Weekly Market Review & Stock Recommendations – August 17, 2020

Dear Client/Reader,

Global Economic Roundup

IEA Sees 2020 Oil Demand Down 8.1 Million Bpd  

·         The International Energy Agency expects crude oil demand this year to be 8.1 million bpd lower than it was in 2019, a downward demand forecast revision of 140,000 bpd, the authority said in its latest Oil Market Report.

U.S. retail sales slow in July; obstacles mount for nascent economic recovery

·         U.S. retail sales increased less than expected in July as consumers cut back on purchases of motor vehicles, and could slow further in the months ahead amid spiraling new COVID-19 infections and a reduction in unemployment benefit checks.

Domestic Economic Roundup

Naira exchanges for 475/$ as forex scarcity persists

·         The naira on Friday exchange to the dollar at 475/$ at the parallel market as foreign exchange scarcity persisted.

Nigeria’s unemployment rate 27.1% in Q2 –NBS

·         More than a quarter of Nigeria’s workers were not in the labour force in the second quarter of this year, the National Bureau of Statistics said on Friday, in the country’s first unemployment data published since 2018.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 0.63% week-on-week to close at 25,199.84 points.

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

FBNH – FBNH Plc HY’2020 results showed an increase in the bottom-line as profit for the period grew by 23.84%. Interest income however declined by 4.31% from N216.76 bn in HY’2019 to N207.42 bn in the current period. Net interest income went down by 7.35% from N141.69 bn in HY’2019 to N131.28 bn in HY’2020, due to the drop in interest income and a 1.44% increase in interest expense. The company recorded a 14.70% increase in operating profit from N36.23 bn in HY’2019 to N41.55 bn in the current period. The increase in operating profit is attributable to a 16.41% and 183.05% increase in net fees and commission income and trading income, respectively. Also, impairment charges increased by 38.65% from N22.11 bn in HY’2019 to N30.65 bn in HY’2020. Profit before tax advanced by 14.26% from N36.25 bn in HY’2019 to N41.42 bn in the current period. Profit after tax went up by 23.84% from N28.78 bn in HY’2019 to N35.65 bn in the current period. Consequently, the company recorded a 60.71% increase in EPS to N1.35 in HY’2020 from N0.84 in HY’2019. FBNH has a BVPS of N19.62, P/BV of 0.25x and P/E ratio of 1.85x. FBNH is one the major companies that would support a forecasted 8.50 percent growth for the financial services sector, as FBNH is expected to leverage their highly diversified business model, to prop up their revenue from other sources, such as; their trading income and other income. This would enable them sustain their profitability even during this current pandemic. The company is poised to record the strongest growth margin of all tier one banks, with the PAT crossing the N80 billion mark, hence taking the EPS past N2.  

WAPCO – Lafarge Africa Plc. HY’2020 results showed that revenue grew by 2.25% from N117.89 bn in HY’2019 to N120.54 bn in HY’2020. Similarly, gross profit went up by 5.70% to N41.71 bn in HY’2020 from N39.46 bn in HY’2019. The growth in gross profit was driven by the growth in revenue. Profit from operations rose by 17.81% from N27.85 bn in HY’2019 to N32.81 bn in HY’2020, due to an 30.64% and 9.93% decline in administrative expenses and selling and distribution expense, respectively. Profit before tax grew by 86.09% to N28.76 bn in HY’2020 from N15.45 bn in HY’2019, on the back of a 66.77% decline in finance cost. Profit after tax rose by 47.29% from N15.84 bn in HY’2019 to N23.33 bn in HY’2020, despite a 1,506% increase in taxes. Consequently, earnings per share increased by 158.93%, from N0.56 in HY’2019 to N1.45 in HY’2020. Wapco has a BVPS of N21.86, P/BV of 0.54x and P/E ratio of 4.05x. Wapco is expected to shield itself from the adverse impacts of the Covid-19 pandemic, as the company has been able to sustain their revenue during the lockdown by leveraging an organized price increase of their cement product to fill the shortfalls left by reduced demands. This aggressive revenue growth strategy has also been met with effective cost reduction tactics, both of which will support a full year growth similar to what was seen the first half of the year. Accordingly, we expect to see the PAT cross N28.00 billion, hence, taking the EPS above N10.00.

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

Thank you.

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