Weekly Market Review & Stock Recommendations – September 14, 2020

Weekly Market Review & Stock Recommendations – September 14, 2020

Dear Client/Reader,

Global Economic Roundup

Oil Markets Face Bearish Blowback   

·         Crude oil was under pressure on Friday and in a position to close lower for a second consecutive week on growing demand worries and an unexpected rise in U.S. stockpiles that raised new concerns about oversupply.

Used cars drive U.S. consumer prices higher in August

·         U.S. consumer prices rose solidly in August, with the cost of used cars and trucks increasing by the most in more than 51 years likely as Americans shunned public transportation because of fears of contracting COVID-19.

Domestic Economic Roundup

Inflation rate will hit 14.15% as deficit financing rises — CBN

·         The country’s inflation rate which stood at 12.82 per cent in July may rise up to 14.15 per cent by the end of December 2020 as the Federal Government’s deficit rises due to current economic challenges in the country.

Oil marketers now free to fix prices, says PPPRA

·         The Federal Government is no more going to be releasing guiding price bands for the sale of petrol at filling stations; hence, oil marketers are now free to fix prices.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI declined by 0.05% week-on-week to close at 25,591.95 points.

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

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 0.59x and P/E ratio of 4.41x.  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.      

PRESCO – Presco’s results for HY’2020 revealed that revenue increased by 29.35% from N10.41 bn in HY’2019 to N13.46 bn in the current period. Similarly, gross profit went up by 32.10% to N9.04 bn in HY’2020 from N6.85 bn in HY’2019, despite a 24.06% surge in cost of sales. In the same vein, operating profit increased by 51.73% from N4.35 bn in HY’2019 to N6.60 bn in the current period. The growth recorded in the operating profit was supported by reductions in key expenditure line items, such as; the administrative expenses and selling and distribution expenses, which both declined by 21.01% and 18.00%, respectively. Profit before tax rose by 67.71% to N5.77 bn in HY’2020 from N3.44 bn in HY’2019, supported by an 8.64% decline in finance cost. Profit after tax advanced by 70.51% from N2.58 bn in HY’2019 to N4.39 bn in HY’2020. Consequently, earnings per share grew by 70.82%, from N2.57 in HY’2019 to N4.39 in HY’2020. Presco has a BVPS of N32.28, P/BV of 1.52x and a P/E ratio of 5.58x. Presco has been able to take advantage of greater government support and increased investor sentiment to sustain their growth through the recent economic crises. This was evidenced in their half year results, which stood in line with our earlier projections. The 2020 growth outlook for the agricultural sector remains positive at 4.20 percent, buoyed by the performance of key public companies, such as Presco, which are able to leverage the increased relevance of agriculture, during times of economic hardship that have been sponsored in part or in whole by crude oil shocks. Accordingly, see the 2020 PAT crossing N7.00 bn, taking the EPS past N7.00.

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

Thank you.

Click here for the full report.

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