Market Review for the week ended January 3rd, 2020
Last week, the Nigeria equity market had an excellent start to the New Year, as both market performance indices, the NSE-ASI and Market Capitalization, closed green in all the four trading sessions. This we believe was driven by early positioning by investors (mostly for regular dividend-paying stocks) in anticipation of better Q4’19 earnings results as against the many unimpressive performances in Q3’19.
In summary, the All-Share Index (ASI) gained 552.31 absolute points, representing a 2.09% upturn to close at 26,968.79 points. Similarly, the Market Capitalization gained ₦266.93 billion, representing a 2.09% rise to close at ₦13.02 trillion. The upturn was impacted by gains recorded in medium and large capitalized stocks, amongst which are; ETI (+9.45%), TRANSCORP (+8.16%), SEPLAT (+7.71%), UBA (+7.14%), FBNH (+5.60%), ZENITH BANK (+4.62%) and 38 others.
Outlook for the week ending January 10, 2020
In anticipation of the release of the full year 2019 earnings result by many of market players in the coming weeks, we expect to see increased positioning by portfolio investors, supported by the declining yields on both fixed income instrument and fixed deposit account. As such, we expect the market to close positive next trading week.
GTI TOP-5 WEEKLY STOCK PICKS FOR THE PERIOD 06/01/2020 – 10/01/2020
Access bank has over the years re-positioned itself to become one of Nigeria’s systemic banks. The bank currently holds the records of being Nigeria’s biggest bank based on asset size ($18.35bn) and the one with the highest number of retail customers (31 million) since post-merger with Diamond Bank.
The bank operates through a network of more than 600 branches and service outlets across 12 countries including The United Kingdom, UAE, China, India, and Lebanon.
In its recent Q3 2019 financial report, the bank grew both it’s Gross and Net- Income by 48.39% and 44.23% respectively compared to the corresponding period of 2018.
It has a current Book Value of 17.30x which is above its existing market price. In terms of meeting short term obligations, the bank is strong, with a Current Ratio of 1.10:1, which implies it can conveniently meet its short term obligations.
Our target price for Access bank is ₦12.50, representing a premium of 23.15% returns over the closing market price of ₦10.15 as of Friday, January 3rd, 2020.
Flour Mills Nigeria Plc is a market leader in the food and agro-allied products Industry in Nigeria.
The group has continued to build on works on backward integration in the core value chain; sugar sweeteners, edible oils, feeds & proteins and cassava starches.
The group also has a business presence in the Logistics & Support industry, which has helped strengthen its product distribution network across the country.
In its recent 6M 2019 financial reports, the group grew its Revenue and PAT by 0.38% and 16.78% respectively compared to the corresponding period of 2018. This also led to a 22.4% improvement in its EPS to 153k as against 125k in the corresponding period of 2018.
The book value of the group’s share price is ₦37.06, which is near twice its current market price.
Our 12-months target price for Flour Mills is ₦26.00, representing 31.65% upside potential from the current market price of ₦19.75.
Despite the numerous challenges posed by Nigeria’s unstable macro- environment in the last five to six years, Zenith bank plc has continued to set the pace in terms of posting strong gains year-in, year-out.
In its recent Q3 2019 financial report, Zenith bank Gross and Net-Income grew by 3.51% and 4.54% respectively compared to the corresponding period of 2018.
Besides, Zenith bank ranks in the list of the few Nigeria banks with Liquidity (74%) and Capital Adequacy (25%) Ratios settling above the prudential levels of 30% and 15% respectively.
The bank has a Current Ratio of 1.17:1, which signifies that it can easily meet all its short term liquidity obligations.
Zenith bank has a Non-performing loan ratio of 5.7% as of Q3 2019, which is one of the very lowest in the Nigeria banking industry.
Also, the bank boast of a strong Return on Equity (RoE) of 17.3% compared to the industry average of 15.8%, and its current Book Value of 27.77x shows that its share is currently trading at a discount of around 45% given the current price of ₦19.25.
Our 12-months target price for Zenith Bank is ₦24.70, which represents an upside potential of 28.31% to the closing market price of ₦19.25 as at close of the transaction on Friday, January 3, 2020.
Nigeria Breweries (NB) is the market leader of the brewing industry in Nigeria with about 59% market share as of Q3 2019.
Despite threats of increasing competition, high-cost operating environment, and weak consumer purchasing power, NB has continued to sustain a positive growth performance through a strategic partnership with several ancillary industries which provides it with cost-effective raw and packaging materials for its production processes.
NB has varieties of products brand that can serve the needs of any income class, and its reliable distribution network across Nigeria and other West African region give it an edge over competitors.
According to its Q3 2019 earnings result, NB grew its revenue by 1.93% to
₦259.92bn but saw a 17% decline in PAT to ₦12.28bn owing mainly to the effect of excise duties on its alcoholic products.
Despite the impact of this knee-jack development, the current share price of the firm which is just about 2.80x it’s Book Value signals its current cheap valuation, given that historically, the share price of the firm average about 4.5x its Book Value in the last six years.
Hence, with the expectation of improvement in consumer purchasing power in the new year (as minimum wage implementation gained traction across states), there is a high likelihood for the earnings and price of the firm’s share to see reasonable improvement.
Our 12 months target price for NB is ₦85.00, representing an upside potential of 51.52% from last Friday’s price of ₦56.10.
Dangote Sugar plc, a subsidiary of the Dangote group is the largest sugar refinery in Sub-Saharan Africa with an installed capacity of 1.44MT per annum.
In order to expand its production capacity to 1.5MT in the next 5-10 years while halting sugar cane importation, the firm under its backward integration drive has continued to pump investment into local sugar plantation spanning over 150,000 hectares of land.
In its recent 9M 2019 financial statements, Dangote Sugar grew its revenue by a modest 0.60% (to ₦117.42bn) compared to the corresponding period of 2018 but saw a 12% decline in PAT due largely to a 72% decline in Investment Income (owing to lower yields environment in 2019 compared to 2018).
Nevertheless, we anticipate improved performance for the company, going forward, given the recent moves by the federal government to root out smuggling of goods (including, sugar) into Nigeria – a major factor that has remained the bane of the company from reaching its full potential.
Our 12-months target price for DangSugar is ₦21.80, which represents an upside potential of 53.52% given last Friday’s price of ₦14.20.