Weekly Market Review & Stock Recommendations – August 31, 2020

Weekly Market Review & Stock Recommendations – August 31, 2020

Dear Client/Reader,

Global Economic Roundup

Bullish EIA Inventory Report Pushes Oil Prices Higher   

·         Crude oil price rallied further last week after the EIA reported a crude oil inventory draw of 4.7 million barrels for the week to August 21.

U.S. Jobless Rate Set to Return to Single Digits

·         America’s labor market probably extended its rebound in August to push the unemployment rate below 10% for the first time since the pandemic struck.

Domestic Economic Roundup

Foreign capital flows into Nigeria tumble by $4.56bn

·         Foreign capital inflows into Nigeria fell by $4.46bn to $1.29bn in the second quarter of this year from $5.85bn in Q1, the National Bureau of Statistics said on Friday.

Naira gains, exchanges for N470/$

·         The naira gained slightly on Friday, exchanging for N470/$ in the parallel market in the evening, after selling at N476/$ in the morning.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 0.35% week-on-week to close at 25,309.37 points.

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

MTNN – MTNN’s HY’2020 results showed an increase in revenue by 12.54% from N566.99 bn in HY’2019 to N638.08 bn in HY’2020. Operating profit advanced from N189.40 bn in HY’2019 to N204.54 bn in HY’2020, reflecting an increase of 7.99%. The growth in operating profit was buoyed by a 20.28% and 20.67% decline in roaming costs and advertisement, sponsorship and sales promotion, respectively. However, there were increments in numerous expenditure line items which subdued operating profit growth, notably; direct network and technology operating costs and cost of handset and other accessories, both increased by 23.67% and 68.65%, respectively. PBT fell by 1.99% from N142.40 bn in HY’2019 to N139.57 bn in the current period, due to a 27.66% decrease in finance income and a 26.22% rise in finance cost. PAT fell by 4.68% from N99.54 bn in HY’2019 to N94.88 bn in HY’2020, due to a 4.26% surge in taxes. EPS dipped by 4.70% to N4.66 in HY’2020 from N4.89 in HY’2019. Following the 15.09% growth seen in the ICT sector in Q2, we maintain our 12 percent growth forecast for 2020, as the services provided have received increased traction due to the lockdown orders effected to tackle the pandemic. MTNN is the largest firm in the ICT sector and will be the major sponsor of the growth. The lockdown imposed to curb the spread of the COVID-19 pandemic continues to give support to the company’s top-line, as the revenue from data and voice calls is expected to increase by over 50 percent this year. Accordingly, we expect to witness growth in the bottom-line of the company, as the profit after tax is expected to climb past N220 billion, while the earnings per share should move past N11.00 by year’s end.     

UNILEVER – Unilever Nigeria Plc. HY’2020 results showed that revenue declined by 35.91% from N42.66 bn in HY’2019 to N27.34 bn in the current period. This decline was due to the slowdown witnessed in both their food products and home/personal care revenue sources, as their performance was hampered by the weakened purchasing power of consumers in the economy. Similarly, gross profit fell by 45.74% to N6.16 bn in HY’2020 from N11.35 bn in HY’2019, despite a 32.35% decline in cost of sales. The firm recorded a decline of 136.62% in operating profit from N3.85 bn in HY’2019 to -N1.41 bn in the current period, and this was majorly driven by a 196.80% increase in impairment loss. Profit before tax declined by 112.07% to -N566.80 mn in the current period from N4.70 bn in HY’2019, due a 29.33% decline in finance income. Consequently, profit after tax fell by 114.77% from N3.52 bn in HY’2019 to -N519.11 mn in the current period. The firm recorded an 114.75% decline in earnings per share from N0.61 in HY’2019 to -N0.09 in the current period. Unilever Nigeria is currently experiencing the negative effects of the lull in business activities in February and March due to movement restrictions across the country. The fall in the purchasing power of individuals also contributed to the company’s falling topline, as their Food Products and Home & Personal Care revenue segments declined by 29% and 43%, respectively. Following the 8.78% Q2 contraction seen in the manufacturing industry, the outlook for the entire sector remains grim, with a full year growth forecast of 5.10%. Unilever remains unshielded from the slowdown in the sector and the entire economy; hence, we maintain a negative outlook for the firm.

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

Thank you.

Click here for the full report.

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