Weekly Market Review & Stock Recommendations -February 20, 2023
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Global Economic Roundup
Saudi Arabia And Russia Face Off Over Chinese Oil Market Share
China’s oil demand is rising with the reopening from Covid restrictions after nearly three years. The initial demand trend suggests a reopening in fits and starts, but analysts say that it will be China that will account for half of this year’s global oil demand growth, with total world oil demand reaching a record. And while China’s oil demand is set to rebound, the leaders of the OPEC+ group, Saudi Arabia and Russia, will be competing to meet the growing demand in the world’s largest crude oil importer. Saudi Arabia sells its crude oil under long-term contracts, so it has a guaranteed share of the Chinese market. But Russia, having pivoted to Asia for crude and fuel sales after the Western sanctions, is offering its oil at discounts and could attract more Chinese buyers who don’t abide by the G7 price caps. The Saudis are signaling expectations of a strong rebound in China’s demand by unexpectedly raising their prices for Asia. But these prices cannot compete with discounted Russian barrels, and Chinese buyers may opt for requesting the minimum volumes from Saudi Arabia allowed under the long-term contracts OPEC’s top producer, Reuters’ Asia Commodities and Energy Columnist Clyde Russell argues. Last week, Saudi Arabia surprised the oil market by raising the official selling price (OSP) of its flagship crude going to Asia in March. Saudi Aramco lifted the price of its flagship Arab Light grade to Asia for March loadings by $0.20 per barrel to a premium of $2.00 a barrel over the Dubai/Oman average, the benchmark, off which Middle East’s oil is priced in Asia.
Consumer debt hits record $16.9 trillion as delinquencies also rise
Consumer debt hit a fresh record at the end of 2022 while delinquency rates rose for several types of loans, the New York Federal Reserve reported on Thursday. Debt across all categories totaled $16.9 trillion, up about $1.3 trillion from a year ago, as balances rose across all major categories. Despite a decline in originations, mortgage balances increased to $11.9 trillion, up about $250 billion from the third quarter and about $1 trillion from a year ago. Originations for new home loans and refinancings fell to $498 billion, less than half where they were for Q4 in 2021 and a drop of about $135 billion from the third quarter. Mortgage loans considered in “serious delinquency” of 90 days or more rose to a rate of 0.57%, still low but nearly double where they were from the year prior. Auto loan debt delinquencies rose 0.6 percentage point to 2.2%, while credit card debt jumped 0.8 percentage point to 4%. “Credit card balances grew robustly in the fourth quarter, while mortgage and auto loan balances grew at a more moderate pace, reflecting activity consistent with pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed. “Although historically low unemployment has kept consumers’ financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers’ ability to repay their debts,” he added. The rise in balances came amid an aggressive rate-hiking campaign from the Fed as it battled inflation running near its highest levels in more than 41 years.
Nigeria’s inflation hits 21.82% amid cash crunch
Amid the uncertainties being faced by Nigerians due to the scarcity of the redesigned Naira notes, the nation’s inflation rate rose in January after recording a fall in December. Inflation rose to 21.82 per cent in January compared to 21.34 per cent in December, the National Bureau of Statistics announced Wednesday. The statistics office said the headline inflation rate rose to 21.82 per cent compared to December 2022 headline inflation rate which was 21.34 per cent. The January 2023 inflation rate showed an increase of 0.47 per cent points when compared to December 2022 inflation rate, it said. Nigerians have in recent weeks faced an unprecedented cash crunch as a result of the naira redesign policy of the Central Bank of Nigeria (CBN). The crisis has plunged many citizens into hardship, with numerous others finding it extremely difficult to meet their basic daily needs. The Nigerian Governors’ Forum last week warned that the policy may drive the nation’s economy into a recession. In its inflation report Wednesday, the NBS said that increases were recorded in all Individual Consumption by Purpose (COICOP) divisions that yielded the headline index. “However, on a year-on-year basis, the headline inflation rate was 6.22 per cent points higher compared to the rate recorded in January 2022, which was 15.60 per cent. “This shows that the headline inflation rate (year-on-year basis) increased in January 2023 when compared to the same month in the preceding year (i.e., January 2022),” it said. The report noted that the contributions of items on a class basis to the increase in the headline index are bread and cereal (21.67 per cent), actual and imputed rent (7.74 per cent), potatoes, yam and tuber (6.06 per cent), vegetables (5.44 per cent), and meat (4.78 per cent). “On a month-on-month basis, the percentage change in the All-Items Index in January 2023 was 1.87 per cent, which was 0.15 per cent points higher than the rate recorded in December 2022 (1.71 per cent). “This means that in January 2023, on average, the general price level was 0.15 per cent higher relative to December 2022. “The percentage change in the average CPI for the twelve months period ending January 2023 over the average of the CPI for the previous twelve months period was 19.36 per cent, showing a 2.49 per cent increase compared to 16.87 per cent recorded in January 2022,” the report said.
Some of our recommended stocks are mentioned below;
ACCESSCORP:
Access Holdings Plc is projected to have a FY 2022 revenue of N740.81bn, up by 23.12% from N601.71bn in FY 2021. Profit after tax is estimated to grow from N160..22bn in FY 2021 to N197.26 bn in FY 2022 with an EPS of N5.63.
Access Holdings Plc Q3 2022 results showed that interest income advanced by 21.46% from N470.9 bn in Q3 2021 to N571.98 bn in the current period. Net interest income went up by 4.78% from N267.73 bn in Q3 2021 to N280.53 bn in Q3 2022. Profit before tax grew by 8.97% from N135.06 bn in Q3 2021 to N147.18 bn in the current period due to the 36.05% increase in net impairment charges, 17.27% rise in fees and commission expense and 11.62% rise in net foreign exchange gain. Profit after tax went up by 12.54% from N121.88bn in Q3 2021 to N137.17bn in the current period, on the back of a 22.92% fall in income tax expense. Consequently, Access recorded a 12.14% rise in earnings per share from N3.46 in Q3 2021 to N3.88 in Q3 2022. Access Holdings Plc has a BVPS of N29.11, P/BV of 0.32x and P/E ratio of 1.79x.
ZENITH:
Zenithbank Plc is projected to have a FY 2022 revenue of N832.32bn, up by 19.51% from N696.45bn in FY 2021. Profit after tax is estimated to grow from N160.59bn in FY 2021 to N191.92bn in FY 2022 with an EPS of N6.11.
Zenithbank Plc’s Q3 2022 results showed that gross earnings advanced by 19.65% to ₦620.57 bn in Q3 2022 from ₦518.67 bn in Q3 2021. Net interest income grew by 20.52% from ₦234.75 bn in Q3 2021 to ₦282.91bn in Q3 2022, supported by a 26.52% rise in interest income. Profit before tax advanced by 12.65% from ₦179.81 bn recorded in Q3 2021 to ₦202.55 bn in the current period. This is attributable to the 0.86% increase in trading income and 27.79% increase in net fees and commission income. Profit after tax went up by 8.55% from ₦160.59 bn in Q3 2021 to ₦174.33bn in Q3 2022 after a 46.85% increase in income tax expenses. Earnings per share advanced by 8.61% from ₦5.11 in Q3 2021 to ₦5.55 in the current period. Consequently, Zenith has a BVPS of ₦37.81, P/BV of 0.67x and P/E ratio of 3.45x.
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