Weekly Market Review & Stock Recommendations – October 12, 2020Yahya Abdulrahman
Global Economic Roundup
Oils jumps 9% for the week, snapping two-week losing streak
• Oil prices eased on after an oil worker strike in Norway ended, which should boost output, even though production was still down in the United States ahead of a hurricane. Norwegian oil firms have struck a wage bargain with labor union officials, ending a strike that had threatened to cut the country’s oil and gas output by close to 25% next week
Democrats and Republicans dismiss Trump’s coronavirus stimulus offer
• Democrats in the House and Republicans in the Senate expressed opposition to President Donald Trump’s $1.8 trillion coronavirus stimulus offer, further complicating a week of already confusing negotiations and dimming hopes for a deal before Election Day.
Domestic Economic Roundup
The proposed 2021 FGN Budget was passed to the National Assembly
• The President presented the 2021 Appropriation Bill and the performance of the 2020 budget as at July 2020. The budget was a 27% increase from the approved N10.3 trillion for 2020. Some of the assumptions underlying the appropriation bill includes; Benchmark Oil price of 40 US dollars per barrel, daily oil production at 1.86 million barrels and exchange rate at N379 per Us dollars.
Lagos State Accounted for 78.94% of Credit by Geographical Distribution in Q2 2020
• The Nigerian Selected Banking sector data as at Q2 2020 revealed that total Geographical Distribution of Credit by State stood at N18.90trn compared to N18.56trn in Q1 2020 and N15.44trn in Q2 2019. This represents 1.82% increase in credit Quarter on Quarter and 22.38% Year on Year. Lagos State recorded the highest credit by geographical distribution with N14.92trn accounting for 78.94% while Yobe State recorded the least with N13.8bn accounting for 0.07% in Q2 2020.
The Nigerian Bourse closed bullish last week as the ASI improved by 5.30% week-on-week to close at 28,415.31 points, while year-to-date returns closed at 5.86%.
The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;
OKOMU OIL PLC – Okomu Oil Palm Plc. HY’2020 results showed that revenue grew by 57.92% from N8.57 bn in HY’2019 to N13.53 bn in the current period. Similarly, gross profit went up by 81.03% to N12.44 bn in HY’2020 from N6.87 bn in HY’2019. The growth in gross profit was driven in part by the growth in revenue, and by a 35.98% decline in cost of sales. Profit before tax grew by 94.15% to N5.51 bn in the current period from N2.84 bn in HY’2019. Profit after tax rose by 64.29% from N2.44 bn in HY’2019 to N4.01 bn in the current period. Earnings per share increased by 58.49% from N2.65 in HY’2019 to N4.20 in the current period. Okomu has a BVPS of N32.79, P/BV of 1.76x and P/E ratio of 9.52x.
The agricultural sector is projected to grow by 8.20 percent, as the economic slowdown will shift attention to the sector as an alternative to oil investment, similar to what was witnessed in 2016. The structural vulnerabilities that derive from our reliance on crude oil has caused attention to be pivoted from crude oil and to other revenue generating sources in our economy, and Okomu is receiving increased attention in this regards. Accordingly, we expect their PAT to cross N7 billion and their EPS to soar past N7.
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 1.17x and P/E ratio of 5.53x
The financial services sector is projected to grow by 8.50 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.
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