Weekly Report and Stock Recommendation

Dear Client/Reader,

Global Economy

• Oil prices fell to their lowest since the third quarter of 2017 on Friday closing at $52.20 per barrel, as global oversupply kept buyers away from the market.
• Euro zone headline inflation was at the European Central Bank target in November and the inflation measure crucial for monetary policy decisions eased again after rising the previous month
• Britain’s housing market has slowed since the country voted to leave the European Union in June 2016, and other surveys this month have shown anxiety among consumers and businesses ahead of the planned departure on March 29
• The seasonally adjusted unemployment rate in Japan rose to 2.5 percent, from 2.4 percent in October, while jobs-to-applicants ratio rose to 1.63 from 1.62 in October figures from the Ministry of Internal Affairs and Communications showed last week.

U.S. – A measure of U.S. consumer confidence posted its sharpest decline in more than three years in December, rattling investors already nervous about the prospect that a global economic slowdown was spilling over into the United States.

Equities Market- The Nigerian equities market closed positive last week, as the ASI increased by 0.86% w/w to close at 31,037.72  points, while the year-to-date returns settled at -18.84%.     

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

ZENITH – Zenith bank has the best dividend pay-out ratio among banking stocks with expectation of about 10% in FY’18 also supported by its low current share price at N23.00 which is lower than our estimated intrinsic value of N32.68, we consider this point to be a good point for investors to take a medium to long term investment position on the stock of Zenith bank Nig Plc.  Zenith Plc. 9M’2018 result showed a marginal increase in profit before tax and profit after tax as they both increased by 3.3% and 3.4% respectively. PAT increased to N121bn from N117bn recorded in 9M’2017. Although, gross earnings declined by 15% y/y from N479bn in 9M’2017 to N408bn due to reduction in interest income (-12%) and trading income (-35%). Growth seen in PBT can be attributed to drop in interest expenses (-36%) y/y from N149bn in 9M’2017 to N95bn and a 68% decline in impairment loss on financial asset, that dropped to N12.8bn from N39.8bn (YoY). EPS for the period however grew by 3% to N3.86 as against N3.74 in 9M’2017. Conclusively, we still maintain our medium to long term “BUY” recommendation on the stock of Zenith. Zenith has CAR of 27% higher than tier 1 minimum of 15%.

FCMB – We still maintain our medium to long term “BUY” recommendation on the stock of FCMB Plc.  as its  9M 2018 result showed an impressive PBT growth of 121% y/y from N6.7 bn in 9M’17 to N14.8 bn. The key driver behind the PBT growth was the growth of 165% y/y in trading income and 152% improvement in other income on the back of massive gains in foreign exchange transactions that increased from N428 mn in 9M’17 to N9 bn in the current period, which were strong enough to offset the increase recorded in operating expense by 15% y/y. Non-interest income (NIR) also increased by 66% y/y to N37.5 bn (9M’17; N22.5 bn) while also noting a decline of 9% in interest expenses which reduced to N42.2 bn (9M’17; N46.4 bn). Consequently, Earnings per share spiked massively by 104% y/y from N0.28 in 9M’17 to N0.57 in the current period. FCMB has CAR of 17.4% higher than tier 2 minimum of 12.5%, BVPS of 9.04, P/BV of 0.14X, P/E of 2.54X against banking average of 1.01x and 3.04x. FCMB still has an upside potential of about 27% from our estimated intrinsic value of N2.47.

Please find attached our Stock Recommendation for this week, ending 4^th January, 2019.

Thank you.

Dear Client/Reader,

Global Economy

• OPEC finally broke an impasse over production curbs, agreeing on a larger-than-expected cut with allies after two days of fractious negotiations in Vienna. The cartel and its partners agreed to remove 1.2 million barrels a day from the market, with OPEC itself shouldering 800,000 barrels of the burden
• Euro zone manufacturing activity expanded at its weakest rate in over two years in November as new orders contracted for a second month, further evidence the bloc’s economic growth is past its peak while Policymakers at the European Central Bank are due to draw a line under their 2.6 trillion euro asset purchase programme at the end of the year.
• Uncertainty about the terms of Brexit next March clobbered British services firms last month, leaving the economy at risk of contracting as the IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) fell to 50.4 from 52.2 in October, the weakest reading since just after the 2016 Brexit vote and below all forecasts
• Japanese manufacturing activity expanded at the slowest pace in two years in November and new orders contracted for the first time since September 2016, a preliminary survey showed, raising doubt about growth prospects for the current quarter.

U.S. – The U.S. trade deficit jumped to a 10-year high in October as soybean exports dropped further and imports of consumer goods rose to a record high, suggesting the Trump administration’s tariff-related measures to shrink the trade gap likely have been ineffective.

Equities Market- The Nigerian equities market again depreciated slightly at the end of the week, as the ASI decreased by 0.02% w/w to close at 30,866.82 points, while the year-to-date returns settled at -19.29%.     

