Weekly Market Review & Stock Recommendations -March 6, 2023

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Global Economic Roundup

Shell Is Reviewing Its Plan To Reduce Oil Production This Decade

Shell’s plan to have its oil production decline by up to 2% each year this decade is currently under review, the new CEO Wael Sawan told The Times in an interview published on Friday, adding that he is a firm believer of the statement “don’t deny people energy.” Back in 2021, Shell said that its oil production peaked in 2019 and is set for a continual decline over the next three decades as it looks toward the renewables side of the business. However, the post-Covid rebound in oil and gas demand and the Russian invasion of Ukraine with the subsequent major dislocation of energy the trade has clearly shown “the fragility of the energy system when we starve it of the supply that is required,” Sawan told The Times. He said that he’s of a firm view that the world will need oil and gas for a long time to come. As such, cutting oil and gas production is not healthy.

2-year Treasury yield reaches highs not seen in more than a decade

U.S. Treasury yields climbed on Thursday as investors considered the prospect of further interest rate hikes by the Federal Reserve and awaited fresh economic data. The yield on the benchmark 10-year Treasury was up by 7 basis points to 4.066%. The 2-year Treasury yield was last trading at 4.889%. Earlier in the session, it traded at its highest level since July 2007. Investors considered the likelihood of further interest rate hikes and rates staying higher for longer. A surge in labor costs and a pullback in jobless claims reported early Thursday point to the likelihood that the Fed will raise its benchmark interest rate another 0.25 percentage point later this month. At its latest meeting, the central bank had hiked rates by 25 basis points. This marked a slowdown compared to the previous five increases which included four consecutive 75 basis point hikes followed by a 50 basis point hike. Many investors have been concerned about the pace of rate hikes dragging the U.S. economy into a recession.

Understanding the Tinubu Presidency Objectives and the Nigeria Question

Nigeria’s ruling party candidate, Bola Tinubu, was on Wednesday declared the winner of the presidential election, after defeating the candidates of the two main opposition parties. Analysts describe the poll as the most keenly contested since the country returned to Democratic rule in 1999. The announcement of final results by the Chairman of the Independent Nigerian Election Commission (INEC), Prof. Mahmud Yakubu early on Wednesday, has however been met with contestation by members of the opposition who had staged a workout from the National Collation Centre in Abuja after concerns of irregularities were unaddressed. But judging by his manifesto, Analysts say that the centerpiece of Tinubu’s fiscal and economic policy would be to bring about fast-growing, premised on industrialization and economic diversification. Tinubu’s administration seeks to address the country’s high unemployment and poverty by targeting an overly ambitious 12% annual growth rate given that the country’s long-run growth rate is only around 5%. While the new administration would deploy tax policies in line with the Trickle-down theory, Analysts believe this would raise big questions about the Federal Government’s (FG) ailing finances. Analysts recommend that the next administration must prioritize opening the capital account by offering opportunities for investment in the many redundant assets of the country as well as issuing new licenses for Greenfield investment in critical sectors. This way fiscal and external sector liquidity can improve significantly with positive knock-on effects on employment and domestic inflation.

Some of our recommended stocks are mentioned below;

MTNN:

MTNN Plc FY 2022 results showed an increase in revenue by 21.64% from ₦1.65 trn in FY 2021 to ₦2.01 trn in FY 2022. Operating profit advanced from ₦584.74bn in FY 2021 to ₦733.29bn in FY 2022, reflecting an increase of 25.40%. Profit before tax grew by 22.28% from ₦436.68bn in FY 2021 to ₦533.97bn in the current period, despite a 33.19% increase in finance costs. Profit after tax rose by 20.16% from ₦298.65bn in FY 2021 to ₦358.87bn in FY 2022. EPS increased by 21.27% to ₦17.79 in FY 2022 from ₦14.67 in FY 2021. MTNN has a BVPS of ₦9.14, P/BV of 26.81x, and P/E ratio of 13.71x.

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 0.70x and P/E ratio of 3.59x.

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