Market Review for the week ended January 17th, 2020
Last week, the Nigerian equity market experienced profit-taking in the early days before rallying to close strong in the last two trading sessions. This was as some investors’ exited position in some major bellwethers.
In summary, the All-Share Index (ASI) gained 203.13 absolute points, representing a 0.69% growth to close at 29,618.52 points. Similarly, the Market Capitalization gained ₦81.76 billion, representing a 0.54% increase to close at ₦15.26 trillion following the voluntary delisting of 10.37 billion ordinary shares of Continental Reinsurance Plc from the daily official list of the NSE, after the conclusion of the acquisition of CRe Nigeria by CRe Africa Investment Ltd.
Top performing stocks for last week were: FO (+21.89%), MTNN (+9.14%), GUARANTY (+4.85%), UBA (+4.76%), UACN (+4.39%), WAPCO (+2.60%), FLOURMILL (+2.17%), ZENITHBANK (+2.06%), DANGCEM (+1.74%) and WEMABANK (+1.04%).
Outlook for the week ending January 24, 2020
We expect to witness a see-saw performance this week as investors with short term objectives take profit on a number of stocks that have seen significant price appreciation in the last three weeks. Nonetheless, we expect the market to end the week on a positive note as portfolio investors continue to cherry-pick in the equity market owing to the declining yields in the money market.
Guaranty Trust Bank Plc
- Guaranty Trust Bank Plc remains one of the most reputable tier-I banks in Nigeria, with deposit size of over ₦2.50 trillion as at Q3’ 2019. The Bank also has an Asset Base of over ₦3.52 trillion (given Q3’19 result) in Nigeria, 8 other African countries and the United Kingdom.
- In its recent 9M 2019 results, the bank grew its Net Interest Income and Profit After Tax (PAT) by 1% and 3% to ₦172.9bn and ₦147.0bn respectively compared to 9M 2018.
- Besides, the bank has a Non-Performing Loan ratio of 5.6% (as of Q3’2019), which is one of the lowest in the Nigeria Banking Industry.
- The bank boast of a strong Return on Equity (RoE) of 23.08% compared to the industry average of 15.8%, and a current ratio of 1.22:1.
- Our target price for GUARANTY is ₦ 40.00, representing a premium of 19.40% returns over the closing price of ₦33.50 as at Friday, 17th January 2020.
Chemical and Allied Products
- 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, 17th January 2020.
Dangote Sugar plc
- 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 target price for DangSugar is ₦21.80, which represents an upside potential of 48.81% given last Friday’s price of ₦14.65.
Nigerian Breweries Plc
- 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 2.78x its 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 target price for NB is ₦85.00, representing an upside potential of 66.34% from the current price of ₦51.10.
Wema Bank Plc
- Wema Bank Plc remains one of the most popular tier-II lenders in Nigeria with an operating network of over 150 business offices across the country.
- The bank operates with an asset of ₦611.58bn and customers deposit of ₦478.50bn as at 9M 2019.
- In its recent 9M 2019 financial report, the bank grew both its Gross Earnings and Net-Income by 32.3% and 54.6% to ₦64.8bn and ₦4.1bn respectively, compared to the corresponding period of 2018. Also, the bank in 9M 2019, grew in its Earnings per Share (EPS) by 56% to ₦0.14 as against ₦0.09 in 9M 2018.
- It has a Book Value of 1.39x which is more than twice its current market price.
- Our target price for WEMABANK is ₦N1.00, representing a premium of 38.89% returns over the closing market price of ₦0.72 as at Friday, January 17th, 2020.