Weekly Report and Stock Recommendation

Weekly Market Review & Stock Recommendations – March 29, 2021

Dear Client/Reader,

Global Economic Roundup

Crude oil rates drop as Covid-19 lockdown concerns outweigh Suez Canal disruptions

•  Oil prices skidded around 2% as fuel demand concerns re-emerged alongside fresh coronavirus pandemic lockdowns, trimming overnight gains spurred by the grounding of a giant container ship blocking crude shipments through the Suez Canal.

Companies raise record $140bn in US junk bond market in first quarter

•  Corporations have issued $140bn within the US junk bond market over the previous three months, outpacing a file sprint for money within the second quarter of 2020 when teams raced for funding to outlive the shock of coronavirus.

CBN holds MPR at 11.5%, other parameters constant

        • The Monetary Policy Committee (MPC), of the Central Bank of Nigeria (CBN),               has voted to retain the Monetary Policy Rate (MPR) at 11.5%.

Equities Market

The Nigerian Bourse closed bullish last week as the ASI advanced by 2.17% week-on-week to close at 39,216.20 points. Year-to-date returns closed at -2.62% at the end of the week.

Some of our recommended stocks are mentioned below;

FBNH PLC :

First Bank being the premier bank in West Africa has undoubtedly witnessed change over time. FBNH is one the major companies that was forecasted to support the 2020 20.50 percent growth for the financial services sector, as FBNH leveraged their diversified business model, to prop up their revenue from other sources, during the heat of the pandemic. 

The FY’2020 result of FBNH Plc showed that;

  • Profit before tax grew by 3.76% from N75.29 billion in FY’2019 to N78.11billion in FY’2020.
  • Net interest income went down by 8.19% from N279.59 billion in FY’2019 to N256.69 billion in FY’2020.  
  • The growth in Profit before tax can be attributed to a 190.50% and 18.94% increase in net gains on sale of investment securities and fees and commission income.
  • Profit after tax grew by 10.40% from N208.84 bn in FY’2019 to N230.57 bn in Q4’2020, due to a 26.57% decline in income tax expense.  
  • Earnings per share grew by 11.79% to N2.18 in FY’2020 from N1.95 in FY’2019.
  • FBNH has a BVPS of N21.05, P/BV of 0.36x and P/E ratio of 3.49x

PRESCO PLC :

PRESCO recent move to expand its existing Palm Oil mill from 60 ton/hour to a 90 ton/hour milling plant by year-end 2020, construction of a new 60 ton/hour Palm Oil mill in Sokoban estate, which is to be completed in 2023, and expansion of the company’s palm kernel oil plant to 350 ton/day (current capacity: 60 ton/day), will support their topline growth in subsequent quarters.

The FY’ 2020 result of PRESCO Plc result showed that:

  • Revenue increased by 21.22% from N19.72 bn in FY’2019 to N23.91bn in the current period.  
  • Gross profit went up by 11.29% to N14.16 bn in FY’2020 from N12.72 bn in FY’2019.
  • Profit before tax rose by 59.92% to N8.95bn in FY’2020 from N5.59 bn in FY’2019, supported by an 28.07% decline in finance cost.
  • Profit after tax advanced by 108.57% from N3.37 bn in FY’2019 to N7.04 bn in FY’2020. 
  • Earnings per share grew by 108.57%, from N3.37 in FY’2019 to N7.03 in FY’2020. 
  • Presco has a BVPS of N32.92, P/BV of 2.28x and a P/E ratio of 10.67x. 

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

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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.

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Weekly Market Review & Stock Recommendations – September 28, 2020

Dear Client/Reader,

Global Economic Roundup

Oil declines owing to demand concerns globally

  • Oil slipped on Friday and was on track for a more than 2% weekly decline due to mounting worries about resurgent coronavirus infections crushing fuel demand and as Libyan crude exports resume.

Weekly jobless claims (US) rise unexpectedly as stimulus boost fades

  • The Labor Department reported that initial jobless claims for the week ending Sept. 19 were at 870,000. Economists polled by Dow Jones expected first-time claims to come in at 850,000, down slightly from the 860,000 claims reported for the previous week.

Domestic Economic Roundup

CBN reduces MPR from 12.5% to 11.5%

  • The Monetary Policy Committee reduced the MPR from 12.5% to 11.5%. They adjusted the asymmetric corridor, from +200/-500 to +100/-700 basis points around the MPR. The committee retained CRR at 27.5%, stating that the recent inflationary pressures is not driven by monetary policies, rather as a result of structural policies

Petrol supply drops by over 23% due to decline in consumption

  • The total volume of petrol supplied in Nigeria declined by 23.88% in July, when it fell from 1.34 billion litres in June 2020 to 1.02 billion litres. Experts in Agusto & Co, in a report, have noted that the impact of the COVID-19 pandemic on economic activities in the country resulted in a decline in the consumption of petroleum products.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI improved by 2.92% week-on-week to close at 26,319.34 points.

