Weekly Report and Stock Recommendation – February 11, 2018

Weekly Report and Stock Recommendation – February 11, 2018

Dear Client/Reader,

Global Economy

•         Oil prices fell as drilling activity in the United States, the world’s largest oil producer, picked up and financial markets were pulled down by trade concerns.

•         Euro zone businesses expanded at their weakest rate since mid-2013 at the start of the year as demand fell for the first time in four years, with a manufacturing slowdown spreading to services, a survey showed last week.

•         The Bank of England said Britain faced its weakest economic growth in 10 years in 2019, blaming mounting Brexit uncertainty and the global slowdown, but it stuck to its message that interest rates will rise, if a Brexit deal is done.

•         Japanese services sector activity rose in January due to a pick-up in domestic demand, a business survey showed on Tuesday, but there are growing worries that economic activity will weaken due to the U.S.-Sino trade war.

 U.S. – U.S. trade deficit fell for the first time in six months in November by 11.5% to $49.3 billion as cheaper oil and higher domestic petroleum production helped to curb the country’s import bill, leading economists to boost their economic growth estimates for the fourth quarter.

Equities Market- The Nigerian equities market closed positive last week, as the ASI increased by 2.92% w/w to close at 31,529.92 points, while the year-to-date returns closed at 0.32%.    

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

SEPLAT – Seplat 9M’2018 result showed revenue increased by 104% to N173bn as against N85bn in 9M’2017. The substantial rise in revenue was due to increase of 99% and 48% in crude oil and gas sales while Cost of sales also increased from N47 bn to N80 bn. Despite the rise in cost of sales, gross profit increased by 146% from N38 bn to N93.5 bn. The company maintained the top line impressive performance as PAT stands at N27.9bn as against N1.6bn loss in 9M’2017. With the recent renewal of its operating license coupled with continuous plan of the company to boost profitability and increase operation by drilling its first well in its OML 53 asset and to redeploy rigs into it other oil fields at OMLs 4, 38 and 41, we are of the view that Seplat will maintain its impressive performance going forward. With the current price close to its 52 week low of N520.00, we thereby place a medium to long term “BUY” on the stock of Seplat Plc with an estimated intrinsic value of N744.69.

AFRIPRUD – Afriprud Plc 9M-2018 result showed that registrars fee income improved by 43% y/y from N660 million to N941 million due to improvement in fees from corporate actions.  Gross earnings grew by 13.7% y/y to N2.6 bn due to the marginal growth of 2% y/y in net investment income from N1.6 bn in 9M-17 to N1.64 billion in 9M’18. Consequently, PBT grew by 11.5% y/y to N1.62 bn from N1.45 bn in 9M-2017. EPS also grew marginally to N0.67 from N0.65 in 9M-2017. The stock has P/BV of 1.07x compared with industry average of 3.29x as well as P/E ratio of 5.93. We have a positive outlook on Afriprud earnings in 2019 as the Company continues to intensify efforts to build on the progress recorded so far in its business diversification drive and also pursuing relentless innovation in product development and process improvement. Overall, with a fair value of N4.99, we maintain our “Buy” recommendation.

Please find attached our Stock Recommendation for this week, ending 15th February, 2019.

Thank you. 

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