Weekly Report and Stock Recommendation – December 31, 2018
Dear Client/Reader,
Global Economy
- Oil prices fell to their lowest since the third quarter of 2017 on Friday closing at $52.20 per barrel, as global oversupply kept buyers away from the market.
- Euro zone headline inflation was at the European Central Bank target in November and the inflation measure crucial for monetary policy decisions eased again after rising the previous month
- Britain’s housing market has slowed since the country voted to leave the European Union in June 2016, and other surveys this month have shown anxiety among consumers and businesses ahead of the planned departure on March 29
- The seasonally adjusted unemployment rate in Japan rose to 2.5 percent, from 2.4 percent in October, while jobs-to-applicants ratio rose to 1.63 from 1.62 in October figures from the Ministry of Internal Affairs and Communications showed last week.
U.S. – A measure of U.S. consumer confidence posted its sharpest decline in more than three years in December, rattling investors already nervous about the prospect that a global economic slowdown was spilling over into the United States.
Equities Market- The Nigerian equities market closed positive last week, as the ASI increased by 0.86% w/w to close at 31,037.72 points, while the year-to-date returns settled at -18.84%.
The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;
ZENITH – Zenith bank has the best dividend pay-out ratio among banking stocks with expectation of about 10% in FY’18 also supported by its low current share price at N23.00 which is lower than our estimated intrinsic value of N32.68, we consider this point to be a good point for investors to take a medium to long term investment position on the stock of Zenith bank Nig Plc. Zenith Plc. 9M’2018 result showed a marginal increase in profit before tax and profit after tax as they both increased by 3.3% and 3.4% respectively. PAT increased to N121bn from N117bn recorded in 9M’2017. Although, gross earnings declined by 15% y/y from N479bn in 9M’2017 to N408bn due to reduction in interest income (-12%) and trading income (-35%). Growth seen in PBT can be attributed to drop in interest expenses (-36%) y/y from N149bn in 9M’2017 to N95bn and a 68% decline in impairment loss on financial asset, that dropped to N12.8bn from N39.8bn (YoY). EPS for the period however grew by 3% to N3.86 as against N3.74 in 9M’2017. Conclusively, we still maintain our medium to long term “BUY” recommendation on the stock of Zenith. Zenith has CAR of 27% higher than tier 1 minimum of 15%.
FCMB – We still maintain our medium to long term “BUY” recommendation on the stock of FCMB Plc. as its 9M 2018 result showed an impressive PBT growth of 121% y/y from N6.7 bn in 9M’17 to N14.8 bn. The key driver behind the PBT growth was the growth of 165% y/y in trading income and 152% improvement in other income on the back of massive gains in foreign exchange transactions that increased from N428 mn in 9M’17 to N9 bn in the current period, which were strong enough to offset the increase recorded in operating expense by 15% y/y. Non-interest income (NIR) also increased by 66% y/y to N37.5 bn (9M’17; N22.5 bn) while also noting a decline of 9% in interest expenses which reduced to N42.2 bn (9M’17; N46.4 bn). Consequently, Earnings per share spiked massively by 104% y/y from N0.28 in 9M’17 to N0.57 in the current period. FCMB has CAR of 17.4% higher than tier 2 minimum of 12.5%, BVPS of 9.04, P/BV of 0.14X, P/E of 2.54X against banking average of 1.01x and 3.04x. FCMB still has an upside potential of about 27% from our estimated intrinsic value of N2.47.
Please find attached our Stock Recommendation for this week, ending 4th January, 2019.
Thank you.