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

ZENITH – The HY’2020 result of Zenith Plc showed that Interest income advanced by 1.10% from N214.60 bn in HY’2019 to N216.95 bn in the current period. Net interest income increased by 10.45% to N157.41 bn in HY’2020 from N142.52 bn in HY’2019. The increase in net interest income was driven by the rise in interest income and a 17.40% drop in the interest expense. Likewise, profit before tax advanced by 2.19% from N111.68 bn recorded in HY’2019 to N114.12 bn in the current period. The growth in profit was driven by a 174.01% and 30.45% increase in other operating income and trading income, respectively, but subdued by a 74.18% hike in impairment charge and a 39.97% fall in net fees and commission income. Profit after tax grew by 16.81% from N88.88 bn in HY’2019 to N103.83 bn in HY’2020, due to a 54.82% decline in income tax expense. Consequently, earnings per share went up by 16.61% from N2.83 in HY’2019 to N3.30 in HY’2020. The company proposed an interim dividend of N0.30. Zenith has a BVPS of 31.50, P/BV of 0.55x and P/E ratio of 2.62x.

Zenith remains the leading tier-1 lender based on the size of their tier-1 capital; hence, they are well equipped to sit through a recession, and stage a post-covid recovery. The company is expected to grow tepidly this year, as the strength of their balance sheet should withstand headwinds that derive from the Covid-19 pandemic. Accordingly, the company is expected to maintain its PAT above N200 billion and maintain their dividend payment at the same level from last year’s.

FIDELITY – 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 0.22x and P/E ratio of 2.44x.

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.

Regards.

Thank you.

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Weekly Market Review & Stock Recommendations – September 21, 2020

Dear Client/Reader,

Global Economic Roundup

OPEC+ urges full conformity with production cuts.

·         Crude oil was under pressure on Friday and in a position to close lower for a second consecutive week on growing demand worries and an unexpected rise in U.S. stockpiles that raised new concerns about oversupply.

Fed holds rates steady near zero; indicates it will stay there for years.

•       Fed said short-term rates would remain targeted at 0%-0.25%. They equally changed their economic forecasts to reflect a smaller decline in GDP and a lower unemployment rate in 2020. They now see a full-year GDP decline of 3.7%, considerably better than the 6.5% drop forecast in June.

Domestic Economic Roundup

Nigeria’s inflation rate hits 13.22% in August 2020, highest in 29 months.

•       Nigeria’s inflation rate rose to 13.22% in August 2020, highest recorded in 29 months, since March 2018 (13.24%). This was due to an increase in prices of Passenger transport by air, Hospital services, bread and cereals, potatoes amongst others.

CBN to increase loans to agricultural sector to 10% of total bank credit.

•       The CBN said the country needs to increase its bank credit to the agricultural sector by over 50% within the next 4 years to boost food production. This is expected to drive the allocation to the sector to 10% of the entire credit in the banking sector from the current 4%.

Equities Market

The Nigerian Stock Exchange closed bearish last week as the ASI declined by 0.08% week-on-week to close at 25,572.57 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 1.20x and P/E ratio of 6.19x.

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% in 2020, following the 8.78% contraction in Q2, it has been observed that the demand for sugar has remained high, hence, allowing Dangote Sugar to 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 1.04x and P/E ratio of 4.92x

The financial services sector grew by 28.41% in Q2, and is projected to grow by 20.50 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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Weekly Market Review & Stock Recommendations – September 14, 2020

Dear Client/Reader,

Global Economic Roundup

Oil Markets Face Bearish Blowback   

·         Crude oil was under pressure on Friday and in a position to close lower for a second consecutive week on growing demand worries and an unexpected rise in U.S. stockpiles that raised new concerns about oversupply.

Used cars drive U.S. consumer prices higher in August

·         U.S. consumer prices rose solidly in August, with the cost of used cars and trucks increasing by the most in more than 51 years likely as Americans shunned public transportation because of fears of contracting COVID-19.

Domestic Economic Roundup

Inflation rate will hit 14.15% as deficit financing rises — CBN

·         The country’s inflation rate which stood at 12.82 per cent in July may rise up to 14.15 per cent by the end of December 2020 as the Federal Government’s deficit rises due to current economic challenges in the country.

Oil marketers now free to fix prices, says PPPRA

·         The Federal Government is no more going to be releasing guiding price bands for the sale of petrol at filling stations; hence, oil marketers are now free to fix prices.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI declined by 0.05% week-on-week to close at 25,591.95 points.

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

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 N21.86, P/BV of 0.59x and P/E ratio of 4.41x.  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.      

PRESCO – 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 1.52x and a P/E ratio of 5.58x. 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.

