Weekly Market Review & Stock Recommendations – July 27, 2020

Dear Client/Reader,

Global Economic Roundup

Oil prices edges up on weak dollar, U.S.-China tensions weigh   

·         Oil prices edged higher on Friday, supported by a weaker dollar, though tensions between the United States and China weighed. China ordered the United States to close its consulate in the city of Chengdu on Friday, responding to a U.S. demand this week that China close its Houston consulate.

Weekly claims turn higher as Covid-19 jobs crisis deepens

·         The number of Americans who filed for unemployment benefits rose more than expected last week as the coronavirus pandemic inflicted more damage to the U.S. economy.

Domestic Economic Roundup

Non-oil export earnings rise to $1.21bn

·         Non-oil export earnings through banks rose to $1.21bn in the first quarter of 2020. The Central Bank of Nigeria disclosed this on Friday in its first quarter economic report, titled ‘Non-oil export earnings by exporters.’

FG plans N4.28tn loan for N12.66tn 2021 budget

·         The Federal Government has proposed N12.66tn as aggregate expenditure for the 2021 fiscal year on a deficit of N5.16tn.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 0.58% week-on-week to close at 24,427.73 points.

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

DANGCEM – Dangote Cement Plc. results for HY’2020 showed that revenue increased by 1.95% from N467.73 billion in HY’2019 to N476.85 billion in HY’2020. Gross profit dipped marginally by 0.05% from N274.56 billion in HY’2019 to N274.43 billion in HY’2020, due to a 4.79% increase in cost of sales. Operating profit advanced from N170.50 billion in HY’2019 to N173.48 billion in HY’2020, reflecting a growth of 1.75%. The growth recorded in operating profit can be attributed to a 123.13% increase and 3.32% decline, recorded in other income and selling and distribution expenses, respectively. Profit before tax also rose by 4.74% from N155.49 billion in HY’2019 to N162.85 billion in HY’2020, due to a 121.77% increase in finance income. Profit after tax advanced by 5.79% from N119.24 billion in HY’2019 to N126.14 billion in HY’2020. Consequently, EPS grew by 6.28% to N7.45 in HY’2020 from N7.01 in HY’2019. Dangcem has a BVPS of N43.39, P/BV of 3.09x and P/E ratio of 9.01x. While Dangote operates in the construction sector for which we maintain a negative growth outlook, the company however is well insulated from the existing recessionary drivers that are expected to blight the industry. During the lockdown Dangote was able to continue operations in their single largest cement production plant in Obajana, Kogi, and was also able to sustain their distribution channels. Furthermore, to compensate for an expected decline in demand, cement producers have implemented an organized increase in their cement prices. Hence, we expect the 2020 PAT to increase marginally to N206 billion, while the EPS should move to N12.

STANBIC – Stanbic Plc Q1’2020 showed an increase in bottom-line result as profit for the period grew by 7.58%. Interest income declined by 11.83% from N31.14 bn in Q1’2019 to N27.46 bn in the current period. Net interest income went down by 8.26% from N20.19 bn in Q1’2019 to N18.52 bn in Q1’2020. Profit before tax advanced by 3.85% from N23.51 bn in Q1’2019 to N24.42 bn in the current period. The increase in profit before tax is attributable to a 10.90% and 47.14% increase in fees and commission income and trading income, respectively Profit after tax went up by 7.58% from N19.15 bn in Q1’2019 to N20.60 bn in the current period, due to a 12.55% decline in income tax expense. Consequently, Stanbic recorded a 7.58% increase in EPS from N1.81 in Q1’2019 to N1.91 in Q1’2020. Stanbic has BVPS of N30.54, P/BV of 0.98x and P/E ratio of 3.93x. Stanbic is expected to contribute to a forecasted financial industry growth, by leveraging their diversified business structure to hedge against losses specific to a certain business area. Just like other banks that maintain a hold-co. structure, the company would compensate for any decline recorded in their interest income from their other revenue streams. Accordingly, we expect their PAT by year’s end to reach N82 billion, taking the EPS above N7.

Please find attached our Weekly Market Review & Stock Recommendations for this week.