Weekly Market Review & Stock Recommendations – September 21, 2020Yahya Abdulrahman
Global Economic Roundup
OPEC+ urges full conformity with production cuts.
· 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.
Fed holds rates steady near zero; indicates it will stay there for years.
• Fed said short-term rates would remain targeted at 0%-0.25%. They equally changed their economic forecasts to reflect a smaller decline in GDP and a lower unemployment rate in 2020. They now see a full-year GDP decline of 3.7%, considerably better than the 6.5% drop forecast in June.
Domestic Economic Roundup
Nigeria’s inflation rate hits 13.22% in August 2020, highest in 29 months.
• Nigeria’s inflation rate rose to 13.22% in August 2020, highest recorded in 29 months, since March 2018 (13.24%). This was due to an increase in prices of Passenger transport by air, Hospital services, bread and cereals, potatoes amongst others.
CBN to increase loans to agricultural sector to 10% of total bank credit.
• The CBN said the country needs to increase its bank credit to the agricultural sector by over 50% within the next 4 years to boost food production. This is expected to drive the allocation to the sector to 10% of the entire credit in the banking sector from the current 4%.
The Nigerian Stock Exchange closed bearish last week as the ASI declined by 0.08% week-on-week to close at 25,572.57 points.
The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;
DANGSUGAR – Dangote Sugar Plc. HY’2020 results showed that revenue grew by 28.46% from N80.36 bn in HY’2019 to N103.23 bn in HY’2020. However, gross profit went down by 1.38% to N20.82 bn in HY’2020 from N21.12 bn in HY’2019. The decline in gross profit was driven by a 39.09% hike in cost of sales. Profit from operations advanced by 0.68% from N17.28 bn in HY’2019 to N17.40 bn in HY’2020, due to a 434.33% increase in other income and a 15.93% decline in selling and distribution expenses. Profit before tax inched up marginally by 0.07% to N17.05 bn in HY’2020 from N17.03 bn in HY’2019. Profit after tax grew by 5.51% from N10.98 bn in HY’2019 to N11.58 bn in HY’2020, on the back of a 9.79% decline in income tax expenses. Consequently, earnings per share rose by 5.43%, from N0.92 in HY’2019 to N0.97 in HY’2020. Dangote Sugar has a BVPS of N9.98, P/BV of 1.20x and P/E ratio of 6.19x.
Dangote Sugar has managed to shield itself from the slowdown witnessed in the consumer goods industry, owing to the increased sale of sugar and related products before and even during the lockdown. We saw their revenue from the retail and industrial sale of sugar increase by 30 percent and 69 percent, respectively in the first half of the year, hence supporting a bottom-line growth. While the manufacturing industry in general is projected to contract by 5.10% in 2020, following the 8.78% contraction in Q2, it has been observed that the demand for sugar has remained high, hence, allowing Dangote Sugar to grow their revenue by maneuvering around the distribution limitations during the lockdown. Hence, we expect their 2020 PAT to move past N23.00 billion, taking the EPS above N2.00.
UCAP – United Capital’s result for HY’2020 showed that gross earnings increased by 37.26% from N3.24 bn in HY’2019 to N4.45 bn in HY’2020. Net operating income rose by 45.40% from N2.82 bn in HY’2019 to N4.10 bn in HY’2020, due to a 347.65%, 85.03% and 77.15% increase in net interest margin, net trading income and fees and commission income, respectively. Profit before tax rose by 14.10% from N1.99 bn in HY’2019 to N2.27 bn in the current period, despite the surge in key expenditure line items, such as the personnel expenses which rose by 7.86%, and the other operating expense which increased by 87.73%. Profit after tax increased by 15.98% to N1.91 bn in the current period from N1.65 bn in HY’2019. Consequently, Earnings per share went up by 14.29% from N0.28 in HY’2019 to N0.32 in the current period. UCAP has a BVPS of N3.02, P/BV of 1.04x and P/E ratio of 4.92x
The financial services sector grew by 28.41% in Q2, and is projected to grow by 20.50 percent this year, supported by the performance of highly digitized firms such as United Capital. The company has been able to digitize their products, with various online and mobile platforms for service delivery. This in turn serves them, as the Covid induced restrictions on movement has minimally disrupted some aspects of their business. Hence, we should see the PAT climb above N5.4 billion, while the EPS is projected above N0.90. Please find attached our Weekly Market Review & Stock Recommendations for this week.
Click here for the Weekly Market Review & Stock Recommendations.