Weekly Market Review & Stock Recommendations – September 07, 2020Yahya Abdulrahman
Global Economic Roundup
Oil Under Pressure as Bearish News Mounts
· Crude oil futures are trading lower on Friday, with prices headed for their biggest weekly decline since June, amid weak demand and ample fuel supplies.
Payrolls rises by nearly 1.4 mn as unemployment rate tumbles
· Nonfarm payrolls increased by 1.37 million in August and the unemployment rate tumbled to 8.4% as the U.S. economy continued to climb its way out of the pandemic downturn.
Domestic Economic Roundup
Nigeria records N1.8tn trade balance deficit – NBS
· Nigeria recorded a trade balance deficit of N1.8tn at the end of the second quarter.
Economic activities rebounded in August, says report
· The recovery in the Nigerian private sector gathered momentum in August as demand improved following the easing of restrictions related to the coronavirus disease.
The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 1.17% week-on-week to close at 25,605.64 points.
The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;
STANBIC – Stanbic Plc HY’2020 showed an increase in bottom-line result as profit for the period grew by 24.72%. Interest income declined by 9.30% from N60.78 bn in HY’2019 to N55.13 bn in the current period. Net interest income went down by 4.48% from N39.31 bn in HY’2019 to N37.55 bn in HY’2020. Profit before tax advanced by 17.37% from N44.65 bn in HY’2019 to N52.41 bn in the current period. The increase in profit before tax is attributable to a 94.63% increase in trading income, and supported by declines in key expenditure line items, such as; the fees and commission expense and operating expense, which both went down by 5.41% and 3.06%, respectively. Profit after tax went up by 24.72% from N36.25 bn in HY’2019 to N45.20 bn in the current period, due to a 14.31% decline in income tax expense. Consequently, Stanbic recorded a 22.51% increase in earnings per share from N3.42 in HY’2019 to N4.19 in HY’2020. The company proposed an interim dividend of N0.40. Stanbic has BVPS of N32.03, P/BV of 1.19x and P/E ratio of 4.53x. Stanbic is expected to contribute to a forecasted financial industry growth of 20.50%, 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, just as we witnessed in their half year results. Accordingly, we expect their PAT by year’s end to reach N82 billion, taking the EPS above N7.
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 8.99x. 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.
Please find attached our Weekly Market Review & Stock Recommendations for this week.
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