Weekly Report and Stock Recommendation – December 10, 2018

Weekly Report and Stock Recommendation – December 10, 2018

Dear Client/Reader,

Global Economy

  • OPEC finally broke an impasse over production curbs, agreeing on a larger-than-expected cut with allies after two days of fractious negotiations in Vienna. The cartel and its partners agreed to remove 1.2 million barrels a day from the market, with OPEC itself shouldering 800,000 barrels of the burden
  • Euro zone manufacturing activity expanded at its weakest rate in over two years in November as new orders contracted for a second month, further evidence the bloc’s economic growth is past its peak while Policymakers at the European Central Bank are due to draw a line under their 2.6 trillion euro asset purchase programme at the end of the year.
  • Uncertainty about the terms of Brexit next March clobbered British services firms last month, leaving the economy at risk of contracting as the IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) fell to 50.4 from 52.2 in October, the weakest reading since just after the 2016 Brexit vote and below all forecasts
  • Japanese manufacturing activity expanded at the slowest pace in two years in November and new orders contracted for the first time since September 2016, a preliminary survey showed, raising doubt about growth prospects for the current quarter.

U.S. – The U.S. trade deficit jumped to a 10-year high in October as soybean exports dropped further and imports of consumer goods rose to a record high, suggesting the Trump administration’s tariff-related measures to shrink the trade gap likely have been ineffective.

Equities Market- The Nigerian equities market again depreciated slightly at the end of the week, as the ASI decreased by 0.02% w/w to close at 30,866.82 points, while the year-to-date returns settled at -19.29%.     

The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;

TOTAL – The topline result of Total Plc. 9M’18 showed a slight movement of 2.58% in revenue that increased to N226.9bn from N221.2bn that was recorded in 9M’2017. The cost of sales for the period also reduced by 1.34% (YoY) from N198.6bn to N196bn. The marginal increase of 2.58% in Revenue and decline of 1.34% recorded in cost of sales pushed gross profit up by 37% from N22.6bn to N31bn.The firm reported a decline of 69% in other income resulting from foreign exchange loss of about N902 mn as against N2.6bn recorded in 9M’17. However, Profit before tax increased by 18.2% from N9.7bn in 9M’17 to N11.4bn while Profit after tax for the period also grew by 29% to N7.7bn as against N6bn recorded a year ago. Eps currently stands at N22.58 up by 29% from N17.54 while the company declared a dividend of N3 per share. We expect performance to be stable for the remaining part of the year especially with the stability in crude oil prices. With an estimated fair value of N240.84 , we place a “BUY” recommendation on the shares of Total Nig Plc.

UBA – UBA 9M-18 result indicated a 13% growth in Interest income that increased from N238 billion to N269 billion. Net impairment loss reduced by 13% from N13bn in 9M-17 to N10.7 billion for the current period while Fees and commission for the period appreciated by 20% from N58 billion to N69 billion in 9M’2018. Profit for the period however increased slightly by 1.28% from the N60.9billion previously recorded to N61.7 billion in the current period. The slight increase in net profit can be attributed to the 20% rise in fees and commission expenses as well as the 17% decline in impairment charges. EPS however declined faintly by 1% as it currently stands at N1.72 as against 9M’2017 of N1.74. We still anticipate a modest performance from the firm for the remaining part of the year as reduction in impairment loss is expected to boost net profit. UBA has CAR of 23% which is well above the 15% level for tier 1 banks and it also has a good dividend payment history with a projected DPS of about N0.87 per share in FY 2018. The stock’s current price which is close to its 52 week low and also lower than our estimated intrinsic value of N10.64, we maintain our “BUY”.

Please find attached our Stock Recommendation for this week, ending 14th December, 2018.

Thank you.

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