Profit taking may rule equities market in early trading sessions, say analysts

Though the Nigerian equities market was largely bullish last week with benchmark index appreciating 3.5 percent week to date (WTD) to close at 39,257.53 points, analysts are of the opinion that market sentiment would weaken to 3.7 points from 4.3 points recorded last week despite the improvement in market breadth.

“This week, we expect profit-taking by investors in early trading sessions. However, we maintain our positive outlook for the market in the near term as the year-end rally continues.

“In the medium term, our outlook remains bullish against the backdrop of improving macroeconomic fundamentals and the consensus expectation of positive earnings outlook,” analysts at Afrinvest stated.

In their stock recommendation for the week, they settled for Guaranty Trust Bank, which has demonstrated resilience amid a tough operating environment in the past year.

“Our outlook on the Guaranty is broadly positive as the bank has demonstrated its resilience amidst tougher operating conditions in the past year. We forecast gross earnings and PAT to expand by 1.8% and 24.4% to N422.0bn and N164.5bn respectively in FY:2017.

“We expect the positive performance to be driven by sustained growth in interest income while the bank continues to leverage on technological advancement to boost efficiency and keep cost pressures minimal,” they said.

Guaranty Trust Bank ranks as a tier-1 bank, based on total assets of N3.2 trillion as at 9M:2017 by Afrinvest classification, and also a Systemically Important Bank (SIBs) by CBN’s Taxonomy.

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“Guaranty currently has an RSI of 47.3 and trades at N42.00 (8/12/2017) implying a 9.5 percent upside potential relative to our target Price of N46.01. Hence we recommend a BUY for the stock,” they stressed.

In 9M:2017, the bank’s gross earnings fell by 5.9 percent year-on-year to N309.9 billion as the impact of the 36.5 percent jump in interest income (from N181.9bn in 9M:2016 to N248.3bn) was countered by a 58.2 percent drag in non-interest income (from N147.4bn in9M:2016 to N61.6bn in 9M:2017).

The prevailing higher interest rate environment helped to support the rise in interest income, just as non-interest income suffered from a high base impact on FX gains as well as a decline in e-business income.

PAT came in higher at N125.6 billion, up 7.3 percent year-on-year. Despite the improvement recorded in profitability, ROAE and ROAA weakened to 25.9 percent and 4.4 percent in 9M:2017 from 31.8 percent and 5.1 percent in 9M:2016 respectively.