benchmark all-share index declined 2.0 percent week-on-week to close at 32, 459.17 points, paring year-to-date (YTD) gain to 20.8 percent.