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Meristem’s Weekly Report

Here is Meristem’s analysis of the stock market week ending today:

STOCK MARKET BRIEF FOR THE WEEK ENDED FRIDAY MAY 16, 2008.

Stock Market Bows by  0.16% Despite Juicy  Corporate Results
The capital market exhibited a cyclical behaviuor during the weak, deviating from last week’s upward trend.  On the aggregate, The NSE All Share Index (ASI) dipped by 0.16%  to close the week at 62,415.06 points while the total market capitalization of the 219 listed equities also plunged by same margin to stand at N12.10 trillion.

In the same vein, a cumulative total of 3.56 billion shares valued at N48.63 billion were exchanged by investors in 96,124 deals in contrast to last week’s trading statistics of 3.72 billion shares worth N74.43billion traded in 89.21 deals.

JBERGER Tops the Week’s Advancers’ Chart
The observed decline in The NSE ASI is reflected in equity price movements. A total of 51 stocks advanced this week lower than 89 recorded during the previous week while there was an increase in the number of declining stocks resulting in 60 equities depreciating in value. JBERGER led the gainers camp raking N10.14k to close at N109.15k while NESTLE topped the losers’ table shedding N11.74k to close at N212.43k.

Insurance Sector Dominates Trades
The insurance sector emerged most active during the week (measured in terms of turnover), with 1.74bn shares worth N6.64bn exchanged by investors in 18,644 deals. Activities in the sector were propelled by high trading in the shares of GNI, IAINSURE, UNIVINSURE and NEM INSURANCE. The banking sector trailed behind on the week’s activity table with 1.71 bn shares exchanged in 18,664 deals valued at N6.47 bn. Activities in the shares of equities in Other financial institutions  claimed the third position on the table with 96.25 million shares traded in 43,440 deals.

CORPORATE NEWS:
UBA, OANDO, DANSUGAR and Others Post Performance Results
CONSOLIDATED HALLMARK INSURANCE, ALUMEXT, NEM, OANDO, DANGSUGAR, AP, BERGERPAINT, IPWA, MOBIL, ECOBANK and EQUITY ASRANCE released their period results on the floor of the Exchange during the week. Also, UBA PLC posted its long awaited six months results fro the period ended March 31, 2008. The bank recorded 66% and 71% in gross earnings and PAT respectively. In addition, the market was stunned by the declaration of twin benefit by the bank made up of 25k interim dividend and 1 for 2 bonus issue.

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Analysis of Zenith Bank’s 9-Month Results

Here is an excerpt of a report prepared by Proshare NG analyzing Zenith Bank’s 9-month results.

Zenith has announced its 9M financial results with a triple digit growth in net profits. The bank’s performance showed that gross income grew by 70% to N120.3bn, profit before tax (PBT) increased by 111% to N40.6bn while profit after tax (PAT) rose by 136.6% to N33.3bn as at 31 March 2008. As a result, the bank’s last twelve months (LTM) earnings per share (EPS) rose to N2.26, 20.9% higher than the N1.87 reported for FY07. Also, our assessment of the results reveals that PAT grew faster following the improvement in the bank’s cost management as reflected in the estimated YoY cost/income ratio which declined to 66.2% from 72.8% in 9M07.

Results exceed management’s expectation… In April 2008, while publishing the basis of allotment for its last offering, Zenith’s management made conservative projections that forecast gross income of N127.5bn, PBT of N39.0bn and PAT of N28.8bn for FY08. Thus, Zenith Bank has exceeded both revenue and profit estimates for the current FY in just 9 months in view of its latest interim results.

… as Q3 results outpace H1 results. During the period to March 2008 i.e. Q3, Zenith Bank achieved a gross income of N62.7bn and a net profit of N17.6bn. This performance exceeds respective gross income and net profit of N57.6bn and N15.7bn reported in its H1 results i.e. July – Dec 2007. Whilst we believe the Q3 performance is strong and raises the stakes for industry competition particularly in terms of profitability, we are concerned about the bank’s ability to maintain this run rate in the months ahead.

Recent capitalization and increased market positioning are key value drivers. At present, Zenith is the second most capitalized bank with over N313bn in shareholder funds. This will enable it finance branch expansion, invest in subsidiaries, enhance IT infrastructure and engage in big ticket transactions, which includes funding infrastructure development. Also, the bank is currently raising N8bn consisting Equity, Income and Ethical funds for N5bn, N2bn and N1bn respectively under an authorized and registered unit trust scheme.

Strong earnings growth rules out dilution in earnings. In spite of Zenith’s post-offer outstanding shares of 16.74bn, full year EPS is expected to improve substantially as the growth in earnings is currently ahead of the growth in shares outstanding. In view of this, we forecast FY08 net profit, EPS and Return on Average Equity (RoAE) of N43bn, N2.57 and 19.3% respectively. Consequently, our EPS estimate suggests that Zenith Bank should trade at N61.6, while a forecast book value per share of N19.72 yields a fair value of N66.9 per share. We take an average of these values to arrive at our estimated fair value of N64.30 per share..

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