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

Thank you.

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Weekly Market Review & Stock Recommendations – September 07, 2020

Dear Client/Reader,

Global Economic Roundup

Oil Under Pressure as Bearish News Mounts   

·         Crude oil futures are trading lower on Friday, with prices headed for their biggest weekly decline since June, amid weak demand and ample fuel supplies.

Payrolls rises by nearly 1.4 mn as unemployment rate tumbles

·         Nonfarm payrolls increased by 1.37 million in August and the unemployment rate tumbled to 8.4% as the U.S. economy continued to climb its way out of the pandemic downturn.

Domestic Economic Roundup

Nigeria records N1.8tn trade balance deficit – NBS

·         Nigeria recorded a trade balance deficit of N1.8tn at the end of the second quarter.

Economic activities rebounded in August, says report

·         The recovery in the Nigerian private sector gathered momentum in August as demand improved following the easing of restrictions related to the coronavirus disease.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 1.17% week-on-week to close at 25,605.64 points.

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

STANBIC – Stanbic Plc HY’2020 showed an increase in bottom-line result as profit for the period grew by 24.72%. Interest income declined by 9.30% from N60.78 bn in HY’2019 to N55.13 bn in the current period. Net interest income went down by 4.48% from N39.31 bn in HY’2019 to N37.55 bn in HY’2020. Profit before tax advanced by 17.37% from N44.65 bn in HY’2019 to N52.41 bn in the current period. The increase in profit before tax is attributable to a 94.63% increase in trading income, and supported by declines in key expenditure line items, such as; the fees and commission expense and operating expense, which both went down by 5.41% and 3.06%, respectively. Profit after tax went up by 24.72% from N36.25 bn in HY’2019 to N45.20 bn in the current period, due to a 14.31% decline in income tax expense. Consequently, Stanbic recorded a 22.51% increase in earnings per share from N3.42 in HY’2019 to N4.19 in HY’2020. The company proposed an interim dividend of N0.40. Stanbic has BVPS of N32.03, P/BV of 1.19x and P/E ratio of 4.53x. Stanbic is expected to contribute to a forecasted financial industry growth of 20.50%, by leveraging their diversified business structure to hedge against losses specific to a certain business area. Just like other banks that maintain a hold-co. structure, the company would compensate for any decline recorded in their interest income from their other revenue streams, just as we witnessed in their half year results. Accordingly, we expect their PAT by year’s end to reach N82 billion, taking the EPS above N7.      

DANGCEM – 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 3.09x and P/E ratio of 8.99x. 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.

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

Thank you.

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Weekly Market Review & Stock Recommendations – August 31, 2020

Dear Client/Reader,

Global Economic Roundup

Bullish EIA Inventory Report Pushes Oil Prices Higher   

·         Crude oil price rallied further last week after the EIA reported a crude oil inventory draw of 4.7 million barrels for the week to August 21.

U.S. Jobless Rate Set to Return to Single Digits

·         America’s labor market probably extended its rebound in August to push the unemployment rate below 10% for the first time since the pandemic struck.

Domestic Economic Roundup

Foreign capital flows into Nigeria tumble by $4.56bn

·         Foreign capital inflows into Nigeria fell by $4.46bn to $1.29bn in the second quarter of this year from $5.85bn in Q1, the National Bureau of Statistics said on Friday.

Naira gains, exchanges for N470/$

·         The naira gained slightly on Friday, exchanging for N470/$ in the parallel market in the evening, after selling at N476/$ in the morning.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 0.35% week-on-week to close at 25,309.37 points.

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

MTNN – MTNN’s HY’2020 results showed an increase in revenue by 12.54% from N566.99 bn in HY’2019 to N638.08 bn in HY’2020. Operating profit advanced from N189.40 bn in HY’2019 to N204.54 bn in HY’2020, reflecting an increase of 7.99%. The growth in operating profit was buoyed by a 20.28% and 20.67% decline in roaming costs and advertisement, sponsorship and sales promotion, respectively. However, there were increments in numerous expenditure line items which subdued operating profit growth, notably; direct network and technology operating costs and cost of handset and other accessories, both increased by 23.67% and 68.65%, respectively. PBT fell by 1.99% from N142.40 bn in HY’2019 to N139.57 bn in the current period, due to a 27.66% decrease in finance income and a 26.22% rise in finance cost. PAT fell by 4.68% from N99.54 bn in HY’2019 to N94.88 bn in HY’2020, due to a 4.26% surge in taxes. EPS dipped by 4.70% to N4.66 in HY’2020 from N4.89 in HY’2019. Following the 15.09% growth seen in the ICT sector in Q2, we maintain our 12 percent growth forecast for 2020, as the services provided have received increased traction due to the lockdown orders effected to tackle the pandemic. MTNN is the largest firm in the ICT sector and will be the major sponsor of the growth. The lockdown imposed to curb the spread of the COVID-19 pandemic continues to give support to the company’s top-line, as the revenue from data and voice calls is expected to increase by over 50 percent this year. Accordingly, we expect to witness growth in the bottom-line of the company, as the profit after tax is expected to climb past N220 billion, while the earnings per share should move past N11.00 by year’s end.     

