Market Review for the week ended January 10th, 2020
Last week, the local bourse continued its bullish start to the new year, recording gains in all the five trading sessions. As a result, the All-Share Index (ASI) gained 2,446.60 absolute points, representing a 9.07% upturn to close at 29,415.39 points. However, the Market Capitalization gained ₦2.15 trillion, representing a 16.55% rise to close at ₦15.17 trillion, as a result of the delisting of the entire issued share capital of A.G. Leventis on Tuesday and the listing of 33.86 billion ordinary shares of 50 kobo each of BUA Cement Plc at
₦38.45 per share on Thursday (after the ratification of its merger with CCNN).
The uptrend was impacted by gains recorded in medium and large capitalized stocks, amongst which are; DANGCEM (+21.13%), PRESCO (+19.79%), LIVESTOCK (+18.00%), OKOMUOIL (+16.81%), CHIPLC (+16.67%), FLOURMILLS (+16.46%) and 45 others.
Outlook for the week ending January 17, 2020
Though we anticipate seeing some profit taking by speculative investors in the early part of this week, we believe the market still has an attractive valuation to drive positive performance. Hence, we expect the market to close positive this week.
Dangote Cement
- Dangote Cement is Africa’s leading cement producer with three plants in Nigeria and operational facilities in 9 other African countries.
- The group has a total installed capacity of 45.6Mta across the 10 African countries where it operates, with the Nigeria arm (29.3Mta) accounting for 64.25% of its total production capacity.
- Despite a modest 1% decline in revenue as reported in its recent 9M 2019 financial results, the group still boast of an attractive 18% Return on Equities (RoE), which is 2.5x higher than the industry average of 6.9%.
- Nonetheless, we believe the recent move by the management of the group to repurchase 10% of its current issued shares (which is subject to shareholders ratification in early 2020) from the market over the next 12-months (if approved) holds positive for existing investors, as this will help improve long term shareholders value.
- Our 12-months target price for DANGCEM is ₦210.00, which represents an upside potential of 22.09% given Friday’s closing price of ₦172.00
Fidelity Bank
- Fidelity Bank is a leading tier-II lender in Nigeria with presence in major cities and commercial centres across Nigeria. The bank currently services over 4.2 million customers across its 231 business offices and various digital banking channels.
- The bank enjoys a good credit rating from top credit rating agencies such as Global Credit Rating (GCR) Company and Fitch, with both assigning a “Stable” outlook on the bank’s short-term and long-term credit position.
- In its recent 9M 2019 financial statements, the bank grew both its Gross Earnings and PAT by 15.87% and 20.19% to ₦161.05bn and ₦21.46bn respectively compared to the corresponding period of 2018. Sequel to this, the bank’s 9M EPS rose by 19.4% to 72K as against 62K in 9M of 2018.
- Fidelity bank has a book value of ₦7.65. This implies that the stock is currently trading at a discount of over 238.6% given its current price of ₦2.26.
- The bank also has an attractive RoE and P/E ratio of 9.68% and 3.0x respectively, compared to that of many of its industry peers.
- Our 12-months target price for Fidelity is ₦2.80, which represents an upside potential of 23.89% given the current market price of ₦2.26.
Seplat Petroleum Development Company (SPDC)
- Seplat Petroleum Development Company (SPDC) Plc is one of the leading Oil & Gas Companies in Nigeria, with six wholly-owned subsidiaries (5 in Nigeria and 1 in the UK).
- SPDC Plc in December 2019 completed the acquisition of Eland Oil & Gas Plc at a cost of N174.2bn, and this has further enhanced its footprint in Nigeria with opportunities for higher scale, diversification, and growth.
- Its production capacity in Nigeria was also boosted with an additional three oil wells that were completed in 2019, and two more is expected to be completed in 2020.
- In its recent 9M 2019 financial results, though the group’s revenue declined by 12.6% to ₦151.88bn compared to same period of 2018, its Net Income grew by 102.6% to ₦56.65bn (vs. 9M 2018) as a result of a lower tax rate (1.84%) used for the computation of its income tax compared to the 57% rate used in the corresponding period of 2018. This also led to a 102% improvement in its 9M EPS to ₦99.60 as against ₦49.20 in the corresponding period of 2018.
- It has a Book Value of 921.35x which is higher than the current market price of ₦589.50
Our target price is ₦720.00, representing a premium of 22.14% return over the closing price of ₦589.50 as at Friday, 10th January 2020
Chemical and Allied Products (CAP) Plc
- Chemical and Allied Products (CAP) Plc, a subsidiary of UAC of Nigeria Plc (UACN), manufactures and distributes paints, personal and household products, crop protection and public health products. The company also provides decoration and renovation services.
- According to its recent 9M 2019 earnings result, the company grew its Revenue and Net Income by 7.2% and 0.2% to ₦5.78bn and ₦1.23bn respectively compared to the same period of 2018.
- Though its 9M 2019 EPS of ₦1.75 is the same as that of the corresponding period of 2018, CAP plc is known to be a regular dividend-paying stock with dividend yield (11.60% as at 2018) higher than the current returns on 1-year money market instrument.
- Our target price for CAP plc is ₦30.20, representing a premium of 20.80% return over the closing price of ₦25.00 as at Friday, 10th January 2020.
United Bank for Africa Plc
- UBA remains one of the most reputable tier-I banks in the Nigeria business landscape.
- Its strong branch networks within Nigeria, and presence in the USA, UK, France and some Africa Countries, has positioned it for continuously improved performance.
- In its recent 9M 2019 results, the bank grew its Gross earnings and Net Income by 14.2% and 32.3% to ₦428.22bn and ₦81.63bn respectively compared to 9M 2018, while Asset size rose by 1.87% to ₦4.96 trillion compared to 2018 position.
- It has a Book Value of 16.24x which puts the current market price at a discount. The bank has a Current Ratio of 1.13:1, which implies that it can easily meet its short term liquidity needs without being distressed.
- Our target price for UBA is ₦12.50, representing a premium of 48.81% returns over the closing price of ₦8.40 as at Friday, 10th January 2020.
GTI Securities Ltd