Weekly Market Review & Stock Recommendations – October 5, 2020

Weekly Market Review & Stock Recommendations – October 5, 2020

Dear Client/Reader,

Global Economic Roundup

Oil prices drop as Trump test positive for coronavirus

  • Oil prices fell 3% on Friday after U.S. President Donald Trump tested positive for COVID-19, roiling risky assets, and as rising global crude output threatens to overwhelm the market’s weak recovery. International benchmark Brent crude futures were down 2.42% to $39.94 per barrel. U.S. crude futures also shed 2.43% to $37.78 per barrel.

President Trump and First lady test positive for coronavirus

  • President Donald Trump tested positive for coronavirus on Friday, plunging the United States into further upheaval and uncertainty just over a month away from Election Day. Shortly after Trump’s tweet, U.S. stock futures moved sharply lower with Dow futures falling more than 500 points at one point, while stock markets in Asia backtracked sharply.

Domestic Economic Roundup

P&ID: London Court orders release of $200m to Nigeria

  • Nigeria’s Foreign Exchange Reserves boosted by over $200Million when the London Commercial Court ordered the release of the $200Million guarantee put in place as security in respect of the execution of the P&ID $10 Billion Arbitral Claim. The CBN also disclosed that the court awarded £70,000 cost in favour of Nigeria in addition to an earlier award of £1.5 million.

Income of Nigerians households decline – NBS

  • The NBS has reported that the total income of over 67% of households declined in August, when compared to the same period in August 2019. Across the three main income-generating activities (wages, agriculture, and non-farm enterprises), there was a significant decrease in income compared to last year. A decline in income was highest for non-farm family business activities at 65% of households, compared to 58% for agriculture (household farming, livestock or fishing); and 43% for wage employment.

Equities Market

The Nigerian Bourse closed bullish last week as the ASI improved by 2.53% week-on-week to close at 26,985.77 points, while year-to-date returns closed at 0.54%.

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

DANGOTE 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 3.32x and P/E ratio of 9.66x.

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.

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 N21.91 P/BV of 0.69x and P/E ratio of 5.22x.

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.

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

Thank you.

Click here for our Weekly Market Review & Stock recommendation.

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