Weekly Market Review & Stock Recommendations – September 28, 2020Yahya Abdulrahman
Global Economic Roundup
Oil declines owing to demand concerns globally
- Oil slipped on Friday and was on track for a more than 2% weekly decline due to mounting worries about resurgent coronavirus infections crushing fuel demand and as Libyan crude exports resume.
Weekly jobless claims (US) rise unexpectedly as stimulus boost fades
- The Labor Department reported that initial jobless claims for the week ending Sept. 19 were at 870,000. Economists polled by Dow Jones expected first-time claims to come in at 850,000, down slightly from the 860,000 claims reported for the previous week.
Domestic Economic Roundup
CBN reduces MPR from 12.5% to 11.5%
- The Monetary Policy Committee reduced the MPR from 12.5% to 11.5%. They adjusted the asymmetric corridor, from +200/-500 to +100/-700 basis points around the MPR. The committee retained CRR at 27.5%, stating that the recent inflationary pressures is not driven by monetary policies, rather as a result of structural policies
Petrol supply drops by over 23% due to decline in consumption
- The total volume of petrol supplied in Nigeria declined by 23.88% in July, when it fell from 1.34 billion litres in June 2020 to 1.02 billion litres. Experts in Agusto & Co, in a report, have noted that the impact of the COVID-19 pandemic on economic activities in the country resulted in a decline in the consumption of petroleum products.
The Nigerian Stock Exchange closed bullish last week as the ASI improved by 2.92% week-on-week to close at 26,319.34 points.
The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;
ZENITH – The HY’2020 result of Zenith Plc showed that Interest income advanced by 1.10% from N214.60 bn in HY’2019 to N216.95 bn in the current period. Net interest income increased by 10.45% to N157.41 bn in HY’2020 from N142.52 bn in HY’2019. The increase in net interest income was driven by the rise in interest income and a 17.40% drop in the interest expense. Likewise, profit before tax advanced by 2.19% from N111.68 bn recorded in HY’2019 to N114.12 bn in the current period. The growth in profit was driven by a 174.01% and 30.45% increase in other operating income and trading income, respectively, but subdued by a 74.18% hike in impairment charge and a 39.97% fall in net fees and commission income. Profit after tax grew by 16.81% from N88.88 bn in HY’2019 to N103.83 bn in HY’2020, due to a 54.82% decline in income tax expense. Consequently, earnings per share went up by 16.61% from N2.83 in HY’2019 to N3.30 in HY’2020. The company proposed an interim dividend of N0.30. Zenith has a BVPS of 31.50, P/BV of 0.55x and P/E ratio of 2.62x.
Zenith remains the leading tier-1 lender based on the size of their tier-1 capital; hence, they are well equipped to sit through a recession, and stage a post-covid recovery. The company is expected to grow tepidly this year, as the strength of their balance sheet should withstand headwinds that derive from the Covid-19 pandemic. Accordingly, the company is expected to maintain its PAT above N200 billion and maintain their dividend payment at the same level from last year’s.
FIDELITY – Fidelity Bank’s HY’2020 showed that interest income advanced by 2.09% from N85.83 bn in HY’2019 to N87.62 bn in the current period. Net interest income went up by 30.95% from N36.90 bn in HY’2019 to N48.32 bn in HY’2020. The increase in the net interest income was driven by the rise in interest income, and by a 19.68% decline in interest expense. Profit before tax advanced by 21.92% from N9.81 bn in HY’2019 to N11.96 bn in the current period. The growth in profit before tax is attributable to a 2,191% and 80.78% increase seen in the net gains from financial assets and other operating income, respectively. Increments in the revenue line items offset a 27.04% fall in fees and commission income, and a 15.12% and 8.28% hike in the fees and commission expense and operating expense, respectively. Profit after tax went up by 33.01% from N8.50 bn in HY’2019 to N11.30 bn in the current period, on the back of a 49.77% decline in income tax expense. Consequently, Fidelity recorded a 34.48% growth in earnings per share from N0.29 in HY’2019 to N0.39 in HY’2020. Fidelity has a BVPS of N8.65, P/BV of 0.22x and P/E ratio of 2.44x.
Fidelity Bank was able to deploy some cost reduction strategies to compliment the growth seen in their interest income, which helped the company improve all growth margins. The company’s effort to improve the volume of transactions on its electronic channels and also restructure and grow their loan book, yielded positive results, as the company was able to sustain their service delivery during the lockdown, and maintain their asset quality. Accordingly, we expect the 2020 PAT to reach N34.00 billion, taking the EPS near N1.18.
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