Weekly Market Review & Stock Recommendations – August 10, 2020
Dear Client/Reader,
Global Economic Roundup
IMF: Global Oil Demand Will Shrink By 8% In 2020
· The coronavirus crisis will lead to global oil demand dropping by around 8 percent this year compared to last year, the International Monetary Fund (IMF) said in a new report.
July U.S. employment growth slows sharply
· U.S. employment growth slowed considerably in July amid a resurgence in new COVID-19 infections, offering the clearest evidence yet that the economy’s recovery from the recession caused by the pandemic was faltering.
Domestic Economic Roundup
Petrol: Ex-depot price rises by N6, consumers to pay more
· The Petroleum Products Pricing Regulatory Agency on Tuesday increased the ex-depot price of petrol by N6 to N138.62/litre for the month of August 2020.
CBN to unify exchange rates, pegs naira at 379/$
· The Central Bank of Nigeria on Saturday officially changed the exchange rate of the naira to the dollar from N361 to N379 on its website.
Equities Market
The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 1.41% week-on-week to close at 25,041.89 points.
The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;
DANGSUGAR– Dangote Sugar Plc. HY’2020 results showed that revenue grew by 28.46% from N80.36 bn in HY’2019 to N103.23 bn in HY’2020. However, gross profit went down by 1.38% to N20.82 bn in HY’2020 from N21.12 bn in HY’2019. The decline in gross profit was driven by a 39.09% hike in cost of sales. Profit from operations advanced by 0.68% from N17.28 bn in HY’2019 to N17.40 bn in HY’2020, due to a 434.33% increase in other income and a 15.93% decline in selling and distribution expenses. Profit before tax inched up marginally by 0.07% to N17.05 bn in HY’2020 from N17.03 bn in HY’2019. Profit after tax grew by 5.51% from N10.98 bn in HY’2019 to N11.58 bn in HY’2020, on the back of a 9.79% decline in income tax expenses. Consequently, earnings per share rose by 5.43%, from N0.92 in HY’2019 to N0.97 in HY’2020. Dangote Sugar has a BVPS of N9.98, P/BV of 1.19x and P/E ratio of 6.13x. Dangote Sugar has managed to shield itself from the slowdown witnessed in the consumer goods industry, owing to the increased sale of sugar and related products before and even during the lockdown. We saw their revenue from the retail and industrial sale of sugar increase by 30 percent and 69 percent, respectively in the first half of the year, hence supporting a bottom-line growth. While the manufacturing industry in general is projected to contract by 5.10 percent, it has been observed that the demand for sugar has remained high, hence, allowing Dangote Sugar grow their revenue by maneuvering around the distribution limitations during the lockdown. Hence, we expect their 2020 PAT to move past N23.00 billion, taking the EPS above N2.00.
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 1.00x and P/E ratio of 4.73x. 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.
Thank you.
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