Weekly Market Review & Stock Recommendations – October 19, 2020

Dear Client/Reader,

Global Economic Roundup

Oil gained nearly 2% as robust China trade data offsets returning supply

  • Oil prices rebounded on Tuesday, supported by robust economic data from China that offset returning supply in other regions but gains were capped by forecasts for a slow recovery in global oil demand as coronavirus cases rise.

Coronavirus spending pushes U.S. 2020 fiscal year deficit to $3.132 trillion

  • The U.S. budget deficit hit a record $3.132 trillion during fiscal 2020, more than triple the 2019 shortfall due to massive coronavirus rescue spending. The deficit more than doubled the previous record of $1.416 trillion in fiscal 2009, when the United States was battling a financial crisis.

Domestic Economic Roundup

Nigeria’s inflation rate hits 13.71% as food prices soar

  • The Nigerian inflation rate rose to 13.71% Y-o-Y in September 2020 indicating 0.49% point higher than 13.22% recorded in August 2020. On a M-o-M basis, the Headline index increased by 1.48% in September 2020. This is 0.14% rate higher than in August 2020 (1.34%). Also, the urban inflation rate increased by 14.31% Y-o-Y in review period from 13.83% recorded in August 2020, while the rural inflation rate increased by 13.14% in September 2020 from 12.65% in August 2020.
  • DMO offers for subscription N30 billion FGN bonds on October 21.
  • The Debt Management Office (DMO) has announced the offer for subscription by auction, a total of N30bn worth of bonds on October 21. The sum of N15 billion will be a 15-year re-opening bond at 12.5% per annum, that would mature in March 2035 and another N15 billion 25-year re-opening bond at 9.8% per annum, that would mature in July 2045.

Equities Market

The Nigerian Bourse closed bullish last week as the ASI improved by 0.86% week-on-week to close at 28,659.45 points, while year-to-date returns closed at 6.77%.

The current low prices of stocks still provide good buying opportunities in the market. Some of our recommended stocks are mentioned below;

PRESCO Plc Presco’s results for HY’2020 revealed that revenue increased by 29.35% from N10.41 bn in HY’2019 to N13.46 bn in the current period. Similarly, gross profit went up by 32.10% to N9.04 bn in HY’2020 from N6.85 bn in HY’2019, despite a 24.06% surge in cost of sales. In the same vein, operating profit increased by 51.73% from N4.35 bn in HY’2019 to N6.60 bn in the current period. The growth recorded in the operating profit was supported by reductions in key expenditure line items, such as; the administrative expenses and selling and distribution expenses, which both declined by 21.01% and 18.00%, respectively. Profit before tax rose by 67.71% to N5.77 bn in HY’2020 from N3.44 bn in HY’2019, supported by an 8.64% decline in finance cost. Profit after tax advanced by 70.51% from N2.58 bn in HY’2019 to N4.39 bn in HY’2020. Consequently, earnings per share grew by 70.82%, from N2.57 in HY’2019 to N4.39 in HY’2020. Presco has a BVPS of N32.28, P/BV of 2.04x and a P/E ratio of 7.51x.

Presco has been able to take advantage of greater government support and increased investor sentiment to sustain their growth through the recent economic crises. This was evidenced in their half year results, which stood in line with our earlier projections. The 2020 growth outlook for the agricultural sector remains positive at 4.20 percent, buoyed by the performance of key public companies, such as Presco, which are able to leverage the increased relevance of agriculture, during times of economic hardship that have been sponsored in part or in whole by crude oil shocks. Accordingly, see the 2020 PAT crossing N7.00 bn, taking the EPS past N7.00.

FIDELITY BANK – Fidelity Bank’s HY’2020 showed that interest income advanced by 2.09% from N85.83 bn in HY’2019 to N87.62 bn in the current period. Net interest income went up by 30.95% from N36.90 bn in HY’2019 to N48.32 bn in HY’2020. The increase in the net interest income was driven by the rise in interest income, and by a 19.68% decline in interest expense. Profit before tax advanced by 21.92% from N9.81 bn in HY’2019 to N11.96 bn in the current period. The growth in profit before tax is attributable to a 2,191% and 80.78% increase seen in the net gains from financial assets and other operating income, respectively. Increments in the revenue line items offset a 27.04% fall in fees and commission income, and a 15.12% and 8.28% hike in the fees and commission expense and operating expense, respectively. Profit after tax went up by 33.01% from N8.50 bn in HY’2019 to N11.30 bn in the current period, on the back of a 49.77% decline in income tax expense. Consequently, Fidelity recorded a 34.48% growth in earnings per share from N0.29 in HY’2019 to N0.39 in HY’2020. Fidelity has a BVPS of N8.65, P/BV of 0.24x and P/E ratio of 2.67x.

Fidelity Bank was able to deploy some cost reduction strategies to compliment the growth seen in their interest income, which helped the company improve all growth margins. The company’s effort to improve the volume of transactions on its electronic channels and also restructure and grow their loan book, yielded positive results, as the company was able to sustain their service delivery during the lockdown, and maintain their asset quality. Accordingly, we expect the 2020 PAT to reach N34.00 billion, taking the EPS near N1.18.

Please find attached our Weekly Market Review & Stock Recommendations for this week.

Thank you.

Click here for our Weekly Market Review & Stock Recommendations for this week.

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