Weekly Market Review & Stock Recommendations – August 24, 2020
Dear Client/Reader,
Global Economic Roundup
Oil falls 1% on sluggish coronavirus recovery, supply concerns
· Oil prices lost about 1% on Friday as the economic recovery worldwide runs into stumbling blocks due to renewed coronavirus lockdowns and on worries about rising crude supply.
UK budget office sees debt above 106% of GDP this year
· Britain’s official budget forecasters raised their estimate for the size of the country’s public debt pile at the end of the current financial year, after data showed earlier on Friday that it had passed 100% of annual economic output for the first time.
Domestic Economic Roundup
Nigeria’s inflation rate jumps to 12.82%, highest in 27 months
· Nigeria’s inflation rate rose by 12.82% (year-on-year) in July, compared to 12.56% recorded in June 2020. This is the highest rate recorded in 27 months since March 2018 when headline inflation was 13.34%.
Nigerian Economy Contracts by 6.10% (Y/Y) in Q2’2020
· Gross Domestic Product (GDP) decreased by –6.10%(year-on-year) in real terms in the second quarter of 2020, ending the 3-year trend of low but positive real growth rates recorded since the 2016/17 recession.
Equities Market
The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 0.09% week-on-week to close at 25,221.87 points.
The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;
FLOURMILL – Flourmill Plc. Q1’2021 results for the period ended June 2020 showed that revenue grew by 14.72% from N134.75 bn in Q1’2020 to N154.58 bn in Q1’2021. Similarly, gross profit went up by 55.10% to N25.55 bn in Q1’2021 from N16.47 bn in Q1’2020. The growth in gross profit was driven by the rise in revenue. Profit from operations advanced by 11.08% from N9.89 bn in Q1’2020 to N10.99 bn in Q1’2021, supported by a 1.77% decline in selling and distribution expenses, but subdued by a 6.01% and 9.26% increase in administrative expenses and impairment loss, respectively. Profit before tax inched up by 17.33% to N6.46 bn in Q1’2021 from N5.50 bn in Q1’2020, on the back of a 102.56% rise in investment income. Profit after tax grew by 17.33% from N4.24 bn in Q1’2020 to N4.97 bn in Q1’2021. Consequently, earnings per share rose by 3.88%, from N1.03 in Q1’2020 to N1.07 in Q1’2021. Flourmill has a BVPS of N39.21, P/BV of 0.47x and P/E ratio of 17.29x. Flourmill has proven to be immune to the negative impacts of the pandemic, as the company’s strong product offerings in the value segments, the benefits from the border closure, and their cost optimization strategies, helped offset the impact of the weakening consumer spending in the economy, disruptions to the supply chain and the existing currency risks in their export segment. Accordingly, their Food, Agro Allied and Sugar revenue segments grew by 12%, 29% and 12%, respectively, as the company continues to deepen their market share amidst competing brands. Hence, we expect their 2021 PAT to move past N20.00 billion, taking the EPS above N3.00.
OKOMU – 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 2.41x and P/E ratio of 9.40x. 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.
Please find attached our Weekly Market Review & Stock Recommendations for this week.
Thank you.
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