Market Review for the week ended February 14th, 2020
The Nigerian equity market last week, sustained losing streak, as bearish sentiment prevailed in three of the five trading sessions following persistence sell-off on market bellwether stocks. In summary, the All-Share Index (ASI) shed 311.22 absolute points, representing a 1.11% decline to close at 27,755.87 points. Also, the Market Capitalization lost ₦162.10 billion, representing a 1.11% decrease to close at ₦14.46 trillion.
The downturn was impacted by losses recorded in medium and large capitalized stocks, amongst which are; NESTLE (-10.00%), JAPAULOIL (-9.09%), INTBREW (-8.82%), STERLNBANK (-7.69%), NEM (-5.56%), OANDO (-4.17%), DANGSUGAR (-4.10%), HONYFLOUR (-2.73%), ETERNA (-2.33%), ACCESS (-1.02%), MTNN (-0.85%), FBNH (-0.83%), ZENITH BANK (-0.76%), and UBA (-0.65%).
Outlook for the week ending February 21, 2020
Amid the uninspiring earnings results posted so far by many of the medium and large capitalized companies, we expect investors’ sentiment to remain flat in the trading week. However, we believe the expected earnings result of the five biggest lenders – First Bank, UBA, Zenith, GTB, and Access (FUZGA) may spark modest buy sentiment if released this week and print strong.
United Bank for Africa Plc (UBA)
- 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 62.34% returns over the closing price of ₦7.70 as at Friday, 14th February 2020.
Seplat Petroleum Development Company (SPDC) Plc
- 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 ₦174.2bn, 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 ₦605.00
- Our target price is ₦720.00, representing a premium of 19.01% returnover closing price of ₦605.00 as at Friday, 14th February 2020.
Dangote Cement Plc
- 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 target price for DANGCEM is ₦210.00, which represents an upside the potential of 23.53% given Friday’s closing price of ₦170.00.
United Africa Company of Nigeria (UACN) Plc
- United Africa Company of Nigeria (UACN) Plc is a leading conglomerate company in Nigeria with operations in 6 principal sectors including Real Estate.
- Recently, UACN Plc announced plans to unbundle its UACN Property Development Company (UPDC) Plc subsidiary as a stand-alone legal entity by way of recapitalization and restructuring, that involves UACN interest in UPDC, and UPDC’s interest in UPDC Real Estate Investment Trust (UPDC-REIT). After the unbundling exercise, each current shareholder of UACN will hold shares in the three different entities (UACN, UPDC, and UPDC-REIT), while benefitting from their performances separately as against the current module of declaring cumulative profit/loss.
- In its recent FY 2019 earnings result, UACN as an entity grew its Revenue and PAT from continuing operation by 9.66% and 11.17% to ₦83.96bn and ₦6.11bn respectively as against the corresponding period of 2018. However, collectively, the group (UACN & UPDC) recorded a 3.66% Loss After Tax (LAT) of ₦9.23bn from discontinued operations (compared to ₦9.58bn loss in FY’18) as a result of the ₦15.34bn loss recorded by UPDC in FY’19.
- Nevertheless, we believe the unbundling of UPDC from UACN will eliminate the negative spillover effect of the former on the shareholders’ wealth of the latter in the near term.
- Our target price for UACN is ₦11.05, representing a premium of 22.78% return over the closing price of ₦9.00 as at Friday, 14th January 2020.
Fidelity Bank Plc
- 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 FY 2019 financial statements, the bank grew both its Gross Earnings and PAT by 15.05% and 28.51% to ₦217.31bn and ₦29.46bn respectively compared to the corresponding period of 2018. Sequel to this, the bank’s FY EPS rose by 29.11% to ₦1.02 as against 79K in FY of 2018.
- Fidelity bank has a book value of ₦8.07. This implies that the stock is currently trading at a discount of over 375.20% given its current price of ₦2.15.
- The bank also has an attractive RoE and P/E ratio of 12.61% and 2.11x respectively, compared to that of many of its industry peers.
- Our target price for Fidelity is ₦2.80, which represents an upside potential of 30.84% given the current market price of ₦2.14.