Weekly Report and Stock Recommendation

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.

Click here for the full report.

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.

Thank you.

Click here for the full report.

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.

Click here for the full report.

Dear Client/Reader,

Global Economic Roundup

Oil prices edges up on weak dollar, U.S.-China tensions weigh   

·         Oil prices edged higher on Friday, supported by a weaker dollar, though tensions between the United States and China weighed. China ordered the United States to close its consulate in the city of Chengdu on Friday, responding to a U.S. demand this week that China close its Houston consulate.

Weekly claims turn higher as Covid-19 jobs crisis deepens

·         The number of Americans who filed for unemployment benefits rose more than expected last week as the coronavirus pandemic inflicted more damage to the U.S. economy.

Domestic Economic Roundup

Non-oil export earnings rise to $1.21bn

·         Non-oil export earnings through banks rose to $1.21bn in the first quarter of 2020. The Central Bank of Nigeria disclosed this on Friday in its first quarter economic report, titled ‘Non-oil export earnings by exporters.’

FG plans N4.28tn loan for N12.66tn 2021 budget

·         The Federal Government has proposed N12.66tn as aggregate expenditure for the 2021 fiscal year on a deficit of N5.16tn.

Equities Market

The Nigerian Stock Exchange closed bullish last week as the ASI advanced by 0.58% week-on-week to close at 24,427.73 points.

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

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 9.01x. 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.

STANBIC – Stanbic Plc Q1’2020 showed an increase in bottom-line result as profit for the period grew by 7.58%. Interest income declined by 11.83% from N31.14 bn in Q1’2019 to N27.46 bn in the current period. Net interest income went down by 8.26% from N20.19 bn in Q1’2019 to N18.52 bn in Q1’2020. Profit before tax advanced by 3.85% from N23.51 bn in Q1’2019 to N24.42 bn in the current period. The increase in profit before tax is attributable to a 10.90% and 47.14% increase in fees and commission income and trading income, respectively Profit after tax went up by 7.58% from N19.15 bn in Q1’2019 to N20.60 bn in the current period, due to a 12.55% decline in income tax expense. Consequently, Stanbic recorded a 7.58% increase in EPS from N1.81 in Q1’2019 to N1.91 in Q1’2020. Stanbic has BVPS of N30.54, P/BV of 0.98x and P/E ratio of 3.93x. Stanbic is expected to contribute to a forecasted financial industry growth, 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. Accordingly, we expect their PAT by year’s end to reach N82 billion, taking the EPS above N7.

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