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

TOTAL – The topline result of Total Plc. 9M’18 showed a slight movement of 2.58% in revenue that increased to N226.9bn from N221.2bn that was recorded in 9M’2017. The cost of sales for the period also reduced by 1.34% (YoY) from N198.6bn to N196bn. The marginal increase of 2.58% in Revenue and decline of 1.34% recorded in cost of sales pushed gross profit up by 37% from N22.6bn to N31bn.The firm reported a decline of 69% in other income resulting from foreign exchange loss of about N902 mn as against N2.6bn recorded in 9M’17. However, Profit before tax increased by 18.2% from N9.7bn in 9M’17 to N11.4bn while Profit after tax for the period also grew by 29% to N7.7bn as against N6bn recorded a year ago. Eps currently stands at N22.58 up by 29% from N17.54 while the company declared a dividend of N3 per share. We expect performance to be stable for the remaining part of the year especially with the stability in crude oil prices. With an estimated fair value of N240.84 , we place a “BUY” recommendation on the shares of Total Nig Plc.

UBA – UBA 9M-18 result indicated a 13% growth in Interest income that increased from N238 billion to N269 billion. Net impairment loss reduced by 13% from N13bn in 9M-17 to N10.7 billion for the current period while Fees and commission for the period appreciated by 20% from N58 billion to N69 billion in 9M’2018. Profit for the period however increased slightly by 1.28% from the N60.9billion previously recorded to N61.7 billion in the current period. The slight increase in net profit can be attributed to the 20% rise in fees and commission expenses as well as the 17% decline in impairment charges. EPS however declined faintly by 1% as it currently stands at N1.72 as against 9M’2017 of N1.74. We still anticipate a modest performance from the firm for the remaining part of the year as reduction in impairment loss is expected to boost net profit. UBA has CAR of 23% which is well above the 15% level for tier 1 banks and it also has a good dividend payment history with a projected DPS of about N0.87 per share in FY 2018. The stock’s current price which is close to its 52 week low and also lower than our estimated intrinsic value of N10.64, we maintain our “BUY”.

Please find attached our Stock Recommendation for this week, ending 14^th December, 2018.

Thank you.

Dear Client/Reader,

Global Economy

• Oil prices steadied on Friday as swelling inventories depressed sentiment despite widespread expectations that the Organization of the Petroleum Exporting Countries (OPEC) and Russia would agree some form of production cut as the two global oil benchmarks, North Sea Brent and U.S. crude, have had their weakest month for more than 10 years in November, losing 28 percent and 30 percent respectively as global supply has outstripped demand.
• Euro zone inflation slowed as expected in November, while core inflation readings were below market expectations, supporting European Central Bank policymakers who favour a cautious exit from monetary stimulus.
• Lending to British consumers slowed again last month to its weakest rate in more than three years, but there was a pick-up in the housing market with a jump in mortgage approvals, as reported by bank of England.
• Japanese manufacturing activity expanded at the slowest pace in two years in November and new orders contracted for the first time since September 2016, a preliminary survey showed, raising doubt about growth prospects for the current quarter.

U.S. – U.S. consumer spending increased by the most in seven months in October, but underlying price pressures slowed, with an inflation measure tracked by the Federal Reserve posting its smallest annual increase since February.

Equities Market- The Nigerian equities market again depreciated at the end of the week, as the ASI decreased by 2.54% w/w to close at 30,874.17 points, while the year-to-date returns settled at -19.27%.    

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

FCMB – FCMB Plc. results for 9M’2018 showed an impressive PBT growth of 121% y/y from N6.7 bn in 9M’17 to N14.8 bn. The key driver behind the PBT growth was the growth of 165% y/y in trading income and 152% improvement in other income on the back of massive gains in foreign exchange transactions that increased from N428 mn in 9M’17 to N9 bn in the current period, which were strong enough to offset the increase recorded in operating expense by 15% y/y. Non-interest income (NIR) also increased by 66% y/y to N37.5 bn (9M’17; N22.5 bn) while also noting a decline of 9% in interest expenses which reduced to N42.2 bn (9M’17; N46.4 bn). Consequently, Earnings per share spiked massively by 104% y/y from N0.28 in 9M’17 to N0.57 in the current period. FCMB has CAR of 17.4% higher than tier 2 minimum of 12.5%, BVPS of 9.04, P/BV of 0.14X, P/E of  2.54X against banking average of 1.01x and 3.04x. FCMB currently has an upside potential of about 70% from our estimated intrinsic value of N2.47, we therefore maintain our medium to long term “BUY” recommendation on the stock.

SEPLAT – Seplat 9M’2018 result showed revenue increased by 104% to N173bn as against N85bn in 9M’2017. The substantial rise in revenue was due to increase of 99% and 48% in crude oil and gas sales while Cost of sales also increased from N47 bn to N80 bn. Despite the rise in cost of sales, gross profit increased by 146% from N38 bn to N93.5 bn. The company maintained the top line impressive performance as PAT stands at N27.9bn as against N1.6bn loss in 9M’2017. With the recent renewal of its operating license coupled with continuous plan of the company to boost profitability and increase operation by drilling its first well in its OML 53 asset and to redeploy rigs into it other oil fields at OMLs 4, 38 and 41, we are of the view that Seplat will maintain its impressive performance for FY’2018. With the current price at its 52 week low of N589.50, we thereby place a medium to long term “BUY” on the stock of Seplat Plc with an estimated intrinsic value of N744.69.

Please find attached our Stock Recommendation for this week, ending 7^th December, 2018.

Thank you.

Weekly Report and Stock Recommendation 03122018