UNILEVER – Unilever Nigeria Plc. HY’2020 results showed that revenue declined by 35.91% from N42.66 bn in HY’2019 to N27.34 bn in the current period. This decline was due to the slowdown witnessed in both their food products and home/personal care revenue sources, as their performance was hampered by the weakened purchasing power of consumers in the economy. Similarly, gross profit fell by 45.74% to N6.16 bn in HY’2020 from N11.35 bn in HY’2019, despite a 32.35% decline in cost of sales. The firm recorded a decline of 136.62% in operating profit from N3.85 bn in HY’2019 to -N1.41 bn in the current period, and this was majorly driven by a 196.80% increase in impairment loss. Profit before tax declined by 112.07% to -N566.80 mn in the current period from N4.70 bn in HY’2019, due a 29.33% decline in finance income. Consequently, profit after tax fell by 114.77% from N3.52 bn in HY’2019 to -N519.11 mn in the current period. The firm recorded an 114.75% decline in earnings per share from N0.61 in HY’2019 to -N0.09 in the current period. Unilever Nigeria is currently experiencing the negative effects of the lull in business activities in February and March due to movement restrictions across the country. The fall in the purchasing power of individuals also contributed to the company’s falling topline, as their Food Products and Home & Personal Care revenue segments declined by 29% and 43%, respectively. Following the 8.78% Q2 contraction seen in the manufacturing industry, the outlook for the entire sector remains grim, with a full year growth forecast of 5.10%. Unilever remains unshielded from the slowdown in the sector and the entire economy; hence, we maintain a negative outlook for the firm.

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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.

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Weekly Market Review & Stock Recommendations – August 17, 2020

Dear Client/Reader,

Global Economic Roundup

IEA Sees 2020 Oil Demand Down 8.1 Million Bpd  

·         The International Energy Agency expects crude oil demand this year to be 8.1 million bpd lower than it was in 2019, a downward demand forecast revision of 140,000 bpd, the authority said in its latest Oil Market Report.

U.S. retail sales slow in July; obstacles mount for nascent economic recovery

·         U.S. retail sales increased less than expected in July as consumers cut back on purchases of motor vehicles, and could slow further in the months ahead amid spiraling new COVID-19 infections and a reduction in unemployment benefit checks.

Domestic Economic Roundup

Naira exchanges for 475/$ as forex scarcity persists

·         The naira on Friday exchange to the dollar at 475/$ at the parallel market as foreign exchange scarcity persisted.

Nigeria’s unemployment rate 27.1% in Q2 –NBS

·         More than a quarter of Nigeria’s workers were not in the labour force in the second quarter of this year, the National Bureau of Statistics said on Friday, in the country’s first unemployment data published since 2018.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 0.63% week-on-week to close at 25,199.84 points.

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

FBNH – FBNH Plc HY’2020 results showed an increase in the bottom-line as profit for the period grew by 23.84%. Interest income however declined by 4.31% from N216.76 bn in HY’2019 to N207.42 bn in the current period. Net interest income went down by 7.35% from N141.69 bn in HY’2019 to N131.28 bn in HY’2020, due to the drop in interest income and a 1.44% increase in interest expense. The company recorded a 14.70% increase in operating profit from N36.23 bn in HY’2019 to N41.55 bn in the current period. The increase in operating profit is attributable to a 16.41% and 183.05% increase in net fees and commission income and trading income, respectively. Also, impairment charges increased by 38.65% from N22.11 bn in HY’2019 to N30.65 bn in HY’2020. Profit before tax advanced by 14.26% from N36.25 bn in HY’2019 to N41.42 bn in the current period. Profit after tax went up by 23.84% from N28.78 bn in HY’2019 to N35.65 bn in the current period. Consequently, the company recorded a 60.71% increase in EPS to N1.35 in HY’2020 from N0.84 in HY’2019. FBNH has a BVPS of N19.62, P/BV of 0.25x and P/E ratio of 1.85x. FBNH is one the major companies that would support a forecasted 8.50 percent growth for the financial services sector, as FBNH is expected to leverage their highly diversified business model, to prop up their revenue from other sources, such as; their trading income and other income. This would enable them sustain their profitability even during this current pandemic. The company is poised to record the strongest growth margin of all tier one banks, with the PAT crossing the N80 billion mark, hence taking the EPS past N2.  

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 N21.86, P/BV of 0.54x and P/E ratio of 4.05x. 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.

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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.

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