Stock Recommendations

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.

Read more...

Weekly Market Review & Stock Recommendations – October 12, 2020

Dear Client/Reader,

Global Economic Roundup

Oils jumps 9% for the week, snapping two-week losing streak

•      Oil prices eased on after an oil worker strike in Norway ended, which should boost output, even though production was still down in the United States ahead of a hurricane. Norwegian oil firms have struck a wage bargain with labor union officials, ending a strike that had threatened to cut the country’s oil and gas output by close to 25% next week

Democrats and Republicans dismiss Trump’s coronavirus stimulus offer

•      Democrats in the House and Republicans in the Senate expressed opposition to President Donald Trump’s $1.8 trillion coronavirus stimulus offer, further complicating a week of already confusing negotiations and dimming hopes for a deal before Election Day.

Domestic Economic Roundup

The proposed 2021 FGN Budget was passed to the National Assembly

•      The President presented the 2021 Appropriation Bill and the performance of the 2020 budget as at July 2020. The budget was a 27% increase from the approved N10.3 trillion for 2020.  Some of the assumptions underlying the appropriation bill includes; Benchmark Oil price of 40 US dollars per barrel, daily oil production at 1.86 million barrels and exchange rate at N379 per Us dollars.

Lagos State Accounted for 78.94% of Credit by Geographical Distribution in Q2 2020

•      The Nigerian Selected Banking sector data as at Q2 2020 revealed that total Geographical Distribution of Credit by State stood at N18.90trn compared to N18.56trn in Q1 2020 and N15.44trn in Q2 2019. This represents 1.82% increase in credit Quarter on Quarter and 22.38% Year on Year. Lagos State recorded the highest credit by geographical distribution with N14.92trn accounting for 78.94% while Yobe State recorded the least with N13.8bn accounting for 0.07% in Q2 2020.

Equities Market

The Nigerian Bourse closed bullish last week as the ASI improved by 5.30% week-on-week to close at 28,415.31 points, while year-to-date returns closed at 5.86%.

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

OKOMU OIL PLC – 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 1.76x and P/E ratio of 9.52x.

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.

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 1.17x and P/E ratio of 5.53x

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.

Click here for our Weekly Market Review & Stock Recommendations.

Read more...

Weekly Market Review & Stock Recommendations – October 5, 2020

Dear Client/Reader,

Global Economic Roundup

Oil prices drop as Trump test positive for coronavirus

  • Oil prices fell 3% on Friday after U.S. President Donald Trump tested positive for COVID-19, roiling risky assets, and as rising global crude output threatens to overwhelm the market’s weak recovery. International benchmark Brent crude futures were down 2.42% to $39.94 per barrel. U.S. crude futures also shed 2.43% to $37.78 per barrel.

President Trump and First lady test positive for coronavirus

  • President Donald Trump tested positive for coronavirus on Friday, plunging the United States into further upheaval and uncertainty just over a month away from Election Day. Shortly after Trump’s tweet, U.S. stock futures moved sharply lower with Dow futures falling more than 500 points at one point, while stock markets in Asia backtracked sharply.

Domestic Economic Roundup

P&ID: London Court orders release of $200m to Nigeria

  • Nigeria’s Foreign Exchange Reserves boosted by over $200Million when the London Commercial Court ordered the release of the $200Million guarantee put in place as security in respect of the execution of the P&ID $10 Billion Arbitral Claim. The CBN also disclosed that the court awarded £70,000 cost in favour of Nigeria in addition to an earlier award of £1.5 million.

Income of Nigerians households decline – NBS

  • The NBS has reported that the total income of over 67% of households declined in August, when compared to the same period in August 2019. Across the three main income-generating activities (wages, agriculture, and non-farm enterprises), there was a significant decrease in income compared to last year. A decline in income was highest for non-farm family business activities at 65% of households, compared to 58% for agriculture (household farming, livestock or fishing); and 43% for wage employment.

Equities Market

The Nigerian Bourse closed bullish last week as the ASI improved by 2.53% week-on-week to close at 26,985.77 points, while year-to-date returns closed at 0.54%.

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

DANGOTE Dangote Cement Plc. results for HY’2020 showed that revenue increased by 1.95% from N467.73 billion in HY’2019 to N476.85 billion in HY’2020. Gross profit dipped marginally by 0.05% from N274.56 billion in HY’2019 to N274.43 billion in HY’2020, due to a 4.79% increase in cost of sales. Operating profit advanced from N170.50 billion in HY’2019 to N173.48 billion in HY’2020, reflecting a growth of 1.75%. The growth recorded in operating profit can be attributed to a 123.13% increase and 3.32% decline, recorded in other income and selling and distribution expenses, respectively. Profit before tax also rose by 4.74% from N155.49 billion in HY’2019 to N162.85 billion in HY’2020, due to a 121.77% increase in finance income. Profit after tax advanced by 5.79% from N119.24 billion in HY’2019 to N126.14 billion in HY’2020. Consequently, EPS grew by 6.28% to N7.45 in HY’2020 from N7.01 in HY’2019. Dangcem has a BVPS of N43.39, P/BV of 3.32x and P/E ratio of 9.66x.

While Dangote operates in the construction sector for which we maintain a negative growth outlook, the company however is well insulated from the existing recessionary drivers that are expected to blight the industry. During the lockdown Dangote was able to continue operations in their single largest cement production plant in Obajana, Kogi, and was also able to sustain their distribution channels. Furthermore, to compensate for an expected decline in demand, cement producers have implemented an organized increase in their cement prices. Hence, we expect the 2020 PAT to increase marginally to N206 billion, while the EPS should move to N12.

WAPCO – Lafarge Africa Plc. HY’2020 results showed that revenue grew by 2.25% from N117.89 bn in HY’2019 to N120.54 bn in HY’2020. Similarly, gross profit went up by 5.70% to N41.71 bn in HY’2020 from N39.46 bn in HY’2019. The growth in gross profit was driven by the growth in revenue. Profit from operations rose by 17.81% from N27.85 bn in HY’2019 to N32.81 bn in HY’2020, due to an 30.64% and 9.93% decline in administrative expenses and selling and distribution expense, respectively. Profit before tax grew by 86.09% to N28.76 bn in HY’2020 from N15.45 bn in HY’2019, on the back of a 66.77% decline in finance cost. Profit after tax rose by 47.29% from N15.84 bn in HY’2019 to N23.33 bn in HY’2020, despite a 1,506% increase in taxes. Consequently, earnings per share increased by 158.93%, from N0.56 in HY’2019 to N1.45 in HY’2020. Wapco has a BVPS of N21.91 P/BV of 0.69x and P/E ratio of 5.22x.

Wapco is expected to shield itself from the adverse impacts of the Covid-19 pandemic, as the company has been able to sustain their revenue during the lockdown by leveraging an organized price increase of their cement product to fill the shortfalls left by reduced demands. This aggressive revenue growth strategy has also been met with effective cost reduction tactics, both of which will support a full year growth similar to what was seen the first half of the year. Accordingly, we expect to see the PAT cross N28.00 billion, hence, taking the EPS above N10.00.

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

Thank you.

Click here for our Weekly Market Review & Stock recommendation.

Read more...
Scroll Up